The tourism sector has suffered from a stampede of cancellations beginning in China. Now, most tourists from all other countries have decided to stay at home. The income from tourism is quite substantial, US$1.7 billion or 2.5 percent of GDP in 2018. Back then, Myanmar was the fastest-growing destination in the world, and even the negative international coverage of the Rakhine crisis did not deter the 40pc year-on-year increase in tourist arrivals - until the outbreak of COVID-19.

Meanwhile, the garment industryhas experienced serious disruptions in supply chains originating in China, on which 90pc of inputs are dependent. Last week, 13 garment factories, including three being built, closed down their operations, laying off more than 5,000 workers who will not easily find alternative jobs. The whole industry, which employs over half million workers, faces the same fate.  

At the same time, 70pc of populations who live in rural areas are also suffering from the economic flu as a result of Chinese restrictions to border trade. Over 90pc of Myanmar’s top export commodities such as maize, watermelons and bananas are dependent on the Chinese market. Perishable agriculture exports, which make up 40pc out of US$6 billion worth of exports to China, have come to a near halt.

Consequently, the impact of COVID-19 has been severe on farmers and traders.  Just before the outbreak, farmers were already struggling from the collapse of rice exports to China after the country tightened border control against illegal rice trade.   

Back then, farmers had hoped for a rebound of income from winter crops as the Chinese authorities exercise less stringent measures on these products during that season.   But COVID-19 has wiped out demand, so the farmers got a second shock to their income instead.

With rising prices of consumer goods and production costs, stakeholders are now turning to the government for leadership.  Last week, the Union of Myanmar Chambers of Commerce and Industry issued a 10-point statement calling for economic assistance from the government and trade unions have followed suit.  Demands include a range of previous requests from low interest rates, loan deference and tax cuts on new proposals such as government-backed unemployment compensation and unpaid leave policies.  

Based on experience, Myanmar has shown resilience in dealing with economic shocks such as during the aftermath of natural disasters and economic sanctions. Under each crisis, the economy recovered quickly.   

However, the hidden strength of the economy was China, which continued to invest in Myanmar since early 1990s. China is by far the largest investor in in Myanmar, officially committing US$20 billion worth of investments across the country, followed by Singapore, Thailand and Hong Kong.

But with Chinese investments now in lock-down due to COVID-19, most BRI-related capital flows will be delayed at best, thus depriving Myanmar of a reliable source of external funds.

A potential halt in export revenues and foreign capital inflows can tip the economy into a full-blown economic crisis on three fronts.  

The first crisis is exchange rate volatility. Since the beginning of the current fiscal year in October 2019, the Myanmar kyat has risen in value against the dollar. The outbreak of COVID-19 has led to a dramatic appreciation of the local currency, which has risen 10pc against the dollar in two months. 

This reflects less demand for dollars as the economy slows down. The unexpected rally around the kyat could trigger a collapse in the export sectors, further undermining the drop in manufacturing and agriculture exports.

Second, the banking sector will also come under pressure. According to the World Bank, the net profits of private banks went negative for the first time in a decade as their ability to lend at a profit is severely limited by high interest rates required by the Central Bank of Myanmar. The high borrowing costs had already hurt domestic industries and stopped private credit flows even before the crisis.  

A prolonged crisis over a quarter or two could result in many firms going bust, delay the recapitalisation of private banks and exacerbate bank fragility.  

Finally, the COVID-19 can offset significant portions of economic growth as the combination of demand and supply disruptions ripple across the economy. 

The Myanmar economy has yet to experience disruptions to the workforce asCOVID-19 has not resulted in a public emergency response. At this point, international financial institutions expect a slight 0.2 percentage point cut in the GDP growth rate. 

That can change dramatically if COVID-19 is detected in Myanmar and causes severe disruptions and panic reactions. In 2015, severe floods and landslides led to a 1 percentage point drop in growth.

As such, economic policy makers should anticipate the worst-case scenario and prepare timely responses. 

Myanmar should heed the advice of Dr Tedros Adhanom, head of the World Health Organization, who encouraged governments to “demonstrate (high level political) commitment (against) the level of threat we all face.” 

Myanmar does have a step-by-step guideline under the National Plan of Action on Health Security, which was updated in 2018. The country also has experience recovering from severe shocks such as Cyclone Nargis in 2008 and floods and landslides in 2015. Back then, the apex authority under the National Natural Disaster Management Committee was activated to oversee response and recovery plans.

Shifting the focus from emergency health measures to a whole-of-government approach in building the coalition for strategic preparedness can mitigate any further disruptions under the prevailing circumstances. It will also enable Myanmar to effectively deal with bigger blows to the economy. 

Zaw Oo is an economist who served as Special Coordinator for Recovery Planning of the Government of Myanmar during the 2015 crisis of floods and landslides.

Ref: Myanmar Time