Report No. 93050-MM MYANMAR NOVEMBER, 2 0 1 4 Ending poverty and boosting shared prosperity in a time of transition A SYSTEMATIC COUNTRY DIAGNOSTIC 2 | World Bank Report ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank MOHT Ministry of Hotels and Tourism AIDS Acquired Immunodeficiency Syndrome MNPED Ministry of National Planning and Economic ASEAN Association of Southeast Asian Nations Development ATM Automated Teller Machine MP Member of Parliament CBM Central Bank of Myanmar MPLCS Myanmar Poverty and Living Conditions Survey CEDAW Committee on the Elimination of Discrimination against MPT Myanmar Posts and Telecommunications Women MSE Microfinance Supervisory Enterprise CESD Center for Economic and Social Development MSME Micro Small Medium Enterprise CESR Comprehensive Education Sector Review NGO Non-Governmental Organization CPF Country Partnership Framework NRC National Registration Card CSO Civil Society Organization NSDS National Strategy for the Development of Statistics DB Defined Benefit NTM Non-Tariff Measures DFID Department for International Development OECD Organization for Economic Co-operation and DSA Debt Sustainability Analysis Development DTIS Diagnostic Trade Integration Study OOP Out-Of-Pocket DU Delivery Unit PEFA Public Expenditure and Financial Accountability EAP East Asia Pacific PER Public Expenditure Review EITI Extractive Industries Transparency Initiative PFM Public Financial Management EMIS Education Management Information System PPP Public-Private Partnership ESIA Environmental and Social Impact Assessment PSC Production Sharing Contract EU European Union QSEM Qualitative Social and Economic Monitoring FAB Farmland Administration Body SABER Systems Approach for Better Education Results FDI Foreign Direct Investment SCD Systematic Country Diagnostic FESR Framework for Economic and Social Reform SEE State Economic Enterprise FIL Financial Institutions Law SEZ Special Economic Zone GDP Gross Domestic Product SIDA Swedish International Development Agency HIV Human Immunodeficiency Virus SIM Social Impact Monitoring HRD Human Resource Development SLORC State Law and Order Restoration Council ICA Investment Climate Assessment SLRD Settlement and Land Records Department ICT Information and Communications Technology SME Small and Medium Enterprise IDP Internally Displaced People SMP Staff Monitored Program IFC International Finance Corporation SNA System of National Accounts IHLCA Integrated Household Living Conditions Assessment SOE State Owned Enterprise IHLCA-2 Integrated Household Living Conditions Assessment - 2 SP Social Protection ILO International Labor Organization STEPS Skills for Training, Employment, Progression and IMF International Monetary Fund Self-development INGO International Non-Governmental Organizations SWG Sector Working Group IPP Independent Power Producer TSI Trade Support Institution IRD Internal Revenue Department TVET Technical and Vocational Education and Training JICA Japan International Cooperation Agency UMEHL Union of Myanmar Economic Holdings Limited JMP Joint Monitoring Program UN United Nations KIO Kachin Independence Organization UNCTAD United Nations Conference on Trade and Development KNU Karen National Union UNDP United Nations Development Programme LSCI Liner Shipping Connectivity Index UNICEF United Nations Children’s Fund LUC Land Use Certificate UNODC United Nations Office on Drugs and Crime MADB Myanmar Agricultural Development Bank USA United States of America MDRI Myanmar Development Resource Institute USD United States Dollar MEB Myanmar Economic Bank USDA United States Department of Agriculture MEC Myanmar Economic Cooperation USDP Union Solidarity and Development Party MFI Micro Finance Institution VFV Vacant, Fallow, and Virgin MIC Myanmar Investment Commission WASH Water, Sanitization and Hygiene MICS Multiple Indicator Cluster Survey WB World Bank MIGA Multilateral Investment Guarantee Agency WBG World Bank Group MOE Ministry of Education WDR World Development Report MOF Ministry of Finance WHO World Health Organization MOH Ministry of Health WTO World Trade Organization 10 I. Country context C. Economic growth, setting the stage 13 structure, and transformation D. Rationale for a Systematic Country Diagnostic 16 10 A. The transformation of Myanmar’s polity, economy, and society 17 E. Conceptual framework for the Myanmar SCD 6 B. Country’s economic F. Sources of information, EXECUTIVE SUMMARY situation and historical context 11 consultations, and quality of data 17 20 II. A profile of POVERTY in myanmar 21 25 D. Vulnerability to A. The incidence of poverty poverty and the extent of inequality 23 B. The spatial distribution of poverty E. A taxonomy of the poor and what it C. Characteristics of the poor and the correlates and causes of poverty 24 suggests about pathways out of 25 poverty 27 III. PATHWAYS OUT OF POVERTY and intervention areas 28 A. Strategic Framework for Inclusive and Sustainable Growth B. The Government’s reform program 28 51 29 C. Critical next steps IV. KNOWLEDGE GAPS, IMPLICATIONS, AND 1. Considerations in identifying priority PROPOSPED ANALYTICAL intervention areas and sequencing 29 WORK AGENDA 29 2. Identified areas of intervention 3. Rationale for interventions 30 54 BIBLIOGRAPHY 4 | World Bank Report LIST OF BOXES Box 1: Myanmar’s Unique History and Circumstances 12 Box 2: What is an SCD? 16 Box 3: Overview of key data issues in Myanmar 17 Box 4: The Myanmar SCD consultations process 19 Box 5: Comparing Myanmar’s rice yield data with other countries in the region 45 LIST OF FIGURES Figure 1: Myanmar real GDP growth rate, 2005/06-2013/14 13 Figure 2: Growth rates for comparator countries, 2012/13 13 Figure 3: Recorded export value and composition 14 Figure 4: Level and composition of exports 14 Figure 5: Sector GDP Shares 15 Figure 6: Agricultural Employment Shares 15 Figure 7: Informal Employment 15 Figure 8: Conceptual Framework for Ending Poverty and Boosting Shared Prosperity 17 Figure 9: A large fraction of the population is clustered around the poverty line 22 Figure 10: Small changes in the poverty line lead to large changes in poverty rates 22 Figure 11: Inequality in Myanmar is relatively low 22 Figure 12: Inequality varies within Myanmar 22 Figure 13: Poverty rates and number of poor in 2009/2010, by agro-ecological zone 23 Figure 14: Poverty rates and number of poor in 2009/2010, by states and regions 24 Figure 15: Access to basic services 24 Figure 16: Land and poverty in rural Myanmar 24 Figure 17:Poverty risk by ethno-linguistic group in 2009/2010 25 Figure 18: Pre-requisites, Pathways, and Key Intervention Areas for Poverty Reduction and Shared Prosperity 30 Figure 19: Recent trends in Government Revenues 37 Figure 20: Government revenues across countries 37 Figure 21: Health expenditure shares 38 Figure 22: Education expenditure shares 38 World Bank Report | 5 Figure 23: Maternal mortality rate, per 100,000 live births 39 Figure 24: Secondary school gross enrollment rate, percentage 39 Figure 25: Share of firms identifying issue as constraint 43 Figure 26: Constraints by size of firms 43 Figure 27: Doing business ranking 44 Figure 28: Logistics performance index 44 Figure 29: Average paddy yield, 2010-2012 45 Figure 30: Rice as a share of total cereal production value 45 Figure 31: Percentage of population with access to electricity 47 Figure 32: Electric power consumption 47 Figure 33: Number of commercial bank branches per 100,000 adults 47 Figure 34: Number of borrowers from commercial banks per 1,000 adults 47 Figure 35: Mobile phone subscriptions per 100 people 48 Figure 36: Internet users per 100 people 48 LIST OF TABLES Table 1: Economic Activity by Sectors of Origin 14 Table 2: Labor Productivity, Constant 2005 US$ 1 14 Table 3: Informal Employment and Poverty 16 Table 4: Myanmar: Selected Economic and Financial Indicators, FY09-17 34 ANNEX: LIST OF TABLES Table A. 1: List of knowledge and data gaps that need to be filled 61 Table A. 2: Summary of SCD consultation meetings and key focus areas identified by stakeholders 65 EXECUTIVE SUMMARY World Bank Report | 7 1. Myanmar is going through a critical transforma- rect investment. As Myanmar has been opening up, the tion in its development path - from isolation and dominance of the military and groups associated with fragmentation to openness and integration; and it in the economy has begun receding, yet the shift is a from pervasive state control, exclusion, and indi- gradual one. vidual disengagement, to inclusion, participation, and empowerment.1 This dual shift is happening 5. Myanmar has made some progress in ending armed against a backdrop of broader political reforms that conflicts in the border areas. Bilateral ceasefires have started in 2011 when a new administration took office. been signed with several ethnic insurgent groups that The country’s transition after the planned elections in for decades had been engaged in armed conflict with 2015 will be a major test of the progress on political the central government. However, the situation remains reforms. There remain risks of political instability, policy fragile and a national ceasefire is still under discussion. discontinuity, and stalled reforms due to vested interests. An important recent concern is the recurrent outbreaks of religious violence, primarily targeted at the country’s 2. The country’s history, demography, and geogra- Muslim minorities and particularly at those who identi- phy create a unique set of development challenges fy themselves as Rohingya in Rakhine State. and opportunities: (i) emergence from a long peri- od of international isolation; (ii) widespread poverty, 6. Growth has accelerated since the transition, despite rich land, water, and mineral resource endow- buoyed by improved macroeconomic manage- ments; (iii) a strategic location in the fastest-growing ment, increased gas production and exports, and region in the world, and the only country sharing bor- stronger performance in non-gas sectors due as ders with both India and China, with prospects for rapid the economy opened up. On average, the Myanmar economic growth and “catch-up” improvements in the economy grew at 5.1 percent between 2005/06 and lives of people; (iv) a dominance, albeit slowly reced- 2009/10, and then at an average of 6.5 percent since ing, of the military and associated groups in the econo- the transition. One of the key drivers of this growth has my, and (v) progress towards peace after a long period been the export of natural gas, which is highly capi- of conflict in border areas. tal intensive and not intrinsically inclusive. Manufac- turing, construction, and services have also registered 3. Despite its potential, Myanmar today is one of the strong performance due to the opening up. At the same poorest countries in Southeast Asia. With a popula- time, the contribution of the more labor-intensive agri- tion of 51.4 million, the country has a per capita GDP culture to growth has been small and variable. Overall, of $1,105, and the poverty rate is 37.5 percent, one of notwithstanding significant structural change since the the highest in the region. Among ASEAN countries, mid-1980s, driven by the gas sector, Myanmar’s cur- Myanmar has the lowest life expectancy and the sec- rent economic structure resembles that of a lower in- ond-highest rate of infant and child mortality. Less than come country. In 2012, agriculture still accounted for one-third of the population has access to the electricity 36.4 percent of GDP (and employed over half of the grid, road density remains low, at 219.8 kilometers per workforce), compared to 37.3 percent for services and 1,000 square kilometers of land area, and ICT connec- 26.3 percent for industry. tions are scarce, with mobile phone and internet pene- tration rates at 1.1 percent and 0.3 percent, respectively. 7. This Systematic Country Diagnostic (SCD) aims to Myanmar’s level of development used to be on a par identify priorities for Myanmar to reduce extreme with countries such as Thailand and Malaysia only a poverty and boost shared prosperity. In line with few decades ago; today it is much lower, comparable the WBG’s new country engagement model, the find- with Lao PDR and Cambodia. ings of the SCD will provide inputs for the prepara- tion of the upcoming Country Partnership Framework 4. The low level of development can be traced to (CPF), which will outline the WBG’s engagement to Myanmar’s long history of isolation, conflict, and help Myanmar achieve these twin goals for its mem- military control of political and economic life. For ber countries. Significant information gaps make this most of its post-independence period, Myanmar has exercise a particular challenge. The SCD draws on been under military dictatorship and has been ravaged data from various sources, including a review of ex- by conflict in the ethnic minority border areas. State isting reports on Myanmar, a more in-depth analysis of controls and economic isolation resulted in suppressed the 2009/10 Integrated Household Living Conditions entrepreneurship and a diminished role of the private Assessment (IHLCA) survey data (the most recent sector, stagnating infrastructure and technology, un- survey on poverty and living conditions), information der-developed markets, and low levels of foreign di- from other non-IHLCA surveys such as the Qualitative Social and Economic Monitoring (QSEM) survey, the Investment Climate Assessment (ICA) Enterprise Sur- 1 The term “triple transition” was used to describe the changes in Myanmar since a new administration took office in 2011 - from a mili- vey recently conducted by the World Bank, and exten- tary system to democratic governance; from a centrally-directed, closed sive consultations with stakeholders across the country. economy to a market-oriented one; and from 60 years of conflict to peace Weaknesses in data quality—particularly with regard to in the border areas. This SCD focuses on the “dual shift” toward opening poverty, national accounts and population—constrain and integration, and toward inclusion and empowerment, to highlight the socio-economic changes associated with the triple transition. the analysis in this SCD (see Box 3). 8 | World Bank Report 8. Conceptually, the framework for the Myanmar 12. Ending the poverty of the working poor, both SCD has four elements. First, it determines the pro- “traditional” and “transitional”, will require in- file of the poor in Myanmar, in order to understand their creasing returns to their main asset—their labor. characteristics, where they live, and the drivers of pov- For the majority, the “traditional poor”, who current- erty. Second, it identifies the key pathways for ending ly depend on agriculture for their livelihood, this will poverty and boosting shared prosperity. Third, it deter- mean both raising the returns to agricultural cultivation, mines the constraints that lie along these pathways and while in parallel facilitating their movement from low- hence, fourth, the possible areas of intervention for the er value-added agriculture-related activities to higher country to accelerate progress towards ending poverty. value-added activities off the farm by stimulating pri- vate-sector job creation. For the “transitional” poor, the 9. With an estimated poverty rate of 37.5 percent in opportunities for private-sector led off-farm employ- 2010, Myanmar’s absolute poor overlap with the ment and income generation will be critical. bottom 40 percent. This poverty rate, based on an in- ternationally comparable method of analysis, is higher 13. Investments in human capital and better access to than an earlier estimate of 26 percent using the same quality basic services will be critical to ending the 2009/10 national household survey. Most of the poor poverty of all three groups of the poor — both their live in rural areas (76 percent), and poverty is most income and non-income dimensions of poverty. heavily concentrated in conflict-affected areas: poverty Better access to primary health care, water and sanita- rates in Chin State stand at 71 percent and, in Rakhine tion, electricity, and basic education are important, not at 78 percent, both with substantial numbers of ethnic only to improve well-being, but also to reduce vulner- minorities. Urban poverty (34.6 percent) is higher than ability to poverty, enhance current income generating expected. With a Gini coefficient of 0.29, income in- opportunities and lower the inter-generational perpet- equality in Myanmar is relatively low, compared with uation of poverty. neighboring countries. 14. Lastly, for the “excluded” poor—communities in 10. A range of economic and social factors are respon- remote conflict-affected areas, members of social- sible for driving people into poverty in Myanmar. ly-marginalized groups, families without anyone The key drivers include low labor productivity, and in capable of productive work—a focus on increa- a largely rural society, low agricultural productivity sing the returns to labor is unlikely to be sufficient. (particularly for rice, the country’s main crop), land- By definition, these groups have been or are likely to lessness, erratic rainfall, lack of access to markets due be excluded from or less connected to opportunities to poor rural infrastructure, internecine conflict and for productive economic activity. For these groups the communal violence, and poor government policies. pathways out of poverty will likely have to include spe- Data also show that many households in Myanmar are cific targeted interventions and programs of assistance. vulnerable to unanticipated shocks, which cause them to stay or to fall back into poverty. 15. Grounded in the poverty diagnostic, the SCD iden- tifies two main pathways for ending poverty and 11. The SCD identifies three groups of poor: tradition- boosting shared prosperity in Myanmar. The first al, transitional and excluded poor. The “traditional” pathway entails promoting openness and sustainable poor are heavily concentrated in rural areas, have very private sector-led growth for more jobs. Growth is low levels of education and depend on agriculture for expected to come from a combination of investment, their livelihood, but have limited access to key produc- continued increase in natural resource exports, and tive assets and factors like land and finance. The “tran- increasing productivity. A key over-arching principle sitional” poor often live in urban and peri-urban areas, is ensuring greater participation of the domestic and have transitioned out of traditional rural livelihoods but foreign private sector in the economy (particularly in still work as low-skill casual laborers. Finally, the so- the sectors with greater potential for job creation), fos- cially-marginalized and “excluded” poor are excluded tering integration with the global economy, enhancing from opportunities for productive economic activity labor productivity, and adopting an integrated approach for a range of reasons, including by virtue of ethnicity to the management of its natural resources, particularly and geography. The causes of poverty for each of these the Ayeyarwaddy river basin. The other pathway entails groups are many, with some that are common to all of promoting universal access to basic services and em- them, and some that are specific to each group. powerment for inclusive growth, particularly in rural areas. This pathway will benefit all groups of poor. 16. Priorities for Myanmar to create jobs in manufac- turing and services include opening up the space for foreign and domestic investors and facilita- ting access to domestic, regional, and international markets. One “quick win” will come from removing the remaining policy and institutional constraints to entry by new domestic and foreign private sector investors, World Bank Report | 9 to the expansion of operations by existing investors, have limited access to critical services, extending such and to domestic, regional, and international market services to currently under-served rural areas and dis- access. Some of the required policy and institutional advantaged groups (such as the excluded poor) is im- changes may take time to be carried out or may be po- portant for reducing poverty. Expanding the coverage litically sensitive but most can be implemented in the of the health system and the quality of health services is short to medium term. a priority where action can be immediately scaled-up. Increasing education services and vocational training 17. Increasing agricultural productivity is expected to will also be important although its impact will not be have a high impact on poverty, with much scope realized in the short-term. Interventions for increasing for short term gains. Since the majority of the tra- access to water and sanitation are also likely to have a ditional poor are engaged in agriculture, increasing high impact on poverty reduction. In addition, access to productivity would have a high impact on poverty re- electricity, better rural road connectivity, microfinance, duction as it would increase returns to labor. There is and rural telephone services all will empower the poor huge potential for improvement in Myanmar - wide both by facilitating access to social services and en- deficiency gaps exist in rice yields, diversification, and hancing opportunities to engage in productive income value-addition. Increasing access to land and tenure se- generating activities. curity will support increased agricultural productivity but great care will need to be taken in carrying out land 20. In addition to the two main pathways, the SCD reforms. In the short term, the focus should be on fully identifies four critical pre-requisites for Myan- understanding the nature and scale of the problem, as mar’s development: facilitating the political tran- well as carrying out consultations on the way forward. sition, enhancing social inclusion, maintaining mac- roeconomic stability, and improving public sector 18. Addressing shortages in power, an under-developed capacity and governance for policy making, coordi- financial sector, shortages in skilled labor, and low nation, and service delivery. Continuous action in all supply of ICT services will have a significant impact. these areas will be essential for sustained and inclusive In the short to medium term, it will be important to growth, poverty reduction and shared prosperity. build on efforts already underway to increase overall generation, transmission, and distribution of electricity. 