Ever since the Myanmar military launched a coup on 1 February 2021, the country’s economy has been in virtual freefall. The costs of essential food items continue to rise, while a recent UNDP report predicts the country's poverty headcount will return to levels not seen since 2005. And matters have not been helped by external events impacting the Myanmar economy, such as the ongoing COVID-19 pandemic
and price hikes in oil owing to the Russian invasion of Ukraine.

But could the economic situation in Myanmar be poised to get even worse? Could we soon see the comprehensive implosion of the Myanmar economy along the lines of what we are currently witnessing in Sri Lanka?

The streets of Sri Lanka have in recent weeks been the scene of fierce clashes between protesters and security forces, as a severe shortage in foreign currency has left Colombo unable to pay for essential imports. As a result, Sri Lankans are being forced to queue for hours to purchase food, medicine, and fuel.

Inflation has also soared with the devaluation of the Sri Lankan rupee. The central bank of Sri Lanka said inflation stood at 30 per cent in April, with food prices up nearly 50 per cent. The country’s foreign reserves have further dropped precipitously, diminished by 70 per cent over the past two years, while foreign debt has skyrocketed – driven in part by Chinese loans for big infrastructure projects.

And the situation has not been helped by the COVID-19 pandemic restrictions, which has drastically reduced the amount of foreign exchange that could normally be projected from industries such as tourism, and remittances from abroad – similar repercussions have battered the Myanmar economy.

Could Myanmar thus be poised to mirror the bleak picture of economic collapse taking place in Sri Lanka?

Two months before the 2021 military coup, Myanmar's foreign exchange reserves stood at $7.8 billion.

While current data is unavailable, the figure is likely considerably less in the face of the impact from the COVID-19 pandemic, domestic unrest, and economic sanctions. With a foreign debt of around $11 billion, there stands an ominous, and growing, gap between foreign debt and foreign exchange reserves – with a distinct risk of Nay Pyi Taw’s defaulting on payments.

And there are growing signs that Nay Pyi Taw is fully aware of the potential looming catastrophe.

Just last month, in a bid seemingly aimed at shoring up the junta’s foreign exchange reserves, the junta announced that Myanmar citizens must convert all foreign exchange holdings into the local currency, kyat. And to compound matters for Myanmar’s citizens, the forced conversion utilizes the official rate of 1,850 kyat to the US dollar, which is well below the black-market rate of over 2,000 to the US dollar.

Coup leader General Min Aung Hlaing has also recently spoken of the need for Burmese to increase their self-reliance and curtail consumption. The announcement is eerily similar to a Sri Lankan government edict to ban the import of chemical fertilizers, calling on farmers to use organic (local) methods to save the government import expenditure. The measure only worsened the food situation, and the ban was eventually lifted.

Confronted with a burgeoning external debt, the response of Myanmar’s generals has been to approve further Chinese financed infrastructure projects – an estimated $4.8 billion worth since the 2021 coup – while kowtowing to Chinese economic interests in Myanmar’s extractive resources and other businesses.

To be sure, the Myanmar economy was already showing cracks in its foundation well before the coup. The country failed to meet several original projections for economic growth in the years preceding the coup and the COVID-19 pandemic restrictions placed further strain on the economy – forcing business closures and humbling the garment, construction, and tourist industries. But the 2021 coup and actions
of the junta have only poured fuel onto the fire.

Armed conflict between Myanmar’s Tatmadaw and resistance forces (EAOs, PDFs, etc.) is rising daily.

Particularly hard hit are Sagaing Region, Chin State, Karen State, Karenni State, Magwe Region and Kachin State – with the looming potential for hostilities in Rakhine State. The armed clashes have greatly impaired the normal economic cycles of the regions affected. In large parts of Sagaing Region, the second largest region of the country, agricultural cultivation and production has come to a standstill, while many youth from Sagaing Region villages have already joined the resistance forces.

And the growing intensity of the conflict over the last year has produced hundreds of thousands of IDPs and sent people fleeing to the Thai and Indian borders. In April 2022, the UNOCHA said that “one out of every 100 citizens of Myanmar became displaced by conflict” in the nearly 15 months since the junta seized power, putting the total number of internal refugees at a staggering 912,700.

As a result, there are growing signs of an imploding economy, even while Myanmar’s illicit economy is enjoying something of a revival. The World Bank, in January of this year, described Myanmar has having “a critically weak economy, around 30 percent smaller than it might have been in the absence of COVID-19 and the February 2021 coup.” The same report found that half of Myanmar businesses had experienced some disruption to their supply chain owing to the sharp depreciation of the kyat.

Considering the increasing cost of imports, rapidly diminishing foreign reserves, a projected 4 to 5 per cent contraction of real GDP growth for fiscal year 2022, and declining value of the kyat – not to mention ongoing armed conflict, the possibility of another Sri Lanka scenario seems very much on the cards.
 
Confronted with this bleak forecast, will China bail out Myanmar’s junta and the crumbling Burmese economy? Perhaps tellingly, Beijing has thus far balked at coming to the aid of Sri Lanka. This despite considerable Chinese interests in Sri Lanka in both infrastructure and the island nation’s strategic location in the growing struggle for dominance in the Indian Ocean theatre – characteristics shared by Myanmar.

But unless Beijing is willing to foot the bill for the hugely unpopular Myanmar regime that may not survive to repay its debts, it is becoming increasingly likely that what we see in Sri Lanka today is but a foreshadowing of further calamities to befall Myanmar in the coming months or years.