21. Finally, the SCD identifies various knowledge gaps Similarly, significant progress can be made in the short and offers suggestions on future analytical work term in modernizing and deepening the financial sec- to help fill these gaps. For example, there is need for tor. Finally, to ensure long-term sustainability of pov- further work to better understand the extent and nature erty reduction efforts, it will be important for Myanmar of poverty in Myanmar, particularly the situation in the to adopt an integrated approach to the management of border areas, as well as update the poverty numbers. the Ayeyarwaddy river basin and develop a nationally The census that was recently conducted is expected to agreed environmental and social Safeguards frame- provide an updated sampling frame for carrying out a work that is based on best practices. nationally representative IHLCA, to lay the basis for have more credible poverty numbers. Some of the 19. Promoting universal access to critical services and knowledge gaps to be filled will help in identifying extending them to the rural areas and other disad- priorities at a more granular level i.e. priorities within vantaged groups will have a high impact. Given that priorities. most poor people in Myanmar live in rural areas and I. country context setting the stage World Bank Report | 11 A. The transformation of Myanmar’s polity, 4. Some progress has also been made towards ending economy, and society the country’s armed conflicts in the border areas, although the situation remains fragile. Ceasefires 1. Myanmar is going through a critical transfor- have been signed with several ethnic insurgent groups mation in its development path characterized by that for decades had been engaged in armed conflict a dual shift - from isolation and fragmentation with the central government. However, conflict contin- to openness and integration; and from pervasive ues with the Kachin Independence Organization (KIO) state control, exclusion, and individual disengage- in Kachin State, where armed clashes increased in the ment, to inclusion, participation, and empower- first half of 2014 despite the KIO’s participation in dis- ment.2 For over a quarter of a century, Myanmar was cussions about a national ceasefire. In November 2013, under self-imposed isolation from the rest of the world, leaders of ethnic armed groups met at a “Leaders’ Sum- and under economic sanctions by the West. As a result, mit” to consider the government’s proposal to begin a Myanmar’s trade and investment relations have been national ceasefire process (i.e. a roundtable including limited to a few countries in the region that it consid- all 13 armed groups, rather than a series of bilateral ered friendly. Similarly, the country has followed a discussions) and formed a National Ceasefire Coordi- fragmented approach to environmental sustainability, nating Team (NCCT). While subsequent discussions including the management of its key water resource, between the NCCT and the government’s negotiating the Ayeyarwaddy river. At the same time, there has team underlined remaining differences between the been pervasive state interference and dominance in two sides, there remains a shared commitment towards the economic space normally occupied by the private a peaceful solution. sector in other countries while a majority of the poor, particularly in rural parts of the country, have not had 5. An important additional dimension of establish- access to certain critical services and have therefore ing peace and security across the country involves been disempowered to extricate themselves from pov- finding a sustainable solution to address the sys- erty through participation in productive income earn- tematic exclusion of the Muslim minority that ing opportunities. Since the transition started, these identifies itself as Rohingya in Rakhine State. The patterns are being reversed: the country has been open- government considers members of this Muslim minori- ing up to and integrating with the outside world in the ty illegal migrants from neighboring Bangladesh and areas of trade and investment, the state is rolling back does not recognize them as an ethnic group. Following and encouraging greater private sector participation in outbreaks of violence directed against this minority in many areas of the economy, while investments in key the summer of 2012 that killed 89 people and displaced services are being expanded. over 110,000, the government established temporary camps to separate communities and avoid further vio- 2. These critical socioeconomic shifts are happening lence.3 Subsequent violence took place against Muslim against a backdrop of political reforms that started minorities in Rakhine in 2013 and 2014, which spilled in 2011 when a new administration took office. Key over into broader anti-Muslim violence in other parts of milestones in the political transition include the release Myanmar in 2013 and evolved into widespread protests of political prisoners and the opening up of space for against international aid workers in Rakhine in early the opposition through the holding of by-elections in 2014.4 As of January 2014, the number of displaced 2012 that brought in a significant number of opposition persons in Rakhine had reached 140,000.5 MPs into parliament, including the opposition leader, Aung San Suu Kyi. B. Country’s economic situation and historical context 3. Myanmar’s elections next year and the transition 6. Myanmar is one of the poorest countries in the to the next government will be an important test South East Asian region and has certain features for progress with political reforms. An immediate that are unique to its country context (See Box challenge is how the country will deal with calls for 1). In 2013/14, the country’s GDP was estimated at various constitutional amendments, including a provi- US$56.8 billion. Based on the preliminary popula- sion that makes the opposition leader ineligible to run tion figure of 51.4 million from the census conducted for president. in March/April 2014, the country’s per capita income is therefore around US$1,105, one of the lowest in the East Asian region. Analysis of the last nationwide 3 Report of the Special Rapporteur on the Situation of Human Rights in Myanmar, UNOHCHR, August 2012. 2 The term “triple transition” was used to describe the changes in 4 International Crisis Group, Myanmar Crisis Watch, April 2014.< Myanmar since a new administration took office in 2011 - from a mili- http://www.crisisgroup.org/en/publication-type/crisiswatch/crisiswatch-da- tary system to democratic governance; from a centrally-directed, closed tabase.aspx?CountryIDs=%7b7E12FB4D-6C23-449D-AF08-550AD5FD- economy to a market-oriented one; and from 60 years of conflict to peace 2F2E%7d#results> in the border areas. This SCD focuses on the “dual shift” toward opening and integration, and toward inclusion and empowerment, to highlight the 5 Report of the Special Rapporteur on the Situation of Human socio-economic changes associated with the triple transition. Rights in Myanmar, UNOHCHR, September 2014. 12 | World Bank Report Integrated Household Living Conditions Assessment Myanmar’s reforms today and its strategic location in (IHLCA) conducted in 2009/10, found that 26 percent the fastest growing region in the world, between the of the population was living below the poverty line6. two huge markets of China and India, create important New calculations by the World Bank that expand the opportunities for economic development, but also some consumption basket used to determine the poverty line risks. Myanmar is well placed to join the global manu- by including expenditures on health and durable goods, facturing networks that have propelled growth in Asia. and also takes into account spatial differentials in cost A young population and access to the sea provide ad- of living, finds a substantially higher poverty rate of ditional advantages. However, this strategic location, 37.5 percent7 of the population, and a high concentra- along with rich resources, also means that international tion of households living very near the poverty line and powers and domestic vested interests will compete for thus vulnerable to falling into poverty. influence in Myanmar. Myanmar enjoys rich land, mineral and water resourc- Box 1: Myanmar’s Unique History and es. Exports of natural gas to Thailand have been an im- Circumstances portant source of foreign exchange and macroeconomic stability in recent years. Exports of oil are starting and Myanmar’s history, demography, and geography create exploration is underway as the potential for further finds a unique set of development challenges and opportuni- are high. Myanmar also has significant jade and other ties: (i) emergence from a long period of international precious stones, forestry and other resources. Myanmar isolation; (ii) widespread poverty, despite rich land, wa- is blessed with a long coast line and relatively abundant ter, and mineral resource endowments; (iii) a strategic rainfall. However, many of the natural resources are location in the fastest-growing region in the world, and located in border areas and their extraction has contribu- the only country sharing borders with both India and ted to conflicts. Myanmar’s strategic location, rich re- China, with prospects for rapid economic growth and sources, and the interest and conflicts around them put “catch-up” improvements in the lives of people; (iv) a a premium on strong and transparent governance. dominance, albeit slowly receding, of the military and associated groups in the economy, and a fragmented Myanmar has a long history of armed conflict of ethnic society with diverse ethnic and religious groups; and groups along the border with the country’s central au- (v) progressive peace after a long period of conflict in thorities, with entrenched patterns of political, social, border areas. and economic exclusion. There are officially 135 dif- ferent ethnic groups in Myanmar. In addition, although Myanmar is emerging from a long period of isola- a large majority of the population practices Buddhism, tion, with a devastating impact on its economy and the other religions are present too, mainly Christianity, Is- well-being of people. For the past fifty years, private lam, and Hinduism. This ethnic and religious diversity entrepreneurship has been heavily suppressed and dis- has been a source of tensions and conflict in the country. torted: initially, following the military coup in 1962, by The main drivers of exclusion have been religion, eth- widespread nationalization of industries and closure to nicity and citizenship, gender, geography, and conflict. outside markets and investors, then, following attempts There has been long-standing discrimination and mar- at reform in the 1990s, by a focus on natural resource ginalization of non-Buddhists, dating back to colonial extraction controlled by a small, politically connected times became highly visible recently, as deadly reli- elite. Over the past twenty years, this focus on resource gious violence, particularly directed at Muslim minori- extraction was amplified by economic sanctions that ties, erupted in various parts of the country. Significant further limited market opportunities. As a result, mar- parts of the country are not entirely within the Govern- ket institutions and government capacity to regulate ment’s controls. The Government has made significant them are nascent and trade and investment relations progress in reaching agreements with the various ethnic limited, while the country’s human capital has been de- groups along the border, including through the launch pleted, as the education system, once one of the best of a decentralization process, and the successful con- in Asia, withered. While several other countries such clusion of ongoing negotiations will be important for as Vietnam, Cambodia and Laos, have emerged from sustained development and poverty reduction. shorter periods of isolation, Myanmar is one of a hand- ful of countries that has remained largely isolated for Finally, almost unique to Myanmar is an attempt to almost half a century. address the challenges and harness the potential ben- efits all at once. Other transition countries have either not been isolated in the same way, had relatively slow 6 Integrated Household Living Conditions Survey in Myanmar transitions towards democracy or make slow economic (2009-2010): Poverty Profile. Prepared jointly by MNPED, UNICEF, UNDP, transitions. Due to its unique circumstances, Myan- and SIDA, 2011. mar is undertaking multiple challenges simultaneously. 7 The recalculated poverty rate of 37.5 percent has been present- The potential benefits are enormous and the risks are ed to the authorities in Myanmar who have acknowledged the fact that a commensurately high. variation in the measurement methodology shows that poverty may have been higher in 2009/10. However, the official figure remains 25.6 percent as originally published. World Bank Report | 13 7. The low level of development can be traced to Myanmar’s long history of isolation, conflict, and military control of political and economic life. (Box 1) For most of its post-independence period, Myan- mar has been under military dictatorship and has been ravaged by conflict in the ethnic minority border areas. State controls and economic isolation resulted in sup- pressed entrepreneurship and a diminished role of the private sector, stagnating infrastructure and technology, under-developed markets, and low levels of foreign di- rect investment. As Myanmar has been opening up, the dominance of the military and groups associated with it in the economy has begun receding, yet the shift is a gradual one. C. Economic growth, structure, and transformation 8. Real growth has been accelerating ever since the massive destruction caused by hurricane Nargis. Much of that growth was driven by natural resource exports, 10. Myanmar’s international trade is growing rapid- particularly gas. At the same time, the pace of structu- ly from a low base. Myanmar had long been living ral transformation has been limited. Labor productivity in economic isolation due to economic sanctions and has improved, while the reallocation of labor appears to inward-looking policies. The opening up of the econo- have stalled. A carefully designed sequence of policy my and gradual lifting of sanctions have produced and institutional reforms will be needed for Myanmar rapid growth in international trade, with exports and to realize its growth potential. imports of goods and services growing at estimated an- nual average rates of 11 percent and 17 percent, respec- 9. Growth has accelerated since the transition, but tively, between 2008/09 and 2013/14.8 Consequently, the economy had been growing at reasonably en- Myanmar has become the second fastest-growing im- viable rates even before then (See Figure 1 below). porter among ASEAN countries. However, the export On average, it grew at 5.1 percent between 2005/06 response in Myanmar has been slower than it was in and 2009/10 and could have been higher if not for the Vietnam at the start of Vietnam’s transition, especially devastation caused by cyclone Nargis in 2008 when in the rice sector. growth slowed down to 3.6 percent. However, since the transition started, the economy has grown at an av- 11. Exports increased substantially in 2012/13 com- erage of 6.7 percent. pared to 2010/11, with natural gas contributing the largest gains. Exports in 2008/09 were approxi- mately US$7.2 billion, as illustrated in Figure 3. They increased to US$8.8 billion in 2010/11 and at least US$10.3 billion in 2012/13 with US$11.9 billion ex- pected in 2013/14.9 Between 2010/11 and 2012/13, natural gas exports grew by US$1.1 billion, and saw logs and veneer grew by US$0.4 billion, as did textiles, clothing, and footwear.10 Recorded rice exports are min- imal. There are indications of unrecorded exports over land to China in 2012/13 and 2013/14. Nevertheless, weak export performance of non-mineral products af- ter three years of economic liberalization is a matter of concern. There is also an opportunity for future growth if export obstacles can be identified and removed. 8 From IMF Country Reports. The corresponding growth rates for goods based on trading partner data from the UN COMTRADE are 9 percent for exports and 31 percent for imports. 9 Ibid. 10 UN COMTRADE. 14 | World Bank Report (rice) and categories (vehicles).13 It is expected that Myanmar’s exports will move increasingly toward the level and composition seen elsewhere as sanctions are phased out and policies improve. As a sign of normal- ization, the United States suspended sanctions barring U.S. investment in Myanmar in July 2012, and the Eu- ropean Union reinstated trade preferences to Myanmar under the EU’s Generalized System for Preferences for least-developed countries in July 2013. 13. The economic structure of Myanmar is consistent with that of a lower income country. According to of- ficial national accounts estimates for 2010 summarized in Table 1, the agricultural sector employed 52 percent of the workforce and generated almost 37 percent of GDP. The services sector employed 36 percent of the workforce and produced 37 percent of GDP. The in- dustrial sector employed only 12 percent of the workers and generated 26 percent of GDP. The industrial share of employment is low compared to regional outcomes.14 Cambodia and Vietnam have levels of GDP/capita that are close to Myanmar’s. Their industrial employment shares in 2010 were 16 percent and 21 percent respec- tively compared to 12 percent in Myanmar. Table 1: Economic Activity by Sectors of Origin Sources: UN Statistical Division for national accounts, population and percent of population between ages 15 and 64; UNDP IHCLA 2011 for all other data. 12. Trade in Myanmar had been limited by both sanc- Table 2: Labor Productivity, Constant 2005 US$ 1 tions and policy. An Asian Development Bank work- ing paper suggests that Myanmar had been trading at only 15 percent of its potential through 2010.11 Figure 4 shows that exports in 2012, as a share of GDP, were far higher in neighboring countries than in Myanmar.12 For example, Vietnam and Thailand both exported the equivalent of 70 percent of GDP in 2012. Larger countries typically need to export less, given their large internal markets. Thus, India exported 20 percent of GDP while China exported 27 percent of GDP. Figure 4 also shows that the exports from Myanmar’s neigh- bors had a much higher manufactured content. Much of this shortfall was attributed to a lack of trade with 1. Defined as value-added per worker. industrialized economies. Other constraints included 2. Value-added per worker in agriculture divided by value-added policies such as import and export licensing require- per worker in industry. ments, the old dual exchange rate system, and gov- Sources: World Development Indicators and Table 1. ernment monopolies on trade in certain commodities 13 According to the WTO (2014), several monopolies may still be in place. See Section 3.1.9 State Trading, and Section 3.2.5 Export Operations 11 “Myanmar’s Trade and its Potential” (ADB 2013). of State Enterprises, or State Trading. 12 The data has been adjusted to remove receipts from fuel exports 14 This sector is dominated by manufacturing but also includes from each country depicted in order to make cross-country comparisons mining and quarrying, construction, and the provision of electricity, gas and easier. water. World Bank Report | 15 14. Labor productivity in Myanmar, defined as val- ue-added per worker, is low in all sectors and is much lower than in most other countries in the re- gion. Most comparator countries in East Asia, except Cambodia and Vietnam, have substantially higher labor productivity in agriculture than Myanmar (see Table 2). Myanmar’s productivity is the lowest among these comparator countries in services, and is also the lowest except for Cambodia in industry. 15. Structural transformation has proceeded slowly to date. Myanmar is still largely dependent on agri- culture where labor productivity is very low. Figure 5 shows that the agricultural share of GDP has fallen significantly from a peak of 61 percent in 1986 to 36 percent in 2011, while the share of industry increased from less than 10 percent to 26 percent over the period. This coincides with the agricultural reform of 1987 and 16. Myanmar has a large informal sector with the major- the formal official abandonment of the “Burmese Way ity of the poor. According to the UNDP IHLCA (2011) of Socialism” in 1988.15 The share of agriculture in report, own-account workers represented 40 percent of the workforce remained essentially unchanged during total employment in 2009-10. Casual laborers repre- 2005-2010, per Figure 6, while its contribution to GDP sented another 18 percent, mainly from the rural areas, has been declining.16 The labor productivity in agricul- and mainly in the lower income deciles. Unpaid fami- ture is the lowest compared with other sectors. Labor ly workers represent another 15 percent. Thus, a rough productivity in manufacturing is the highest and over estimate of the informal sector in 2009-10 would be 73 four-times that of agriculture (see Table 1). percent of the total labor force. This estimate is up 4 per- centage points from the 2005 estimate of 69 percent. If agricultural activities are excluded, per ILO practice, the share of the informal sector in 2009-10 was an estimated 57 percent.17 By way of comparison, according to ILO estimates, the informal sector share of non-agricultural employment was 42 percent in Thailand (2010) and 68 percent in Vietnam (2009). The average for a sample of 39 lower and middle income countries was 51 percent (see Figure 7). Importantly, the household survey data in Table 3 show that those in the informal sector repre- sent the dominant share of the poor in Myanmar. 15 In response to falling rice production and exports, the gov- ernment in 1987 decided to reduce the amount of statutory government procurement and gave farmers more freedom to sell the surplus in private markets. Although rice export was still under the state monopoly, domestic paddy/rice marketing was deregulated, resulting in active participation by private traders. 17 The job-based definition for informal sector workers from the ILO 16 The estimates are based on survey data. After accounting for includes the non-professional self-employed, domestic workers, contributing margins of error, it is unlikely that the difference between 2005 estimate of family workers, and workers in enterprises employing 5 or fewer workers. See 53.0 and the 2010 estimate of 52.4 percent is statistically significant. Hussmann (2004). 16 | World Bank Report of the goal is consistent with the World Bank Group’s goals of helping its member countries end absolute poverty and boost shared prosperity. 19. The World Bank Group is undertaking a System- atic Country Diagnostic (SCD) in order to iden- tify priorities for accelerating progress in ending poverty and boosting prosperity. The SCD seeks to identify key constraints to remove and key opportuni- ties to leverage in order to end poverty and boost shared prosperity, and hence, priority areas of focus for the de- velopment of the country (See Box 2 for additional in- formation). This report presents the key findings of the SCD conducted on Myanmar. Apart from being a pub- lic good, the findings of the SCD will be used as inputs in the preparation of the WBG’s engagement strategy in Myanmar, the CPF. 17. The high share of natural resource exports may constrain opportunities for the reallocation of la- Box 2: What is an SCD? bor. Natural gas is becoming a key driver of export growth but it brings new challenges. Myanmar has large The SCD is an analytical report prepared by World Bank proven reserves of gas estimated at 23 trillion cubic feet, Group Staff under the Bank’s new country engagement (20 trillion are off-shore and 3 trillion on-shore), equiv- model. The objective of the SCD is to identify the most alent to more than 46 years of current production (about critical constraints and opportunities facing a coun- 498 billion cubic feet (bcf per annum). Full scale com- try in accelerating progress toward the goals of ending mencement of production and exportation of gas was extreme poverty and promoting shared prosperity in a achieved in 2002. In 2014 natural gas exports were $4.2 sustainable manner. Thus, unlike most other WBG an- billion, equivalent to 34 percent of total exports and 7 alytical reports, the SCD has a sharper focus on what it percent of GDP.18 The sector is the main destination for will take for a country to end poverty and boost shared FDI, particularly with several large projects ongoing. prosperity, the twin goals that the WBG has committed As portrayed in Figure 3, there are also large exports to helping its member countries to achieve. of timber and smaller exports of gemstones – although this volume is likely under-recorded. Given that these The WBG will use the SCD as an input towards the sectors are highly capital-intensive, their growth is not preparation of its Country Partnership Framework likely to contribute to poverty reduction unless reve- (CPF), which will outline a framework for the Bank’s nue proceeds from the sectors are used in a manner that engagement and support in a country. The SCD is promotes growth in labor-intensive sectors, helps to ex- therefore intended to become a reference point for con- pand and improve public service delivery, or to imple- sultations with the Government and other stakeholders ment critical social protection programs. In addition, on priorities for WBG country engagement. It is in- world prices for commodities are generally much more tended to help the country, the World Bank and oth- volatile than manufactures. This may create a risk of er development partners establish a dialogue to focus macroeconomic volatility to the extent that one com- their efforts around goals and activities that have high modity, in this case, natural gas, dominates. impact and are aligned with the global goals of ending absolute poverty and boosting shared prosperity in a D. Rationale for a Systematic Country Diagnostic sustainable manner. 18. Going forward, a key measure of success of the Although the SCD is expected to help inform the iden- economic and political reforms under the tran- tification of areas where the WBG can support a coun- sition will be the extent to which progress can be try and which will be outlined in the CPF, it will not made towards ending poverty and boosting shared be limited a priori, to areas or sectors where the WBG prosperity. The President has challenged his cabinet is currently active or where the WBG expects govern- to reduce poverty in Myanmar from the earlier estimate ment demand. The SCD simply seeks to identify areas of 26 percent to 15 percent by the end of this Govern- that will have the biggest impact on ending poverty in ment’s tenure, with a particular focus on rural pover- a country and boosting shared prosperity, whether the ty reduction through “people-centered development.” WBG will be involved or not. By not limiting the scope While the specific targets are ambitious, the main thrust of the analysis, the SCD can stimulate an open and for- ward-looking dialogue between the WBG, member 18 Consolidated public sector oil and gas revenues are those col- governments, and the broader public, with a focus on lected by the oil and gas SEEs less the income and commercial taxes they what is important for the country’s development agen- paid to the Union. da rather than the WBG’s areas of engagement. World Bank Report | 17 F. Sources of information, consultations, and quality of The SCD is based on the best possible analysis, data drawing on available evidence. It also identifies crit- ical data and knowledge gaps that merit attention. It 21. It is worth mentioning from the outset that the draws upon and synthesizes existing knowledge and country suffers from significant information gaps evidence, complemented by additional analysis as nec- that make a comprehensive and rigorous diag- essary, including consultations with various stakehold- nostic difficult to undertake. The national accounts ers. Knowledge products it could draw upon include data are not reliable as are survey data because they those produced by the WBG (e.g. country, sectoral are based on an old sampling frame – before the 2014 or thematic reports including poverty, equity, fragili- census whose preliminary results were released in Au- ty, social, gender or investment climate assessments, gust, the last was conducted in 1983. This paucity of country economic memorandums, public expenditure data not only makes it difficult for government and the reviews, lending and Technical Assistance programs, private sector to make decisions, but also complicates and others), the country government (e.g. national or efforts to carry out a comprehensive and rigorous di- sectoral development plans), as well as national and in- agnostic. Box 3 provides an overview of the key data ternational researchers, think tanks, the private sector issues in Myanmar. In some cases, a problem might be or other development partners, as relevant. identified, but there may not be enough information to determine what needs to be done about it because of lack of key Myanmar specific data and information. E. Conceptual framework for the Myanmar SCD Although the preliminary results of the census show a lower total population figure (51.4 million) than previ- 20. The guiding framework for the Myanmar SCD is ously estimated by the Government (60 million), those as follows (See Figure 8): The starting point is de- socio-economic indicators used in the SCD expressed termining the profile of the poor in Myanmar, in order in per capita terms are not affected. This is because the to understand their characteristics, where they live, and main source of such data was the WDI, which has al- the drivers of poverty. The second aspect of the frame- ready been using a population estimate broadly consis- work is the identification of key pathways for ending tent with the census results. poverty and boosting shared prosperity. This entails identifying activities and aspects of men and women’s livelihoods that have strong direct or indirect links to Box 3: Overview of key data issues in ending absolute poverty and boosting shared prosperi- Myanmar ty. For example, the ability of a person to earn income from productive economic activities (e.g. farming, mi- Myanmar’s statistical system is generally characteri- cro-enterprises, wage employment) is an example of a zed by poor quality data. This is the result of limited pathway to ending poverty. Significant changes to the capacity and funding over the years, while the use of pathways can impact on a person’s chances of com- some data became highly politicized. Since taking of- ing out of poverty or falling into it. Therefore, another fice, the current Government identified improving the key element of the diagnostic is to identify challeng- quality of statistics as one of its key strategic develop- es, constraints, and risks that lie along these pathways ment goals. Some of the key data issues are summa- and therefore act as headwinds against efforts to end- rized below. ing poverty as well as opportunities that need to be leveraged. Gender equality along with cross important Poverty: Two Integrated Household Living Condi- cross-cutting issues such as governance and conflict tions Assessment (IHLCA) surveys were conducted, will influence all the key diagnostics of pathways out one in 2005 and one in 2010. There are two weak- of poverty. The final element of the diagnostic is the nesses inherent in these surveys. First, given that until identification of priorities for removing the identified the 2014 population census, the last was conducted in constraints and challenges. 1983, the sampling frame used for the survey may not be representative of the population. Second, due to Figure 8: Conceptual Framework for Ending Poverty and conflict, the survey did not cover some of the border Boosting Shared Prosperity areas. These weaknesses have called into question the extent to which the survey data was representative of the country. Some of the results appear to be incon- sistent with available data regarding public service de- livery and infrastructure. It is hoped that the results of the 2014 population census will provide a more up to date sampling frame for the next full round of IHLCA, currently planned for 2015. National accounts: Historical data show high real growth rates that are inconsistent with economic fun- 18 | World Bank Report damentals and available data from key sectors. Public the end of the reference year although this is not unique sector activities were recorded at significantly over-val- to Myanmar. In addition, only consolidated data for ued exchange rates. Growth rates from recent years state economic enterprises are available, and some appear to be more realistic and consistent with other transactions are recorded partly on an accrual basis and indicators but there remains considerable uncertainty partly on a cash basis. It is difficult to know the true about the actual level of GDP. The IMF Assessment of size of consolidated government because the full array Data Adequacy for Surveillance observes several ad- of transactions between the Union government and its ditional short-comings but also notes good progress in state economic enterprises are not well identified. Fis- improving the quality of new estimates. cal and monetary data are not consistent. The recording of government debt statistics is not comprehensive. Population: Until preliminary results from the most recent census, conducted in March/April 2014 were Monetary and financial statistics. The monetary announced, there had been uncertainty around Myan- survey compiled by the CBM covers the central bank mar’s population figure, with numbers ranging from 48 and all commercial banks (public and private). Report- to 61 million, with an estimated 3 million people living ing of monetary data in accord with IMF classification abroad. Uncertainty about the true population size has principles was established only by January 2012. Pri- created doubts about estimates of GDP per capita. The or data may have problems associated with the use of last census was conducted in 1983. the previously overvalued official exchange rate for valuing foreign currency-denominated balance sheet Trade: There are substantial flows of jade and timber accounts. from the border areas which is difficult to capture in officially produced export statistics. Trade data are re- Sector level data: Quality of data on key sectors in- corded at the time of entries by customs, causing seri- cluding agriculture, health, and education varies, but is ous volatility in values and incorrect time records. As generally poor. Administrative data are more credible in many countries, data recorded by the authorities and than survey data. data recorded by trading partners are inconsistent. Re- cent data are, however, fairly well correlated over time. Sources: IMF Assessment of Data Adequacy for Sur- veillance and World Bank staff assessments. Balance of payments: According to the IMF Assess- ment of Data Adequacy for Surveillance, detailed data on services transactions and financial flows are gener- 22. Taking into account the information gaps, the ally not available and transactions that are not under- analyses in this SCD have been informed by data taken through the official banking system are usually from various existing reports and surveys. First, not estimated. the analyses have benefited from reviewing existing study reports on Myanmar. A full list of all the reports External debt: Systems for recording and monitoring reviewed is presented in the bibliography. Second, the debt exist but are largely manual. Nonetheless, records SCD has also been informed by more in-depth analy- on external debt and debt service payments in arrears ses of household level data from the 2009/10 Integrated are comprehensive, up to date, and broadly consistent Household Living Conditions Assessment survey, par- with records from creditors. The good record keep- ticularly for the poverty diagnostic. The findings from ing and tracking of debt and arrears was critical in the the analysis of the IHLCA have been complemented by speedy resolution of arrears. However, a key weakness information from other surveys—albeit smaller scale is that the evaluation of external obligations which are or more narrowly focused in terms of geographic or not nominated in U.S. dollars is conducted irregularly. thematic coverage than the IHLCA—as well as a num- Historical data are sometimes distorted by applying the ber of qualitative studies. Third, the SCD has benefited exchange rate at the evaluation point. from the Investment Climate Assessment (ICA) survey recently conducted by the World Bank. Consumer price statistics: Consumption basket weights represent urban households only. Some con- 23. In addition, the SCD findings have also been in- struction inputs are included; rentals of owner occupied formed by extensive consultations with key stake- housing are excluded; missing prices are not imputed; holders in Myanmar. The range of stakeholders con- and the classification of items is outdated. sulted included Government officials both at central level as well as sub-national level, members of parlia- Fiscal data: Myanmar’s budget classification system, ment at central as well as sub-national level, the pri- which is the backbone of its fiscal accounts, is not ful- vate sector, civil society organizations, development ly consistent with modern classification structure such partners, academics, think tanks, and researchers. The as the Government Financial Statistics (GFS). While purpose of the consultations was to seek inputs from fiscal data are broadly credible, no comprehensive key external stakeholders on specific issues as part of monthly or quarterly compilation is done for sharing the systematic and evidence-based identification of with external stakeholders. Annual comprehensive Myanmar’s key opportunities and challenges towards data are compiled with delays of up to 12 months after achieving the twin poverty goals, and subsequently, World Bank Report | 19 in identifying the priorities for taking full advantage of these opportunities and removing the constraints. In addition, consultations were used to triangulate and validate some information collected from study reports, fill in gaps, as well as obtain further insights that were useful in carrying out the diagnostic. Table A.2 in the Annex contains a summary of the consultations meet- ings held, including some of the key focus areas that came up from each of the individual meetings. Box 4: The Myanmar SCD consultations process Preparation of the Myanmar SCD benefited significant- ly from an extensive consultation process. The consul- tations were undertaken over a period of February to June 2014. In total, 15 consultation events were held across the country in six locations: Yangon, Nay Pyi Taw, Pathein, Mandalay, Taungyi, and Hpa An. Apart from the meetings, inputs were also received through the World Bank’s website and via email submissions. Stakeholders consulted included central Government officials; state and regional Government officials, par- liamentarians at central and state/regional level; civil society representatives including from NGOs, INGOs, CBOs, political parties; private sector representatives; researchers and think tanks; and development partners. Invitations and materials for consultations were sent out at least two weeks in advance for most of the events, both in English and Myanmar language. Consultation meetings were announced on the World Bank website, Facebook page, and local newspapers. Translation was available at each event, and participants completed feedback forms to help improve the format of future consultation events. II. A profile of POVERTY in myanmar World Bank Report | 21 24. The profile of poverty in Myanmar presented in ries per adult equivalent per day—to anchor the pov- this section is based mainly on analyses of data erty line. But, in keeping with the latest international from the 2009/2010 IHLCA (IHLCA-2) survey, but practice, the re-estimation used a more comprehensive draws on other information sources as well, both measure of consumption expenditures, which included quantitative surveys and qualitative studies. 19 The health costs and expenditures on durable goods. Fur- IHLCA-2 covered 18,660 households nationwide, and ther, a new approach, also in line with international was implemented in two rounds – December 2009/ practice, was used to capture and adjust for the cost of January 2010, and May 2010.20 The IHLCA is compre- living differences in different regions of the country in hensive in its coverage of a wide range of household coming up with the poverty lines. level activities and outcomes. It thus promises a fertile source of information on livelihoods needed to under- 26. A direct comparison of the incidence of poverty in stand the causes and dimensions of poverty in Myan- Myanmar to that in other countries, using a 2005 mar. There are two weaknesses inherent in the survey. PPP $1.25-a-day line, is not possible because there First, because the last population census was conducted are no reliable price survey-based estimates of the in 1983 and hence was out-of-date, the sampling frame 2005 PPP conversion factors for Myanmar. Myan- used for IHLCA-2 was based on administrative data mar was not part of the 2005 round of globally compa- of unconfirmed reliability. Second, due to conflict, the rable price surveys carried out under the International survey did not cover some of the border areas. These Comparison Project (ICP).21 Myanmar did participate weaknesses have called into question the extent to in the 2011 ICP round, and it will therefore be possible which the IHLCA-2 survey data are representative of to include Myanmar in the global poverty monitoring the country. Nonetheless, the survey is the only source system once the 2011PPP-based poverty numbers are of information that comes close to providing a national- finalized. level and relatively comprehensive picture of the pov- erty situation in Myanmar. And so the approach taken 27. The new census and the resultant sampling frame here in constructing a poverty profile for Myanmar is will allow potential biases in the IHLCA-2 pover- to carefully and selectively use analysis of data from ty estimates to be revisited by “reweighting” the the IHLCA, and combine this with insights gleaned IHLCA-2 sample. As indicated in Box 3 under data is- from the numerous other studies and surveys that are sues for Myanmar, the IHLCA-2 survey was conducted smaller-scale or more narrowly focused--in terms of using an outdated sampling frame, based on the 1983 geographic scope or thematic coverage—but provide a census. Therefore, the poverty estimates based on the more granular picture, to both validate and flesh out the IHLCA-2 data are likely to have some bias. However, IHLCA-based analysis. With the successful completion it is not possible to know ex-ante, which direction the of the Population Census in March 2014, and with a bias is likely to go. number of technical assistance and surveys planned in the next three years, it will be possible, going forward, 28. More importantly, the new census will provide an to measurably improve the quality and depth of the updated sampling frame for the planned MPLCS household-level information available in Myanmar for and potential IHLCA-3 that will help provide more evidence-based policies and programs and to develop up to date poverty numbers. Initially, a Myanmar an up-to-date information base on poverty and living Poverty and Living Conditions Survey (MPLCS) will conditions in Myanmar. be conducted as a pilot small-scale (3,500) household survey to collect information on consumption and in- A. The incidence of poverty and the extent of inequality come levels as well as additional key welfare and other indicators of relevance to specific sectors. The MPLCS 25. The analysis of the IHLCA-2 data (see UNDP will aim to quickly generate up-to-date and credible es- (2011)), found a poverty rate of 25.6 percent in timates of poverty, and to inform the design and imple- 2009-2010, but more recent analysis of the same mentation of the large-scale (18,000 households) na- data, using a different methodology, suggests that tional survey (IHLCA-3). The IHLCA-3 will provide the incidence of poverty may have been consider- more comprehensive and updated poverty estimates. ably higher, at 37.5 percent. The more recent analysis The new census will therefore be critical in providing used the same cost-of-basic needs approach as earlier, an up to date sampling frame for both surveys. and retained the same caloric threshold—2,300 calo- 29. Key socio-economic indicators also show a high 19 Information sources included, amongst others, the LIFT incidence of non-income poverty. More than a third (Livelihoods and Food Security Trust Fund) surveys, the Multiple Indicators of children under five years of age in Myanmar are Cluster Survey (MICS) by UNICEF, and surveys carried out by the Border reported to be stunted while about 23 percent are un- Consortium, as well as the Qualitative Social and Economic Monitoring (QSEM) studies. derweight. While these rates lower than in Laos and Cambodia, they are significantly higher than those 20 The survey was implemented in two rounds so as to cover both the main harvest season and the main lean season in terms of agricul- tural cultivation. In Myanmar, as in many other poor agrarian economies, 21 There are some indirect estimates of the PPP conversion factor consumption levels and household welfare can vary seasonally with the available but these are unlikely to be reliable given the highly distorted dual seasonality in incomes stemming from the agricultural cycle. exchange rate system in place in Myanmar in 2005. 22 | World Bank Report prevailing in Vietnam, the Philippines, Thailand and 30. Not unlike in many low income economies, a large China. Similarly, while the maternal mortality rate in fraction of Myanmar’s population was clustered Myanmar (200 deaths per 100,000 live births) is lower around the poverty line, both above and below, than in Laos and Cambodia, it is more than double than in 2009-2010 (Figure 9). What this implies is that that in the Philippines and more than 3 times high than the measured incidence of poverty will be sensitive to in Vietnam. Housing indicators also suggest that stan- slight differences in where the poverty line is set (Fig- dards of living in Myanmar lag behind in the region. ure 10). If, for instance, a 2,100 calories per day stan- Several surveys in Myanmar including the LIFT base- dard were used to anchor the poverty line, resulting in a line survey and the IHLCA 2 indicate that only about poverty line that is 10 percent lower in monetary terms, half of the households in Myanmar live in houses that the measured poverty would be 28.3 percent, nearly 10 have durable roofing, compared to more than 80 per- percentage points lower. A 10 percent increase in the cent in neighboring countri Source: World Bank staff poverty line would, analogously, increase the poverty estimates from new analysis of 2009-2010 IHLCA survey rate by nearly 9 percentage points. The clustering of data. es such as Cambodia. Myanmar’s net enrollment households around the poverty line also implies that rate of 47 percent and gross of 50 percent, at the sec- relatively small changes in circumstances—adverse ondary level in 2010, while slightly higher than that for shocks or increase in incomes—can lead to significant Laos, was significantly less than the regional average movements into and out of poverty. of 73 percent for East Asia and the Pacific (UNESCO). 31. With a poverty rate of 37.5 percent, the poor and the bottom 40 percent are largely synonymous in Myan- mar. Therefore, for all practical purposes, as of 2010, the aim of enhancing shared prosperity coincided with the goal of ending absolute poverty in Myanmar. And both entail raising the incomes of the poor, and ensuring that they continue to rise as the economy prospers. Source: World Bank staff estimates from new analysis of 2009- 2010 IHLCA survey data. Source: World Bank staff estimates from new analysis of 2009- 2010 IHLCA survey data. World Bank Report | 23 32. Measured consumption inequality in Myanmar is the poor live and so geographic targeting of the relatively low in comparison with its regional neigh- poor needs to take account of both poverty rates bors (Figure 11). The initial analysis of the IHLCA-2 and the share of the poor that live in an area. For (UNDP and GoM, 2011) produced a Gini coefficient instance, using 2009-2010 population and poverty data of 0.20, which would have been remarkably low by (subject to the significant data quality issues set out in global standards. The more recent re-examination of Box 3), although the Dry Zone and the Delta have a the data, which are still subject to wide margins of error lower incidence of poverty than the Coastal zone or the (see Box 3), yielded an estimated Gini coefficient of Hills, because of the relatively high population share 0.29, higher than the initial estimate but still relatively of the Dry Zone and the Delta, they account for near- low. Inequality is higher, in some cases considerably ly two-thirds of the poor in Myanmar. Conversely, al- higher, in all of Myanmar’s regional neighbors. With- though Chin has the second highest poverty rate (71.5 in Myanmar, inequality is estimated to be much higher percent) amongst all states and regions, it accounts for in urban areas (0.36) than in rural areas (0.25) (Figure only 1.4 percent of the poor due to its small population. 12). Among Myanmar’s four agro-ecological zones, in- Rakhine and Ayeyarwaddy stand out in that they both equality is estimated to be highest in the Delta (0.33), have high poverty rates and account for large shares of in part because the region includes the city of Yangon the poor. The available 2009-2010 data (subject to wide (0.36) but likely also due to high levels of inequality in margins of error) indicate that Rakhine has a pover- access to key assets like agriculture land. ty rate of 78 percent and accounts for 14.9 percent of Myanmar’s poor, while Ayeyarwaddy, given its size B. The spatial distribution of poverty and moderately high poverty rate (45.7 percent), ac- counts for 18 percent of the poor—the highest of any 33. The incidence of poverty varies substantially across state or region. Geographical targeting to reduce pover- the different geographic regions of Myanmar. In ty must take account of both the rate of poverty and the terms of agro-ecological zones, poverty rates are high- population share. est in the Coastal zone (53.1 percent) and lowest, sur- prisingly low, in the Dry Zone (29.5 percent), with the 35. At 34 percent, the poverty rate for the Yangon re- Hills (40.9 percent) and the Delta (40.4 percent) falling gion seems surprisingly high (Figure 14). The 33 in the middle, close to the national rate (Figure 13).22 percent poverty rate for the Mandalay region also seems Poverty rates vary as well, across the states and regions, high, particularly in light of the important commercial in many cases even within the agro-ecological zones role that both Yangon city and Mandalay city play in (Figure 14). Rakhine (in the Coastal zone) and Chin Myanmar’s economy. These high rates of transition (in the Hills), on the eastern border with Bangladesh, poverty in part reflect the high and rising cost of living are by far the poorest states, with poverty rates of 78 in urban areas; although urban areas have much better percent and 71.5 percent respectively. Ayeyarwaddy (in local infrastructure and basic services, residents pay a the Delta) and Shan (in the Hills) are next with poverty lot to access these services. Limited access to stable, rates in mid-40s. The incidence of poverty in the re- well-paid jobs is another contributing factor to urban gions in the Dry Zone on the other hand are uniformly poverty. In recent years, Yangon has become a mag- lower than the national rate, as are those in the remain- net for rural migrants seeking new employment oppor- ing hilly border states, on the north and the east, adjoin- tunities and a chance at a better life. But these new ing China and Thailand. opportunities have been slow to develop. According to the 2009/10 IHLCA2, the urban poor are typically employed in the informal sector, or as casual, unskilled workers in construction or other service sectors, and many have limited education and job skills. 36. Although the rate of poverty is high in Yangon, the depth and severity of poverty is relatively low. Many poor households are clustered near and just be- low the poverty line, and promoting good growth and expanding economic opportunities could ensure they grow out of poverty very quickly. Managing this pro- cess of transition--and related issues linked to rising Source: World Bank staff estimates from new analysis of 2009- expectations, rising inequality, and ensuring equitable 2010 IHLCA survey data. access to public assets and basic services--is an import- ant poverty challenge for Myanmar. 34. The poorest areas—the areas with the highest in- cidence of poverty—are not always where most of 22 The mapping of states and regions into the four agro-ecologi- cal zones is as follows: Hills (Chin, Kachin, Kayah, Kayin, Shan), Dry Zone (Bago, Magwe, Mandalay, Sagaing), Coastal (Rakine, Mon, Taninthayi), and Delta (Ayeyarwaddy, Yangon). 24 | World Bank Report spatial distribution of poverty. The other two prominent correlates of poverty in Myanmar are discussed below. 39. Poverty in rural Myanmar is closely associated with landlessness or functional landlessness—cul- tivation rights to less than 2 acres of cultivable land—particularly in the Delta, Coastal and Dry Zones. The rural landless and marginal farmers (with cultivation rights to less than 2 acres of land) constitute two-fifths of Myanmar’s population, but make up over half the poor. The association between land and pover- ty is particularly strong in the Delta, Coastal and Dry Source: World Bank staff estimates from new analysis of 2009- zones (Figure 16). In the Hills the correlation is less 2010 IHLCA survey data. evident but that is mostly because landlessness is less prevalent and shifting cultivation on cleared forest land C. Characteristics of the poor and the correlates and more common, as well as the fact that the threshold of causes of poverty 2 acres is less relevant in the Hills, where soil quality is poorer and larger tracts of land are needed even for 37. Like the poor in most low-income economies, the subsistence. poor in Myanmar live predominantly in rural ar- eas, rely on agriculture and casual employment for their livelihood, have low levels of human capital and few physical and financial assets, lack reli- able access to quality basic services, are exposed to a variety of shocks, and are poorly connected to markets because of inadequate infrastructure, imperfectly functioning markets, weak institutions and incomplete information. Many of these charac- teristics are not unique to the poor. They are also true of the population at large given that Myanmar is a low- Source: World Bank staff estimates from new analysis of 2009- income country that has yet to undergo a fundamental 2010 IHLCA survey data. structural transformation and is characterized by poor service delivery, weak institutions, low capacity, and 40. There is a strong correlation between poverty and under-developed markets. For instance, while 76 per- ethno-linguistic identity (proxied in the 2009/10 cent of the poor live in rural areas, so does 74 percent IHLCA by “mother tongue”), suggesting that of the population as a whole. Agriculture is the pri- social and political exclusion are a continuing mary source of livelihoods, not just for half the poor, challenge in Myanmar. Native Myanmar speakers but also for nearly half of all households. And in terms constitute over three-quarters of the population, but of many basic services, while it is the case that the poor only two-thirds of the poor, implying that the risk of do have less access, in some cases significantly lower, poverty is much higher for non-Myanmar groups as a the numbers are still very low for the non-poor and so whole. But there is considerable variation amongst the the challenge of basic service delivery is one that ap- non-Myanmar ethno-linguistic groups, with some, like plies not just for the poor (Figure 15). the Mon, Chinese and Arabic speakers, much less like- ly to be poor, and others much more so. In particular, Chin speakers (1.2 percent of the population), Rakhine speakers (3.9 percent of the population) and speakers of “other foreign languages” (3.1 percent of the popula- tion), who are primarily Muslim minorities identifying themselves as Rohingyas living in Rakhine are, respec- tively, 1.7, 1.8 and 2.4 times more likely to be poor than the population at large. Source: World Bank staff estimates from new analysis of 2009- 2010 IHLCA survey data. 38. In terms of observable household characteristics that are most strongly correlated with a household being poor, three are worth noting—a household’s location, land ownership, and religious-ethno-lin- guistic identity. The importance of location has al- ready been highlighted in the discussion above on the World Bank Report | 25 future will therefore be important. Finally, other in- dividual characteristics such as ethnicity and religion have put many people at risk of being poor. 44. The main economy-wide shock households face are fluctuations in the prices of basic needs (in- cluding food), as well as essential inputs and crops, with the latter being particularly important for agricultural households. Price fluctuations, whether they stem from exchange rate shocks, supply shocks, Source: World Bank staff estimates from new analysis of 2009- or shocks to transport and logistic costs, matter in two 2010 IHLCA survey data. ways. Increases in food prices and in the prices of other basic commodities and services make it harder for the D. Vulnerability to poverty working poor in both rural and urban areas, who are net “consumers”, to meet their basic needs. On the other 41. Data from the IHLCA survey and other sources in- hand, the main risks that farmers face are declines in dicate that households in Myanmar are exposed to the prices of the crops they produce and increases in the a wide variety of shocks and have limited means to prices of essential inputs. manage them, resulting in significant vulnerability to falling into or further into poverty. The shocks E. A taxonomy of the poor and what it suggests about households are exposed to range from ones that affect pathways out of poverty individual households to localized shocks limited to certain areas, to those that are economy-wide. 45. The poverty profile presented above suggests three main faces of poverty in Myanmar: the “tradition- 42. Health-related shocks appear to be the main al” poor, who are heavily concentrated in rural ar- shocks that affect individual households. Illness or eas, have very low levels of education, depend on accidents requiring hospitalization or long-term med- agriculture for their livelihood, have limited access ical attention, have pushed households surviving just to key productive assets and factors like land and above the poverty level into poverty, while the poorest finance; the “transitional” poor, many of whom households are unable to cope financially, due to the live in urban and peri-urban areas, have transi- combined lack of social protection mechanisms and the tioned out of traditional rural livelihoods but still burden of out-of-pocket health expenditure. Similarly, work as low-skill casual laborers; and the social- old and disabled persons are unable to participate in ly-marginalized and “excluded” poor. The “causes” physical and productive income generating activities. of poverty for each of these groups are many—some that are common to all of them, as well as some that 43. Weather and climate-related shocks and conflict are specific to each group. And so the pathways out of and communal violence are the main categories of poverty for each of these groups have some common localized area-specific shocks, with the former pri- elements but also some that differ. marily but not exclusively affecting households that depend on agriculture, and the latter, more preva- 46. Investments in human capital and better access to lent in certain areas (e.g., border states) or relevant quality basic services would be critical to ending for certain ethno-linguistic groups. Crop loss due to the poverty of all three groups of the poor — both pests and extreme weather events such as droughts and their income and non-income dimensions of pov- floods are a significant risk for agriculture in all parts of erty. Better access to primary health care, water and Myanmar. This has introduced a new dimension of vul- sanitation, electricity, and basic education are import- nerability in rural livelihoods. Myanmar is also highly ant, not only to improve well-being, but also to reduce vulnerable to hydroclimatic extremes, with significant vulnerability to poverty, enhance current income gen- exposure to cyclones, and a quarter of the country faces erating opportunities and lower the inter-generational periodic flood risk (threatening 36 percent of the coast- perpetuation of poverty. al population). Conflict in the border areas has led to a population of internally displaced families who are 47. In order to end the poverty of the working poor, at greater risk of poverty because they are unable to both “traditional” and “transitional”, would require participate in normal income earning activities and in- increasing returns to their main asset—their labor. vest in developing the human capital of their children. For the majority, the “traditional poor”, who current- The size of this population remains unclear and it is ly depend on agriculture for their livelihood, this will almost certainly the case that poverty amongst them is mean both raising the returns to agricultural cultivation, under-estimated. Understanding the poverty challenges while in parallel, facilitating their movement from low- of the Internally Displaced Persons (IDPs) and ethnic er value-added agriculture-related activities to higher minorities in general is currently not feasible, given the value-added activities off the farm, by stimulating pri- limited coverage of the previous “national” household vate-sector job creation. For the “transitional” poor, the survey (IHLCA-2). Better data and deeper analysis in opportunities for private-sector led off-farm employ- 26 | World Bank Report ment and income generation will obviously be critical. 48. Lastly, for the “excluded” poor—communities in The specifics of the interventions that will be needed remote conflict-affected areas, members of social- are discussed in greater detail in later sections. But they ly-marginalized groups, families without anyone are likely to vary from region to region. For instance, capable of productive work—a focus on increasing securing land titles and improving access to credit may the returns to labor is unlikely to be sufficient. By be essential for increasing plot-level yield-enhancing definition, these groups have been or are likely to be ex- investments that are particularly important for raising cluded from or less connected to opportunities for pro- agricultural incomes and alleviating rural poverty in the ductive economic activity. And so for these groups, the Delta, further investment in irrigation systems and water pathways out of poverty will likely have to include spe- basin management may be the most relevant for the Dry cific targeted interventions and programs of assistance. Zone, and investments in connectivity infrastructure may be the most critical for the Hills. III. PATHWAYS OUT OF POVERTY and intervention areas 28 | World Bank Report 49. This section seeks to identify the most efficient fits and higher vulnerability to lay-offs and accidents. and effective pathways (strategies) for lifting the poor out of poverty, the critical pre-requisites, 52. Myanmar’s location in Southeast Asia, large labor constraints to be addressed, and the intervention force, membership in ASEAN and excellent coast- areas for removing the constraints. A major feature line suggest that joining the manufacturing sup- of the SCD is that it has a sharp focus on intervention ply chains centered in Asia can kickstart growth. areas that have a strong direct or indirect link to ending Myanmar will likely be among the countries to poverty and boosting shared prosperity. Ultimately, the gain the most from increased economic integration aim is to identify priorities for accelerating progress to- through ASEAN Economic Community. Exports wards the twin goals. It is in this regard that given the make it possible to procure a larger volume and wider taxonomy of the poor in Myanmar and the country’s variety and good quality capital goods not available lo- unique context presented in the previous section, key cally. Export demand can also help drive the expansion pathways out of poverty are identified, based on some of manufacturing and services jobs required for struc- over-arching principles. Once these pathways have tural transformation. Policies to help Myanmar to take been determined, intervention areas are identified for full advantage of the gains from trade include those removing critical constraints within the pathways. promoting access to financing, both domestically and from abroad, strong macroeconomic policies (includ- A. Strategic Framework for Inclusive and ing real exchange rate level and stability), conducive Sustainable Growth tariff and foreign investment regimes. There are risks for Myanmar too. Opening the economy to more trade 50. A growth strategy for Myanmar has to fit Myan- almost always creates some losses for some individuals mar’s circumstances. Myanmar is confronted by and firms that cannot compete with external products many of the same challenges seen in most poor, rural and services. Growth and poverty reduction will be and resource based economies. Yet, Myanmar is not aided by policies that help these people transition to in- typical. It has a potentially powerful advantage with dustries where Myanmar has a competitive advantage its large internal market (about the same as the Repub- and to provide welfare programs for those who cannot lic of Korea) surrounded on both sides by two of the make the needed transitions. world’s largest markets in China and India. It also try- ing to resolve 60 years of conflict over ethnic and reli- B. The Government’s reform program gious autonomy and deciding how best to complete the transition away from the old, socialist-military model 53. The Government has launched and begun imple- adhered to in earlier years. Thus, both the framework menting some key reforms. Initial reforms focused for growth through structural transformation and open on the political system and national unity, but key mac- trade and investment, and the conflict, security and roeconomic reforms were put into play early as well. development framework set out in the World Bank The severely over-valued official exchange rate was Group’s World Development Report 2011 provide sa- unified under a managed float in 2012. The change has lient elements of a growth framework for Myanmar. been beneficial to government fiscal operations and has Over the medium-term, other factors will also gain im- put an end to the unfair advantage over private firms portance, such as diversification through imitation and held by state economic enterprises due to their previous innovation. access to inexpensive foreign exchange. External ar- rears were cleared in 2013. The central bank has been 51. Shifting labor from low productivity to high pro- divested from the Ministry of Finance in 2013 with in- ductivity jobs, typically from agriculture to man- dependent monetary authority. Details have also been ufacturing and services, will drive growth. Achiev- released on increasing transparency in the national ing this shift will involve careful sequencing of policy budget. New laws to facilitate foreign direct investment reforms and investment. Several initial steps have been have been passed. These changes have been followed taken (see paragraph 53 below). The prioritization in by a large number of new laws for almost every sec- Section III.C identifies some key factors, such as: (i) tor in the economy – many aimed at facilitating more removal of obstacles to private sector investment aris- public and private investment in human and physical ing from instability, poor regulation or lack of finance; capital. However, most ministries have been unable (ii) screening of government investments to encourage to catch up with the sheer speed and volume of these private investors without crowding them out; (iii) quick changes, creating implementation backlogs and bottle- and affordable transport of food from rural to urban necks. At the same time, as mentioned in Part I above, areas; (iv) quick and affordable access to information conflict continues in several parts of the country. These about new job opportunities and removal of obstacles challenges leave private investors with uncertainty, to labor mobility; progress toward universal access to divert government resources and attention from more quality education and training to upgrade skills. The productive uses, and jeopardize the sustainability of prospects for poverty reduction are greater when newly reforms. released farm labor can find its way to good, formal sector jobs rather than those in the informal sector with its lower wages, lower retirement and healthcare bene- World Bank Report | 29 C. Critical next steps possible because there is not enough data and analytical base to support it. 1. Considerations in identifying priority intervention areas and sequencing 58. Growth can be a powerful driver of poverty reduc- tion. For Myanmar, returns in agriculture and outside 54. Within each pathway, it is important to identify agriculture have been low due to low productivity. In priority intervention areas and how action could addition, the country has not been able to create enough best be sequenced over time. Given Myanmar’s cur- jobs due to limited participation of the domestic and rent high poverty rate and low level of development foreign private sector in the economy, and because of more generally, progress will need to be made in many isolation from the global economy, while sustainability areas for the country to accelerate progress towards has been at risk because of a fragmented approach to ending poverty and boosting shared prosperity. At the Myanmar’s key natural resource – the Ayeyarwaddy same time, it is recognized that there are financial, hu- river basin. Therefore, a key over-arching principle man, and institutional capacity constraints both in the is ensuring greater openness and participation of the public and private sectors to adequately deal with all domestic and foreign private sector in the economy the constraints concurrently, hence the need for prioriti- (particularly in the non-gas sectors which have great- zation and proper sequencing. er potential for job creation), fostering integration with the global economy, enhancing productivity, and 55. The main basis for identifying priorities is the like- adopting an integrated approach to the management ly magnitude of impact on reducing poverty of ac- of the Ayeyarwaddy river basin. Ultimately, this is tion on an intervention area. In turn, magnitude of about growing the economy in order to increase the pie impact depends on many factors. A key factor is the and ensuring sustainability. Over a 3-5 year horizon, current severity of the problem. If Myanmar faces a growth will come from increasing investment,contin- wide deficiency gap in a particular intervention area ued growth in natural resource exports, and increasing then action is likely to have a high impact on poverty productivity. These considerations lead to the identifi- reduction. Similarly, if an intervention area has strong cation of the first key pathway out of poverty in Myan- linkages or complementarities with other intervention mar: promoting openness and sustainable private- areas then action would also have a high impact on sector led growth for more jobs. poverty reduction. 59. All three groups of poor, including the socially mar- 56. Sequencing of intervention areas needs to take into ginalized, will need to have access to basic services account several considerations. In particular, time and infrastructure networks to reduce non-income preference need to be first given to those high impact poverty and become empowered to participate intervention areas whose actions can easily be imple- in income earning opportunities – whether in the mented, where available evidence is strong on the na- form of wage or self-employment. Access to criti- ture and scale of the problem to be solved and what cal services will also help break the inter-generational- exactly needs to be done, and where the impact on pov- cycle of poverty. However, as mentioned in the previ- erty reduction can be realized sooner rather than later. ous sections, access to these services, especially in the However, the need to have a long-term perspective of rural and remote areas, has been limited due to Myan- development may require that some action starts now mar’s past political and economic history. Therefore, a even if not meeting the above criteria. For instance, al- second key over-arching principle for ending poverty though impact of action in an area may only be evident in Myanmar is universal access and empowerment. in the medium to long-term, it may be advisable to start While fighting poverty via the first route above is more implementing some actions in the short-term since de- about fostering growth, this second route is more about laying action would only prolong the problem further. making such growth inclusive. This leads to the iden- tification of a second key pathway out of poverty in 2. Identified areas of intervention Myanmar: promoting universal access to critical ser- vices and empowerment for inclusive growth, particu- 57. The analysis below identifies two pathways encom- larly in rural areas. passing 12 priorities, along with four prerequisites that need urgent attention. The first pathway focus- es on increasing agricultural productivity and creating more lucrative job opportunities. The second path- way focuses on universal access and empowerment for inclusive growth, particularly in rural areas. Finally, there are four prerequisites that, if left unaddressed, will either diminish Myanmar’s success in poverty re- duction or risk the sustainability of the reform effort. Figure 15 provides a broad picture of how the various interventions can be prioritized and sequenced. A pre- cise rank-order of relative priorities in Myanmar is not 30 | World Bank Report Figure 18: Pre-requisites, Pathways, and Key Interven- take full advantage of these opportunities. tion Areas for Poverty Reduction and Shared Prosper- ity (a). Facilitating the political transition 62. Uncertainty around the key elements of the politi- cal transition poses a major challenge to efforts for creating jobs, increasing returns, and increasing access to services. In particular, internal and external actors are unable to take long-term decisions on their investments and livelihoods. Key to facilitating the political transition will be attaining lasting peace and moving out of fragility and consolidating trust and le- gitimacy between the state and its people. (i). Attaining lasting peace and moving out of fragility 63. Comparative research across countries affected by conflict has demonstrated the negative impact of conflict on economic growth and poverty. Histori- cally, for every three years a country is affected by ma- jor violence or conflict, poverty reduction lags behind by 2.7 percentage points, with the average cost of civil war equivalent to more than 30 years of GDP growth for a medium-sized developing country.23 Poverty re- duction rates in countries affected by violence are on average one percentage point per year lower than those of peaceful countries, dramatically altering the trajecto- ry of a country’s development course. 64. In Myanmar, 60 years of conflict have created ar- eas facing extreme poverty. Poverty is most heavily 60. To accelerate progress towards the twin goals concentrated in conflict-affected areas: poverty rates through the above main pathways, some pre-requi- in Chin State stand at 71 percent and, in Rakhine at sites need to be in place. These pre-requisites serve to 78 percent, compared to 37.5 percent nationally,24 and lay the critical foundations for growth, inclusiveness, populations in these areas have some of the lowest and sustainability. The pre-requisites define the over- human development indicators in Myanmar, with 58 all political, governance, and macroeconomic envi- percent of children under five stunted (UNICEF MICS ronment of Myanmar within which job opportunities 2010). Moreover, the long legacy of conflict in these are created, people are empowered to take full advan- areas not only increases absolute poverty, but also tage of these opportunities, and goods and services are makes it more difficult to address other issues, supplied and delivered. They also define the technical including displacement, land, and opium cultivation capacity of the public sector to unleash the country’s (Myanmar remained the second largest opium poppy potential and sustain progress. Progress in the pre-req- grower in the world after Afghanistan in 2013 and its uisites affects the speed (efficiency), effectiveness, and production is almost exclusively concentrated in con- sustainability of the main pathways identified above in flict-affected areas in Shan and Kachin State) (UNO- lifting the poor out of poverty. DC Opium Survey 2013) – all of which complicate the context for development interventions. A fragile peace 3. Rationale for interventions process negatively affects Myanmar’s investment cli- mate and also negatively impacts on the Government’s 1. Pre-requisites for inclusive and sustainable growth ability to deliver critical basic services particularly in the border areas. 61. Facilitating the political transition, enhancing so- cial inclusion, maintaining macroeconomic stabil- 65. The Government is pursuing efforts to bring an ity, and strengthening public sector capacity and end to the multiple conflicts in ethnic areas. Talks governance will be critical pre-requisites for the between Government and ethnic armed groups to bring fight against poverty. Action in these areas is needed about a national ceasefire ahead of a political dialogue in the short term but they also require continued atten- are continuing, with the Government signaling a will- tion. Without addressing the constraints identified in ingness to consider decentralization and devolution these areas, it will be difficult to make and sustain prog- ress in creating job opportunities, increasing returns, 23 2011 WDR promoting universal access, and empowering people to 24 World Bank staff estimates from 2009-2010 IHLCA survey. World Bank Report | 31 to accommodate some of the long-standing griev- tic political tensions and instability, and depending on ances voiced by ethnic armed groups. Following the its resolution impact investment and aid flows to the signing or renewal of a series of ceasefires (including country. with the Karen National Union, bringing to an end Myanmar – and the world’s – longest-running armed (ii). Consolidating trust and legitimacy between the state and conflict), a series of leadership meetings between the its people Government and the groups starting in late 2013 have made progress and built trust. This process has includ- 69. A long history of poor governance and corruption ed the Kachin Independence Organization (KIO), even eroded the trust of individuals and firms in the though conflict continues between Government and State preventing them from responding positively KIO forces. The renewed conflicts in early 2014, with to opportunities or participating fully in Govern- armed clashes in both Kachin and parts of northern ment-led development initiatives and programs. Shan State that displaced over 5,000 people, underlined Before the transition, the governance environment was the continued fragility of this process and the impor- very poor, with people rarely playing by the rules. In tance of a successful resolution to establish peace and particular, the system was characterized by high cor- security across the country. ruption, cronyism, social discrimination, and poor public services. Therefore, although the Government 66. While peacemaking in the Myanmar context has is taking steps to create a conducive environment for long been focused on the armed conflicts with eth- doing business, there is a perception, based on past ex- nic minority groups, the recent opening of political perience, that public procurement has not been fair and space has brought to the fore other potential fault the private sector has not been able to compete on a lines and areas of conflict. This most notably includes level playing field with public sector or public linked recurrent incidents of religious violence over the past entities. Similarly, unresolved issues about ethnic au- two years, where finding sustainable solutions is im- tonomy as well as a flawed election process have un- portant not only to address violent conflict and citizen dermined the state’s legitimacy amongst certain groups security, but also to address broader issues of social in- of people and geographical areas. In turn, this has ham- clusion. pered the Government’s efforts to operate and deliver services in such areas. 67. Establishing peace and security across Myanmar will involve finding a sustainable solution to the 70. The constitutional reform and upcoming elections, issue of the Muslim minority that identifies as Ro- offer huge opportunities for gaining people’s trust hingya in Rakhine State. As mentioned in the pre- and achieving state legitimacy. Under democratic vious section, this Muslim minority is not recognized governance, it has become necessary for the Govern- as an ethnic group by the Government, but rather seen ment to become more transparent and accountable to as illegal migrants from neighboring Bangladesh. Fol- its citizens, which is critical to building trust. Govern- lowing outbreaks of violence directed against this mi- ment now has an opportunity to be more transparent nority in the summer of 2012 that killed 89 people and in various areas of political and economic governance, displaced over 140,000, the Government established including procurement, as has been demonstrated in the temporary camps where most of the displaced continue award of mobile phone licenses, a tender process that to live today.25 Subsequent violence took place against won widespread praise for its transparency and integ- Muslim minorities in Rakhine in 2013 and 2014, which rity. Similarly, the on-going constitutional reform and spilled over into broader anti-Muslim violence in oth- upcoming elections offer an opportunity for Govern- er parts of Myanmar, including in the country’s second ment to ensure that the concerns of ethnic minorities largest city Mandalay in 2014.26 are addressed, including through further decentraliza- tion. 68. General elections are scheduled for end 2015. As is common in many countries, there is a potential for 71. A key challenge and risk to consolidating trust and a polarization of politics (and a politicization of devel- state legitimacy lies in the weak capacity of the po- opment decisions) ahead of the elections, and a peri- lice and judiciary, and likelihood of vested inter- od of uncertainty will likely follow the elections as a ests frustrating reforms. There have been concerns new government takes office and establishes its poli- about the capacity of the police and judiciary to ensure cy priorities. Complicating this situation are ongoing that the rule of law is enforced and upheld. As a legacy campaigns to change the constitution, including around of the past, there is still skepticism about the ability of the eligibility for high office of the opposition leader. the police and the judiciary to act with independence, Beyond uncertainty, this situation could create domes- such as when it comes to punishing corrupt practices. Further, those who have benefited from the system in 25 Report of the Special Rapporteur on the Situation of Human the past, both within Government and outside, may not Rights in Myanmar, UNOHCHR, August 2012 and September 2014. be happy with reforms that open up the space to com- 26 International Crisis Group, Myanmar Crisis Watch, April 2014.< petition, equity, transparency, and accountability, and http://www.crisisgroup.org/en/publication-type/crisiswatch/crisiswatch-da- may therefore try to frustrate reform efforts. tabase.aspx?CountryIDs=%7b7E12FB4D-6C23-449D-AF08-550AD5FD- 2F2E%7d#results> 32 | World Bank Report (b). Enhancing social inclusion 75. The on-going reforms provide an opportunity for the Government to promote social inclusion in de- 72. There are patterns of social exclusion in Myan- velopment. This is because it offers a platform for ev- mar which pose obstacles to groups seeking to lift idence-based policy making and bottom-up approach themselves out of poverty, gain equitable access to development. Therefore, there is now an opportuni- to services and share in prosperity. Certain social ty for the government to ‘do development better’ by groups face barriers, by virtue of their identity or lo- ensuring that future development programs and poli- cation, to participating fully in society and sharing in cies are more consultative; include social assessment prosperity. The main drivers are religion, ethnicity and and social accountability measures; and benefit a wide citizenship, gender, geography, and conflict. There has cross-section of society, particularly in ethnic minori- been long-standing discrimination and marginaliza- ty areas. The World Bank’s Social Impact Monitoring tion of non-Buddhists, dating back to colonial times (SIM) and Qualitative Social and Economic Monitor- but which has most recently been directed particular- ing (QSEM) qualitative social research programs have ly at Muslims, but also historically at Christians and documented the strength of social capital and collec- other groups. For example, in Rakhine State, people tive action at village level, at least within homogenous belonging to the Muslim minority that self-identifies groups. as Rohingya are stateless, poor, and face systematic discrimination, including restrictions on family size, (c). Maintaining macroeconomic stability marriage, birth registration, and movement. This se- verely constrains livelihood opportunities and access 76. Ensuring macroeconomic stability is important be- to markets and basic services, and prevents integration. cause it offers a more predictable environment in Elsewhere, anti-Muslim sentiment has grown since the which businesses can plan and operate. Most funda- reforms began, and since 2012 has spilled over into mentally, there is solid empirical evidence that econom- violence outside Rakhine State, specifically Meiktila. ic uncertainty reduces private investment. Excessive Burmese people of Chinese or Indian descent are not fluctuations in prices, interest rates, exchange rates, recognized as an official ethnic group. An NRC, which wages and output can all cause harm. Macroeconomic is a ‘citizenship scrutiny card, is needed to access high- stability requires effective monetary management. It is er education, register a business, buy land, stand for of- therefore important to establish early adequate capac- fice, move past checkpoints, migrate internally, and to ity in monetary and fiscal institutions. This, by itself, get jobs outside the informal sector. is not enough in fragile states. Conflict can be source of price instability when governments find they can fi- 73. The challenge of dealing with social exclusion came nance conflict related spending and other activities only to the fore in Rakhine during Myanmar’s census through excessive money creation.29 In the 1990s and carried out in April 2014. The majority Buddhist Ra- 2000s, inflation rates were quite high in Myanmar, as a khine residents were concerned about the intent of the result of heavy monetary financing of the large budget census to allow enumeration and self-identification by deficits that resulted from pursuing development con- the Muslim minority residents that identify themselves currently with the prosecution of multiple conflicts. as Rohinghya and led a boycott of the census that led to mass demonstrations. In the face of demonstrations 77. Although macroeconomic performance has genera- and threats of violence against government officials lly been strong in Myanmar, there is weak institu- and international aid workers, enumeration in the area tional capacity for macroeconomic management. with mostly Muslim minority residents was halted. Fiscal policy has largely been the main macroeconom- Elsewhere, the census, which was the country’s first ic stabilization tool, but with the CBM playing the role since 1983, was considered successful. of treasury and no department in the MOF dedicated to fiscal strategy and policy. The CBM relies heavily on 74. Women’s participation in decision making and ac- direct monetary policy instruments, mainly in the form cess to resources has been limited. The proportion of reserve requirements and prudential limits on the of women in national parliament is only at 6 percent in structure of commercial bank balance sheets. Interest 2013, starkly lower than the low income countries aver- rates have been administratively set for all instruments age of 19 percent. A recent study found that ideas about and maturities, and, until recently, rarely changed. leadership are set in the home, where men are common- There is no formal interbank market and pervasive ly considered the household head. These ideas are then controls on banks impede the monetary transmission reinforced in public and religious life, where men domi- mechanism. In the past, a fixed, multiple, and restric- nate positions of power.27 In addition, customary laws tive exchange rate policy has had damaging effects on of some ethnic populations have discriminated women the economy while deficit monetization has fueled in- from land ownership and property inheritance.28 flationary pressures. 78. Myanmar’s macroeconomic situation has im- 27 Action Aid, Care, Oxfam (2011) proved significantly in recent years (See Table 4). 28 Committee on the Elimination of Discrimination against Women (CEDAW) Report (2007). 29 Elbadawi and Schmidt-Hebbel, 2007. World Bank Report | 33 Growth accelerated in recent years (see paragraph 8). ipated foreign exchange inflows not materialize soon. Inflation declined significantly from 22.5 percent in Risks also arise from rapid growth of the financial sec- 2008/09 to 5.7 percent in 2013/14 , due mainly to im- tor, particularly given the lack of reliable data on the proved fiscal discipline by the new Government, which quality of bank’s balance sheets, and still nascent su- has committed to keeping the fiscal deficit below 5 per- pervisory capacity. Finally, as mentioned earlier, a stall- cent of GDP. In addition, there has been a significant ing of the political transition would have a significant policy shift in the financing of the fiscal deficit from negative impact on the medium-term macroeconomic reliance on the printing of money towards greater use prospects. of treasury bonds. Management of the exchange rate has also improved significantly following the floatation (d). Strengthening public sector capacity and governance of the exchange rate on April 1st, 2012. As a result, the official and parallel market exchange rates have now 80. The effectiveness and efficacy of the various path- converged (See Table 4). Similarly, with support from ways in ending poverty and boosting shared pros- the international community, the country has managed perity will depend critically on the capacity of to clear all external debt arrears. As a result, total ex- Government to design and implement the right in- ternal debt has declined significantly from 37.7 percent terventions, whether in the form of policy, institu- of GDP in 2008/09 to 24.6 percent in 2012/13. The last tional reforms, or investments. Each of the identified three joint World Bank – IMF debt sustainability analy- intervention areas will require careful identification and ses have concluded that Myanmar is at low risk of debt design of more specific policies, programs, and proj- distress. ects to remove the key constraints as well as effective and efficient implementation and coordination. This is 79. The medium-term economic outlook is favorable where the technical capacity of the public sector be- but faces significant downside risks, particular comes critical. In addition, it will require strong institu- weak institutional capacity for macroeconomic tions of governance to ensure that services are delive- management and the possibility of a slow down red in a transparent and efficient manner. or steps back in the transition. Under the baseline scenario (see Table 4), growth is expected to increase slightly further, averaging 8.4 percent over the next few years. The key underlying assumptions are continued strong performance in the productive sectors, includ- ing construction and manufacturing in special export zones, and robust performance in the service sectors. The nominal and real effective exchange rates have been depreciating and are projected to continue doing so in the medium term.30 Inflation is forecast to reach 6.6 percent in 2014/15, fueled by electricity price in- creases and demand pressures, but should moderate in following years. The external current account deficit is projected to be around 4.9 percent of GDP, but is ex- pected to be more than offset by rising FDI-related in- flows while the fiscal deficit is projected to rise to 4.5 percent of GDP in 2014/15 mainly due to significant increases in transfers to state and regional governments and an increase in civil servants salaries. In spite of a general positive outlook, the economy faces significant downside risks. Basic macroeconomic management tools are still being built and the authorities’ capacity to develop and implement policies and absorb technical assistance is already stretched. Given Myanmar’s de- pendence on gas, strong capacity will be needed to deal with the challenging reforms that can foster inclusive growth, including growth of the non-resource sectors which will be needed to diversify the economy. The CBM’s international reserves would be insufficient to resist short-term exchange rate pressures, should antic- 30 The real depreciation in Myanmar is in contrast to the normal pattern observed in other fast growing countries in East Asia where the real exchange rate has been appreciating. While further study might be needed, this difference in outcome could be explained by the limited capacity of the economy to absorb foreign investment, the unattractive real interest rate which discourages hot money inflows and limited gains in productivity. 34 | World Bank Report Table 4: Myanmar: Selected Economic and Financial Indicators, FY09-17 World Bank Report | 35 (i). Improving public sector capacity for policy making, coor- requires that a careful diagnostic be undertaken to iden- dination, and service delivery tify the binding capacity constraints within each of the identified intervention areas and at the Center. Howev- 81. Broadly, the Myanmar civil service suffers from a er, progress can be made in the near term in ensuring deficiency of critical skills. To a large extent, this is a that different sectors come up with sector strategies that result of decades of under-investment in education and indicate sector priorities, no matter how basic the strat- brain drain. However, this has been compounded by the egies may be. Through the sector working groups that fact that existing public sector training programs have have been established, these sector strategies will also been deficient in equipping civil servants with the crit- provide a forum for coordination of efforts by Govern- ical skills needed to effectively and efficiently design, ment, development partners, and the private sector. In implement, coordinate, monitor, and evaluate Govern- addition, the efficiency of Government in making deci- ment policies and programs. As a result, there is defi- sions, coordination, and delivering of services can be ciency within Government of certain specialist skills in significantly improved, including by leveraging on ICT the areas of policy analysis, planning, and formulation, through the introduction of e-governance. procurement, monitoring, and evaluation. In addition, current organizational structures do not provide for 85. Sectoral approaches to capacity building have these specialized functions in most ministries. Finally, been effective in addressing some of the capacity as a legacy of the past, there is lack of initiative, criti- constraints. Some ministries are formulating and im- cal thinking, and orientation to conduct policy analysis, plementing reform programs that among other issues, provide policy advice and implement policy amongst seek to address specific capacity constraints. In partic- technocrats, both, at central Government level, as well ular, progress has been made in PFM, pensions, health, as within line ministries and agencies; and government education, energy, safety nets, and telecommunications, has a pronounced “silo” character, whereby ministries just to mention a few. Therefore this offers another av- and agencies do not coordinate well with each other. enue that needs to be explored in dealing with some of the capacity weaknesses in the public sector. 82. The country’s legacy of excessive bureaucracy and its opening up have further stretched the already 86. Improving the quality of data by strengthening weak capacity of the public sector, with a high risk statistical systems will be critical to promoting ev- of staff attrition. In particular, the workload of regu- idence-based policy making. Even if the authorizing lations and management that each policy and new law environment and culture becomes more conducive, the entail further stretch the already limited expertise and capacity of the Government to formulate appropriate technical capacity of the bureaucracy. In addition, in policies and strategies will be hampered by the poor spite of the recent increases in the salaries of civil ser- quality of data and knowledge gaps. A key opportunity vants, pay and compensation of civil servants in Myan- lies from the fact that improving the quality of statis- mar remain very low. As a result, the increase in foreign tics is one of the four policy priorities identified by the direct investment in response to the country’s reform new Government. In addition, development partners drive poses a significant risk to the competiveness of have committed to supporting the Government in the the public sector and hence, its capacity to retain civil preparation of a National Strategy for the Development servants with skills that are on high demand. of Statistics (NSDS) that will ensure a more systemat- ic approach to the strengthening of statistical systems 83. The establishment of Delivery Units (DUs) is aimed as well as funding elements of the strategy once it is at improving the effectiveness of the public sector finalized.31 to deliver some tangible results in the context of reforms. Established in August 2013, the DUs are es- 87. Finally, fostering transparency will be key to re- sentially sub-committees of Cabinet level committees ducing interference of politicians in decisions and with the overall objective to implement “quick wins” in processes that are technical in nature. Encouraging service delivery. However, it is not clear how the DUs technocrats to play a more prominent role in designing fit within a broader public sector reform framework processes and making decisions that are technical in that is aimed at dealing with the underlying capacity nature may not be effective unless the system makes constraints. it difficult for politicians to interfere. In this context, designing systems and processes that are transparent 84. A key priority will therefore be to strengthen the will be critical. capacity of Government agencies to come up with appropriate sector strategies that are consistent with Government policy priorities and well-coordi- nated with other sectors; and to improve the Cen- ter of Government’s efficiency in coordination and delivery of services. In this way, binding constraints which derive from government systems can be ad- 31 The NSDS sets out the strategic goals of the statistical system dressed. The development of the necessary specialized over the medium term, usually, 5 years (but could be longer) by assessing the current situation, identifying needs and gaps and developing action skills will take time. In addition, a systematic approach plans and budgets. 36 | World Bank Report ii). Strengthening governance institutions and reducing measures by the Government. In January 2013, an An- corruption ti-Corruption Committee was formed followed by the enactment of an Anti-Corruption Law in August 2013. 88. Improving the governance environment will be a In addition, in 2013, the authorities awarded licenses critical pre-requisite to unlocking Myanmar’s po- to two foreign mobile companies through an open ten- tential to grow and reduce poverty. In order to have der process that was widely hailed as very transparent a good foundation for growth and inclusiveness, inves- by international standards. Going forward, improved tors and the general population need to have confidence transparency in the management of the extractive in- in the public sector’s capacity to protect stable property dustries will be critical given their role as a major rights, enforce the rule of law, effectively implement source of public revenues. Having attained EITI can- anti-corruption policies, promote participation, and didate status, it will be important for the Government achieve government accountability. to meet its obligations under the initiative of producing the first audit report within the next 18 months. 89. Progress has been made in improving participatory development through decentralization. Apart from 92. An apparent lack of capacity of the judiciary to strengthening the role of parliament in the bourgeoning uphold the rule of law, including the protection democracy, efforts have been made to devolve politi- of property rights, is widely perceived as a major cal, administrative, and fiscal powers to sub-national weakness in Myanmar’s governance environment. governments. Since 2011, the Government has em- The degree of merit-based appointment within the ju- phasized “people-centered development,” by creating dicial system is unclear, as there is no independent pro- consultative bodies or elected positions at state/regional, cess for appointing even lower court judges. Given the township, district, and village levels (Nixon & Joelen, history of military rule, there remains a strong percep- 2014). In rural development, the government has begun tion within civil society that judges are susceptible to to address significant investment needs by providing corruption and bribery. Moreover, judges have seldom grants to village tracts and shifting decision-making given any explanation or written justification for deci- (and prioritization) authority to communities themselves sions, leading to the perception that they were largely as part of the people-centered approach to development. carrying out instructions from the executive rather than In addition, there has been an increase in the amount of applying and enforcing the rule of law. resources transferred to states and regions (World Bank PER, forthcoming). (iii). Mobilizing public financial resources and improving the quality of expenditure 90. In spite of progress made in the devolution of au- thority to regional and local governments, weak- 93. Sustaining improvements made so far on improved nesses remain. First, the functional responsibilities access to information and freedom of the media that have been devolved to states and regions so far are will be critical to improved governance. The histori- too limited for meaningful decentralized governance cal dominance of the military has meant that genuine (World Bank PER, forthcoming). In particular, unlike participation, voice or representation in the broader na- in most decentralized systems, basic education and tional government were limited, and attempts to voice health remain under the purview of the central govern- dissent were suppressed harshly. Now, as part of the re- ment. In addition, the lack of clarity on the division of form process, newspapers and journals are freely pub- responsibilities in some of the areas represents a tre- lishing information, which was previously not possible. mendous risk to improving access to required services. Similarly, previously exiled media organizations have Also, while progress has been made to ensure equity in also been able to establish operations within the coun- determining inter-governmental fiscal transfers, there try. According to Reporters Without Borders, “thanks remains a lack of clarity on the parameters considered to the Burmese spring’s unprecedented reforms [on in determining the specific amounts transferred to each press freedom], it has reached its best-ever position” of individual state or region. In this regard, there is a par- 151 out of 179 countries on the Press Freedom Index ticular concern that states and regions from which nat- in 2013. Government transparency with information ural resource revenues are derived do not yet receive has increased considerably, although a key limitation shares that reflect their respective contributions and is the unreliability of some data, particularly from sur- burdens. veys. Building on these improvements will be critical to improved governance, including the fight against 91. Corruption in Myanmar is perceived and reported corruption. to be high. A major feature of corruption in Myanmar has been a phenomenon known as “cronyism” where a few people with connections to the military govern- ment benefitted from business contracts and public ap- pointments. In 2012, Myanmar ranked 172 out of 175 countries on the Corruption Perceptions Index In 2013, its rank improved to 157 out of 177 countries. The im- provement may reflect in part some anti-corruption World Bank Report | 37 to considerable negotiation of tax liabilities between tax officers and individuals. This also compromises the fairness and equity of the tax system, at a time when Myanmar is eager to encourage both foreign and do- mestic investment and private sector growth. Follow- ing recent improvements in tax and non-tax revenues, Myanmar’s revenue efforts are now well within region- al levels (See Figures 19 and 20). There has recently been some progress in reforming tax administration, in- cluding through the establishment of a Large Taxpayer Office. However, there is still need to accelerate policy reforms to broaden the tax base and simplify the tax structure. 95. Significant off-budget revenue flows cause budget fragmentation, elevate fiduciary risks, and raise transparency issues. According to the Public Expen- diture and Financial Accountability (PEFA) assess- ment, approximately 40 percent of revenues (mostly from the natural resource sector) are managed through Other Accounts at the MEB which are essentially off-budget. Such off-budget financing fragments and undermines strategic resource allocation through the budget, weakens external oversight, and gives rise to concerns about accountability and transparency. 96. The Government has not yet significantly exploited the potential for public private partnerships, although efforts are underway. Over the last twenty years, gov- ernments of developing economies have embraced the private sector as a source of efficiency and innovation as well as a partner in mobilizing financing for infra- structure and service provision. In stark contrast, offi- cial government policy has promoted the sourcing of public sector needs from SEEs. Given the country’s significant development needs, there has been over- whelming private sector interest. However, Myanmar has not significantly exploited this potential but efforts to scale up PPPs are now underway with support from development partners. 97. Given Myanmar’s large development needs, limited fiscal space, and high dependence on gas sector, the quality of expenditure will be critical to accelerating growth and making it inclusive. Ensuring quality ex- penditure is always critical for achieving development objectives but is especially critical in the case of Myan- mar given its huge development needs but limited fiscal space. In addition, given the high prominence of the gas Source: Ministry of Finance, IMF and World Development Indica- sector in the country’s economic structure, the quality tors, 2014 of expenditure will play pivotal role in ensuring that growth is inclusive. In particular, since the gas sector 94. The level of public financial resources remains on its own does not create many jobs, its contribution inadequate to meet the country’s critical develop- to inclusive growth will be through the Government’s ment spending needs, although there have recently success in utilizing gas revenues in a way that helps to been significant improvements. A narrow tax base spur growth in labor intensive sectors and improves the and weak compliance have curtailed tax returns, as a delivery of services. result of the extensive use of exemptions, and an out- moded tax administration system. Myanmar’s current system of tax administration is characterized by official assessment rather than self-assessment, and is subject 38 | World Bank Report 98. In spite of recent improvements, a major weakness in Myanmar’s quality of expenditure remains the low level of resources allocated to health and ed- ucation. Public expenditure on health increased from 0.2 percent of GDP in 2011/12 to 1.5 percent of GDP in 2012/13 while that of education increased from 0.8 per- cent of GDP to 1.6 during the same period. In spite of these large increases, Myanmar’s expenditure on health and education remains low by international standards (see Figures 21 and 22). In addition, while the Gov- ernment has increased its own financial allocation to the sectors, operational costs for institutions delivering services at the front line remain underfunded. Most of the additional resources have gone towards capital ex- penditures and salaries. 99. More generally, weaknesses along various stages of the budget cycle undermine the quality of expen- diture in Myanmar, and hence, reduce prospects for achieving the Government’s poverty reduction policy objectives. First, the budget preparation frame- work and process are not appropriately designed to en- sure that resources are allocated to policy priorities. At present, most of the Budget Department’s manpower is absorbed in performing cumbersome routine tasks of budget compilation and reporting. A Fiscal Policy and Strategy Division in the Budget Department has just been established and is yet to become operation- al. Therefore, key budgetary decisions have been made without being informed by rigorous analytical founda- tions. Proposed budgets submitted by line ministries to MOF and thereafter to Parliament are simply a collec- tion of line items without narratives and therefore not easy to analyze the budget-policy linkages. Second, when it comes to implementation, a key weakness of the expenditure framework is the lack of centrally de- fined standards in areas such as payroll management and procurement. Currently, these functions are highly delegated to ministries and spending units at differ- ent levels within them. This situation has allowed line agencies to develop rules and regulations in isolation of Source: World Bank, Public Expenditure Review (forthcoming) central guidance. As a result, spending agencies have not been subjected to minimum standards and controls 100. Since the reforms started, opportunities abound to ensure value for money in spending. This has created but there are risks too. There is high level political loopholes that have been exploited by some function- and technical buy-in to modernize the PFM backbone aries. In addition, the official requirement to purchase to support service delivery. The Parliament, Office of from state-owned suppliers and producers has limited the President, and key economic ministries, are keen the public sector’s ability to benefit from private sector to modernize and reform the system to improve service efficiencies and innovations. Finally, a key weakness delivery, foster greater transparency, and link polices in Myanmar’s public expenditure framework has been to fiscal outlays. The entering into the market of two lack of focus on results and outcomes. For example, mobile phone companies will significantly improve within education, there is no national assessment of telecommunication services and hence provide a plat- learning outcomes at the lower levels of basic educa- form for a more automated and interconnected PFM tion. Therefore, no one knows if increased expenditure system. At the same time, increasing pressure from to education is achieving the desired results. executive and scrutiny from legislative branch could result in rushed and uncoordinated reform efforts, to the detriment of a mature system. Similarly, vested in- terests that have benefited from a weak PFM system could frustrate reform efforts. In natural resource man- agement, a key opportunity is the strong political will to greater transparency in the sector demonstrated by World Bank Report | 39 the Government’s commitment and progress made on EITI manifested in the recent attainment of candidate status. Finally, the fiscal decentralization drive offers an opportunity for improving the quality of expenditure through better alignment of resource allocations to lo- cal circumstances and development needs as well as in- creased and more direct mechanisms of accountability. 2. Promoting universal access to basic services and em- powerment for inclusive growth, particularly in rural areas 101. As most poor people in Myanmar live in rural areas and have limited access to critical services, promoting universal access and extending services to the rural poor and other disadvantaged groups, will have a high impact. Access to rural infrastruc- ture (rural electrification, roads, telephone services) will empower the rural poor by facilitating access to basic social services, and by enhancing opportunities for and raising incomes from productive activities. In turn, improved access to basic social services (health, education, water and sanitation) will help deal with the non-income dimension of poverty, and investments in human capital are crucial in preparing people for productive work and empowering them to pursue op- portunities in the labor market. In appropriate circum- stances, social protection interventions may support the empowerment agenda through facilitating human cap- ital acquisition (e.g., by increasing the demand for and usage of education and health services through condi- tional cash transfers), providing income smoothing for the poor (e.g. seasonal public works to provide mean- ingful temporary employment during the lean season), or providing last resort support for those without work ability (e.g. disabled elderly) where resources permit. (a) Ensuring universal access to social services 102. The health status of the people of Myanmar is low and does not compare favorably with other countries in the region. Among ASEAN countries, Myanmar has the lowest life expectancy at birth, and second-highest in terms of infant and under five mor- 103. Decades of low public spending means that house- tality rates, prevalence of underweight, prevalence of holds have to shoulder a large part of the costs, HIV and incidence of tuberculosis. Maternal and child with significant disparities in geographical cove- mortality and malnutrition remain serious problems rage and minimal quality of services delivered. for Myanmar, although there have been significant Myanmar has one of the lowest Government expendi- improvements in the past two decades, with maternal tures on health globally. In 2011-2012 the health sector mortality now lower than in most countries in the re- accounted for only 1.3 percent of total government ex- gion (Figure 23). penditure (about US$ 2 per person per year). As a result of these low levels of spending, out-of-pocket (OOP) payments are exceptionally high, accounting for almost 80 percent of total health spending, one of the highest in the world. In addition, many areas of the country are poorly served by health services, with difficult terrain, geographical remoteness, conflict and cultural diver- sity hindering the delivery of essential services. Even where services are available, systemic challenges seri- ously undermine the quality of the services delivered. 40 | World Bank Report 104. Increasing access to basic quality health would allow them to benefit from additional training, includ- have a high impact on poverty reduction and some ing vocational training. However, the impact on pover- key actions can be scaled up relatively quickly. Ba- ty reduction of improving access to quality basic educa- sic health has strong complementarities and linkages tion is not likely to be seen in the short-term since edu- with basic education, sanitation, and agriculture pro- cation has a relatively longer gestation period. But this ductivity. Further, the opportunity cost of ill health in may also be the reason why action needs to start now a household is very high in terms of lost opportunities. so that the impact can be seen sooner rather than later. Therefore, in light of the high deficiency gap compared to other countries, action on improving access to health 108. The picture on access to water and sanitation is would have a high impact on poverty reduction. In ad- mixed and is hampered by the fact that data on dition, the impact on poverty reduction can be realized service coverage and functionality are unreliable. relatively quickly, with key additional areas of action The government has not published an annual statistical relatively easier to implement - they mainly entail in- review since 1997-832, while the last water sector re- creasing budgetary allocation to health and scaling up view was in 199333. Latest Joint Monitoring Program existing programs such as provision of free essential (JMP) data suggest a broadly positive state of affairs, drugs at primary health care facilities and township with levels of access to improved water supply and san- hospitals, and provision of free health care services for itation that are high and compare well to regional aver- children under 5, pregnant mothers, and free hospital ages for both rural and urban areas. However, the data admission on the first day for patients needing emer- also shows significant disparities in access to safe water gency surgery. in selected parts of the country, indicating large areas in which the population depends on surface water, such as 105. In basic education, although enrollment rates in open ponds and shallow wells, for drinking water. Fur- Myanmar are respectable (Figure 24) by inter- thermore, township data indicate that diarrhea is still national comparison, completion rates indicate a major killer of children under the age of five which a significant problem and quality has been poor. suggests that sanitation is still a problem in the country. Only about 11 percent of a cohort graduates from high school, around 30 percent of the students reach to the 109. Interventions for increasing access to water and end of high school and about 25 percent of a cohort sanitation would have a high impact on poverty re- leaves basic education after primary school. duction but the focus in the short-term would need to be on getting a handle of the data situation. Giv- 106. Private costs associated with attending education en that water and sanitation are basic needs, improving represent an important reason why poor house- access can therefore be expected to have a high and holds have been excluded in Myanmar. Although direct impact on poverty reduction. In addition, there the economic burden faced by parents does not seem are strong complementarities with health – better ac- excessive compared to neighboring countries, there is cess to water and sanitation is critical to the prevention evidence that the high costs to households (both direct of many diseases. However, in the absence of credible and lose of child’s labor) is a barrier for households in data, initial work would need to focus on filling data which children are not in school. When these house- gaps on the size of the deficiency gap. holds are asked why their children are not in schools, over half (55.5 percent) of the main reasons identified (b). Expanding rural infrastructure networks for never attending school related to economic and cost factors (World Bank, Forthcoming). Since both the di- 110. Expanding critical rural infrastructure will be key rect and indirect costs of education increase as a child to reducing poverty since it will integrate the ru- progresses through the education system, cost related ral with the peri-urban and urban economy and factors are particularly an issue at the lower and up- empower the rural poor to access social services per-secondary levels. and participate in income earning opportunities. Like with social services, access to critical rural infra- 107. Action on increasing access to education and voca- structure such as ICT, electricity, and roads has been tional training would have a high impact on poverty significantly low in rural areas. Greater emphasis on reduction although its impact will not be realized in expanding coverage to rural areas can have a signifi- the short-term. Although the deficiency gap in terms cant impact in reducing poverty. of overall access to education does not appear wide na- tionally compared to health, quality basic education has strong complementarities and linkages with a number of other areas particularly health, water and sanitation, ICT, financial services, all of which are critical for empow- ering people to take full advantage of income earning 32 Meehan, P. (2010) The WASH Sector in Myanmar: Addressing the Challenge of Building Sustainable WASH Services. WaterAid. opportunities. Ensuring that students have foundational skills such as functional literacy as basic numeracy is 33 Cowater International in association with Thant Syn Co. Ltd., and especially critical for empowering people to benefit General Administration Department, Urban Water Supply Division, United Nations Development Programme and The World Bank (1993) Water Supply from opportunities for wage and self-employment, and and Sanitation Sector Review, Myanmar. UNDP, MYA/86/012 World Bank Report | 41 111. While there is low access to ICT broadly in the and Rakhine State) have access to grid-based electric- country, most rural areas do not have access even ity below 10 percent, which is on par with only few to the most basic of ICT - telephone services. Tele- very poor countries in Africa. Therefore, low level of communications related infrastructure has been biased rural electrification is a key constraint to inclusiveness towards the urban areas in Myanmar, even though of growth in Myanmar. 75–80 percent of the population lives in the rural areas. Rural and remote areas continue to have poor coverage 116. Also, although Myanmar has made significant which has limited the usage of mobile, fixed line or in- progress in developing rural roads, most parts of ternet when travelling to the rural areas. the country remain difficult to reach. In 1988, there were 7,850 kilometers of rural roads. Significant im- 112. The advent of wireless technology is an op- provements have been made since. Under the rural de- portunity for increasing telecommunication velopment program the road network reached 57,700 access to people who live in the rural areas. kilometers in 2010. Rural bridges also increased to 10, Wireless technology can cover a wide range of areas 997 kilometers from 3,663 kilometers in 1988. None- without the use of physical cables, and its equipment theless, half of the rural roads in Myanmar remain im- is relatively easy to install (ADB, 2014). Fixed lines passable during the monsoon season. Therefore, greater are expensive to install and deployment requires more attention needs to be paid to improving the condition of time. Nonetheless, although wireless technology is rural roads. relatively cheaper, access of sparsely populated and remote areas remain an issue as these are not commer- (c). Increasing access to safety nets and reducing vulnerability cially viable activities. 117. Given the high levels of vulnerability for house- 113. Expanding the rural telephone network can re- holds to fall into poverty, increasing access to safety duce poverty substantially, by empowering the nets and reducing vulnerability can also contribute rural poor to benefit from opportunities for pro- to reducing poverty. This is particularly important in ductive economic activities and service delivery. the rural areas where most households rely on agricul- Through improved telephone access, the poor will be ture for their livelihoods, which is in turn susceptible to able to have access to information that would be useful weather related shocks. Without any form of safety net, in making production and trading decisions, but also in natural disasters such as floods or draughts can easily facilitating access to microfinance and critical services plunge many people into poverty or deeper poverty. such as health. Experience from other countries has shown that the benefits of using mobile phone tech- 118. At present, Myanmar’s formal social protection nology in health care systems in developing countries system does not adequately address the needs of its are diverse, and include improved reporting in health population. The only SP sector review to date suggests information systems, telemedicine providing care to that over 95 percent of the population has no access populations otherwise deprived, and texting to improve to predictable social protection, relying instead on in- adherence to treatment therapy. formal and community-based coping mechanisms and ad hoc assistance from donor-financed programs. The 114. Similarly, rural electrification is critical to enhancing Government SP spending is almost entirely focused the inclusiveness of growth through empowerment. on social security provisions that benefit a small and Reliable access to electricity will be key to the creation relatively privileged section of the population. In 2012- of a conducive business environment for small and mi- 13, the expenditure on civil service pensions and social cro-enterprises in rural areas. In addition, electricity is security provisions amounted to about 0.5 percent of critical to improving the delivery of other services such GDP and constituted 2.3 percent of the national budget. as health, education, security, and finance. Lack of elec- However, these old age pensions and health insurance tricity in an area can act as a disincentive for qualified provide inadequate protection due to low pension lev- staff in health and education to locate in rural areas. els (a function of low civil service wages) and weak de- Similarly, lack of electricity makes it difficult for rural livery mechanisms. In addition, these programs cover hospitals and clinics to preserve drugs through refrig- only the small group of formal sector workers, leaving eration. households vulnerable to health, weather-related and other shocks. Myanmar also in effect does not have 115. At the same time, the proportion of people with- a publicly financed safety net program; government out access to electricity in Myanmar is significant- spending on safety nets was less than 0.01 percent of ly higher in the rural areas than in urban areas. GDP in 2012-13. This is well below the 1-2 percent of While the electrification rate in urban areas is about 75 GDP being spent on safety nets in much of East and percent (e.g. Yangon and Mandalay), the rural areas South Asia, and even in poorer Sub-Saharan African have an extremely low electrification rate of only 16 countries (World Bank 2014). At present, the biggest percent. In fact, most of rural communities in border financers of SP provision in Myanmar are development areas have no access to the grid-based electricity at all, partners engaged predominantly in emergency and hu- and some regions and states with a high share of rural manitarian relief with parallel, non-government deliv- population (e.g. Ayeyarwaddy and Magway Regions ery mechanisms. 42 | World Bank Report 119. Opportunities exist for expanding safety net pro- 121. At the same time, climate change also represents grams that would need to be leveraged. These in- a major challenge for Myanmar. The country is al- clude the emerging political and fiscal space for redis- ready experiencing increased climate variability (nota- tributive policies, increased desire from Government bly with regard to rainfall), is significantly exposed to for a transition from emergency-relief related and extreme events (notably destructive cyclones), and is donor-funded programs towards a sustainable govern- expected to experience increased temperatures, heavier ment-led social protection system and increased focus rains but also longer dry spells with fast growing impact on delivering benefits and services effectively to the in the coming decades. Myanmar has experienced dev- poor. Myanmar also has a latecomer’s advantage to ben- astating cyclones Mala, Nargis and Giri in 2006, 2008 efit from international experience in developing build- and 2010 respectively, claiming thousands of lives. Cy- ing blocks for a robust SP system, including new tech- clone Nargis was the worst, claiming 130,000 lives. Ten nology-based solutions. There is compelling evidence percent of the country is projected be further affected that SP programs have contributed to reducing poverty by a sea-level rise of between one and five meters. The and inequality in both low and middle income coun- country therefore ranks among the world’s top countries tries, and countries such as Ethiopia, India, Bangladesh, most at risk from the combined effects of climate change. Pakistan, Rwanda, Nepal, and Ghana, have invested in SP programs at various scales, depending on the specif- 122. Currently, Myanmar faces many challenges to ef- ic needs and fiscal sustainability.34 Countries at an early fective management of the environment and mit- stage of development with emerging natural resource igation of climate change impacts. At present, the wealth are also investing in SP systems (as in the case country’s legislation covering natural resources does of many African countries such as Mozambique). In not define the licensing process, the role of government many cases, SP programs in both LICs and MICs lever- authorities, or the fiscal system for extractives revenues. age human capital acquisition and livelihoods, and IMF Environmental disturbances by mining industry are in- analysis has demonstrated both benign growth effects creasing but have not yet been accompanied by sub- and positive distributional impacts of such policies. stantive regulatory responses. In addition, there is limi- ted information on the management of the extractive 120. Apart from expanding safety nets, reducing vul- sector. The country has no freedom of information law nerability to poverty will require focusing on ef- and there is no requirement to prepare or implement fective disaster risk management. It is the poor and environmental and social impact assessments (ESIA). vulnerable – women, children, the elderly, marginal- The legal formulation and implementation of the ESIA ized groups, and those recovering from conflict – who rules and regulations, relevant pollution control rules often are most exposed to hazards, with their homes in and regulation for solid and hazardous waste manage- fragile and often low-lying environment are most af- ment have been just recently launched for development fected, and their lives feel the greatest pressure when in line with best international practices. droughts increase the food prices. Myanmar is exposed to multiple natural hazards which include cyclone, 3. Promoting openness and sustainable private sector led storm surge, floods, landslide, earthquake, Tsunami, growth for more jobs drought, and forest fire. The rainfall-induced flooding is a recurring phenomenon across the country while 123. In order to sustainably reduce poverty for the tran- some parts of the country are exposed to landslide and sitional and traditional poor in Myanmar, there is drought risks. As per the data from 1998 to 2007, fires need to create jobs outside agriculture and to in- constituted about 71 percent of reported disaster events, crease returns to agriculture. Given that the gas sec- followed by floods (10 percent), storms (11 percent) tor is not labor intensive while the agricultural sector and others (8 percent) including earthquakes, tsunami will not be able to create enough jobs to absorb all the and landslides.35 Cyclone Nargis (2008) was the worst transitional poor while returns in the sector are low for natural disaster in the living memory of Myanmar, the traditional poor, efforts need to be focused on pro- with over 130,000 people killed, and millions affected moting greater private sector investment in the non-gas by losses of homes and livelihoods. The Post-Nargis sectors and increased productivity in agriculture. Sectors Social Impact Monitoring indicates that women were outside the agriculture and gas sectors with potential for more likely than men to be killed by Nargis – research creating jobs in Myanmar include manufacturing, min- in 40 townships shows that at least 396 women and 338 ing, tourism, ICT, the financial sector, and construction. men died. The study found that women typically had more limited access to information with regard to early 124. Myanmar can start tapping opportunities in the disaster warning36. context of regional and global production/value chain networks. Sophisticated production and distri- 34 See for example Fiszbein et al 2011, Subbarao et al 2013, butional networks in East Asia have been developed Velarde and Fernández 2011, Andrews et al 2013, World Bank 2013b, through fragmentation of production activities across Himanshu and Sen (2013). borders (Kudo, 2009). In particular, multinational cor- 35 Government of Myanmar (2009), page 1 porations divide their manufacturing processes into sep- 36 Finding from QSEM II presented corresponds with World Bank led research findings from the EAP region on the impact of natural disas- ters on women. World Bank Report | 43 arate production blocks and locate them across borders over which results on poverty reduction can be expected. so that they can exploit the non-integrated elements of location advantages such as wage differences. Due to sanctions, poor policies, infrastructure and connectivity, Myanmar has been the missing link in the region. 125. Jobs created through growth in non-agriculture sectors will be especially critical in tackling ur- ban poverty, particularly through the creation of Small and Medium Enterprises (SMEs) alongside large firms. As shown from the poverty profile, urban poverty in Myanmar is much higher than originally reported. Therefore, creating employment opportuni- ties in and around towns and cities will be critical to ending urban poverty. Evidence from India shows that urban growth (particularly in small towns to which rural areas tend to be more closely linked) have been a critical driver in reducing rural poverty as well. As policy initiatives are put in place to stimulate invest- ments by large foreign and domestic firms, it will be important to create a conducive environment for the urban poor to set up their own businesses, in the form of SMEs. Policy initiatives will need to recognize po- tential synergies between large firms and SMEs that can be critical to driving growth and creating jobs – SMEs can be major players in the supply chain of the larger firms as suppliers, consumers, or intermediaries. 126. For Myanmar to create more jobs in the non-gas and non-agricultural sectors, continuing with cur- rent efforts to open up the space for foreign and domestic investors will need to be a priority, com- plemented by facilitation of access to domestic, regional, and international markets. In particular, the country needs to remove the remaining policy and institutional impediments that are still hampering entry by new domestic and foreign private sector investors into the economic space, and expansion of operations by existing investors. In addition, there is also need to remove policy and institutional barriers to domes- tic, regional, and international market access. Some of the required policy and institutional changes may take time to be carried out or may be politically sensitive but many can be implemented in the short to medium term. 127. In addition to opening up the economic space, at- tention will also need to focus on removing key con- straints related to actual factors of production that are critical to business start-up and increased pro- ductivity – such as electricity, finance, land, labor, transport connectivity, and ICT. From the 2014 ICA Source: World Bank, Investment Climate Assessment–Enterprise enterprise survey, most of these featured highly as criti- Survey, 2014 cal constraints amongst firms interviewed (See Figure 25 and 26 below). All are expected to have a high impact on (a). Opening trade and foreign investment poverty reduction given their strong linkages to the path- ways out of poverty. However, there is need for careful 128. Due to state dominance and international isola- consideration in determining the sequencing of actions tion, Myanmar has not benefited fully from jobs for dealing with each of the constraints, including how created through greater participation by the do- much knowledge already exists on what exactly needs mestic private sector and foreign direct investment to be done, complexity of the underlying issues and the (FDI). The country has 44 formally defined State Eco- required reforms to deal with them, and period of time nomic Enterprises (SEEs) some of which are operating 44 | World Bank Report in areas that do not justify public sector involvement. low and in terms of road density (219.8 kilometers per In addition, SEEs have an unfair advantage over the 1,000 square kilometers), it is the second lowest among private sector because they enjoy significant subsidies ASEAN countries. The road network had expanded at from Government. Government mandates requiring a rate of about 8,600 kilometers of new roads per year purchasing from state producers where possible has between 2005-2008. This slowed down to 5,800 kilo- severely restricted the scale of public procurement and meters of additional roads per year from 2009 to 2012. sharply constrained an important driver of private sec- Similarly, Myanmar’s port infrastructure lags behind tor growth. Finally, due to the country’s past isolationist its peers. The country’s Liner Shipping Connectivity policies and international sanctions, Myanmar has not Index37 is at par with Cambodia but lower than other fully benefited from high levels of FDI as other coun- Southeast Asian countries. Railway and river transport tries in the region. To date, FDI has mainly been con- networks also are relatively underdeveloped compared centrated in the extractive industries. to peers in the region. 129. Beyond SEEs, military involvement in businesses also casts a heavy cloud on private sector space. The Ministry of Defense owns two holding companies with vast business interests: The Union of Myanmar Economic Holdings Limited (UMEHL) which was es- tablished to focus on light industries, trading, and ser- vices, and the Myanmar Economic Corporation (MEC) which was established to focus on heavy industries. Al- though the military owned companies are not regarded as SEEs, they enjoy certain privileges which make the playing field for the private sector uneven. For exam- ple, in the past they were exempted from commercial and profit taxes and have had exclusive access to secure preferential contracts with foreign firms. 130. In order to create more jobs through increased private foreign investment, the Myanmar econo- my also needs to be more integrated with regional and global markets. The lifting of trading sanctions by the west and the coming into effect of the ASEAN Economic Community (AEC) in 2015 significantly ex- pands Myanmar’s market opportunities abroad which could make trade a major driver of growth and hence, job creation. The range of tariff rates, the average tar- iff, and average effective rates have been declining since Myanmar became a member of the ASEAN in 1997. However, the country still has many non-tariff measures (NTMs) that significantly hamper integration with regional and global markets although efforts are now underway to streamline them. Similarly, with few exceptions, customs procedures for the processing of import and export declarations are cumbersome. The Customs Department lacks essential equipment and re- quires a laboratory facility, possibly shared with other government departments, that has the capacity to test and quickly return a multiplicity of import and export samples. In general, Myanmar performs poorly on the Logistics Performance Index (See Figure 25) compared to most countries in the region. 131. Poor transport connectivity is a key constraint to Myanmar’s full integration with markets. Cur- rently, Myanmar’s transport infrastructure lags behind most of its peers in the region. For example, according to an ADB report (2014), the total road network as of 37 The LSCI measures how well countries are connected to global ship- 2012 was 148, 600 kilometers. However, considering ping networks. It is computed by the United Nations Conference on Trade and De- its size (676,577 square kilometers) and population of velopment (UNCTAD) based on five components of the maritime transport sector: number of ships, their container-carrying capacity, maximum vessel size, number of 51 million, the country’s total road length is considered services, and number of companies that deploy container ships in a country’s ports. World Bank Report | 45 (b). Increasing agricultural productivity 132. With the slow creation of non-farm jobs, agricul- ture will continue to employ many people in Myan- mar for years to come and therefore play a critical role in reducing poverty in the country. Increasing agricultural profitability and returns to labor will be central for effective poverty reduction. Higher profit- ability, due to increasing yields, shifting or diversify- ing cropping or livestock holding patterns, and more efficient use of inputs (including labor), is a necessary condition to increase farm welfare. There is likely to be some substitution of capital for labor, although incre- mental farm mechanization will enable increased utili- zation of spare land in some areas and generate demand for off-farm service provisioning. A more productive agriculture would also encourage job creation through agro-processing and food distribution activities and earn foreign exchange through exports. 133. Poor rice yields are the main reason behind low agricultural productivity in Myanmar. This is be- Box 5: Comparing Myanmar’s rice yield data cause rice is the main agricultural product in Myanmar, with other countries in the region covering about 60 percent of the country’s total culti- vated land area. Rice also accounts for 97 percent of The official statistics of the Ministry of Agriculture and total food grain production by weight and is one of the Irrigation (MOAI) place average paddy yields at 4.0 country’s major exports. Although official data seem to tons per hectare, yet this results in an estimated lev- suggest that rice yields in Myanmar are comparable to el of rice production far in excess of what is consid- other countries in the region, a closer scrutiny shows a ered to be consumed in or traded from Myanmar. The much larger gap (Box 5). The most acute problems be- United States Department of Agriculture (USDA) has hind low rice productivity are at the farm level, mainly estimated that average paddy yields were 2.5 tons per inefficient irrigation, lack of access to extension ser- hectare over the 2010-2012 period. This would place vices, and poor production practices. productivity levels near the bottom for Southeast Asia, above only Cambodia (Figure 26). The recent large sample farm survey conducted by the World Bank and LIFT found the average 2013 wet season yields to be 2.4 tons per hectare in Sagaing, 2.8 tons per hectare in Ayeyarwaddy, and 3.0 tons per hectare in Bago. Those three areas account for the bulk of Myanmar’s rice pro- duction. The yield gap of Myanmar is large. Its varietal mix is more comparable with the Central region of Thailand, Indonesia, Philippines, and Vietnam than with Cambo- dia, Lao PDR, and the Northeast of Thailand. A large proportion of Cambodian, Lao and Thailand’s rice pro- duction is of high-value jasmine, aromatic and gluti- nous varieties, which inherently have lower yields than conventional varieties. For example, in the Northeast of Thailand (where nearly all the jasmine is grown, along with glutinous varieties), the average yield of main crop is 2.3 tons per hectare. The more suitable comparator with Myanmar is the wet season crop in Thailand’s Central region where conventional varieties dominate. The average yields there were 3.8 tons per hectare over the 2011-2013 period. This would imply a ‘yield gap’ of some 58 percent for Sagaing, 36 percent for Ayeyar- waddy, and 27 percent in Bago. Paddy yields in some of the better growing areas in Vietnam’s Mekong Delta region range between 6 and 7.5 tons per hectare, imply- ing even potentially larger yield gap in Myanmar. 46 | World Bank Report 134. At the same time, over-dependence on rice means and weaknesses in the institutional framework for that Myanmar has been unable to increase overall handling disputes. Since the transition began, two agricultural productivity through diversification land laws have been enacted which aim to improve or alternative patterns of specialization. The Gov- land property rights. These are the Farm Land Law ernment has over the years emphasized food self-suffi- (2012) and the Vacant, Fallow, and Virgin (VFV) Lands ciency through rice production, and, for considerable Management Law (2012). Together, the two laws en- periods, actually directed farmers to grow rice in order able farmers to acquire formal land use rights and in- to meet fixed production targets. Opportunities to grow clude provisions that recognize and respect existing use other cereals, for food or feed, were generally neglected. of land by farmers, even if there has previously been no As can be seen from Figure 30, Myanmar, rice has ac- recognition of the use by the Government. However, counted for nearly 94 percent of total cereals produc- in spite of these new laws, acquisitions and compensa- tion value, a much higher proportion than for several tions are still being governed by the 1894 Land Acqui- comparator countries. Significant growth opportunities sition Act. Lack of clarity in procedures and provisions also exist for higher value agro-food commodities, as in this Law has led to arbitrariness in decisions, result- evidenced by the recent emergence of a very substan- ing in conflicts. To compound the situation, there are tial regional trade in beans, pulses and horticultural significant weaknesses in the institutional framework products. Domestic consumption of animal products for handling land disputes. Recently, Government has is expected to increase, sharply, with rising incomes. set up a Land Loss Enquiry Commission of Parliament Myanmar will therefore need to diversify away from to investigate claims of land confiscation by the mili- rice if the country’s agricultural potential is to be fully tary during 2008 and 2011. realized. Given the critical nature of land in investment de- 138. 135. In addition, an inefficient milling industry produc- cisions on and off-farm, improved access to land es low quality processed rice. The majority of rice and improved land tenure security will have a mills in Myanmar employ antiquated technology, re- significant impact on job creation and increased sulting in lower technical efficiency, higher levels of returns to investment in Myanmar, and hence, product loss, and a low quality milled rice product. It on poverty reduction. There are opportunities for is estimated that less than one-fourth of the mills are Myanmar to learn from the experiences of other capable of producing medium-to-high quality rice. This countries in moving forward with land reforms. For situation limits the market segments which Myanmar example, land consolidation38 and land acquisition can supply abroad, leads to relatively low unit values processes in Myanmar have so far been practiced for rice exports, and results in low prices paid to farm- as land readjustment procedures of technical nature ers. Historical factors—including periodic or sustained and not as land right altering processes according to bans on rice exports and heavy state enterprise involve- international practices. The experience from other ment in the trade—inhibited private investment in the countries shows that such reforms can be successful sector. Policy uncertainties continue to deter some po- if they are anchored in proper and enforceable legal tential investors. frameworks, and are based on inclusive and trans- parent processes, which include community aware- 136. Finally, lack of access to land and tenure security ness raising and consultations at various stages of are also a critical constraint to agriculture produc- the process. tivity, and private sector investment more broadly. Myanmar has the highest rate of landlessness in East (c). Improving Myanmar’s overall productive efficiency and Asia, estimated at between one-third and forty percent competiveness of the rural population. At the same time, most people with land are unsure of long term tenure security due to 139. For Myanmar’s products to be competitive inter- a history of widespread land grabs. Evidence in other nationally, there is need to deal with constraints countries has shown that secure land tenure can be crit- currently hampering the economy’s overall pro- ical to increased agriculture investment, and therefore ductive efficiency, mainly critical shortages in pow- increased incomes. More broadly, lack of access to land er, under-developed financial sector, shortages in and tenure security has also been identified as a critical skilled labor, and low supply of ICT services. Poor constraint to businesses. According to the findings of polices and long period of isolation have led to criti- the ICA enterprise survey, this is particularly a prob- cal shortages of these key factors of production, lead- lem amongst medium, small, and micro enterprises but ing to high costs of opening and operating businesses. not so much amongst large enterprises (Refer to earlier Unless these constraints are removed, the potential of Figure 25 and 26). The ICA further finds that access to the country’s dual shift to create more jobs through in- land is a key obstacle across all sectors – manufactur- ing, retail, and services. 38 Land consolidation has been a process where farmers with ad- jacent plots have been asked to combine them in order to make the farms 137. Some progress has been made recently to improve amenable to mechanized commercial agriculture. Once combined, the land tenure security but land conflicts persist due to un- has usually been operated by large corporations on a concession basis, with the owners of the land supplying labor. Such arrangements have resulted in clear rules for land acquisition and compensation disputes due to lack of clarity about the terms of the agreement. World Bank Report | 47 creased private sector investment and trade will not be 141. Similarly, the country’s financial sector has large- fully maximized. ly been underdeveloped, with less than 20 percent of the population having access to formal financial 140. Inadequate power is a particularly critical con- services (See Figures 33 and 34). Not surprising, ac- straint to existing and potential business activities cess to finance was mentioned as a major obstacle to in Myanmar (See Figures 31 and 32). Due to ad- doing business in Myanmar by most firms during the vances in technology, most production and non-pro- ICA Enterprise Survey (Refer to earlier Figures 25 and duction processes depend heavily on power, whether 26). The banking industry is beset with cumbersome in the manufacturing or service industries. But as men- banking requirements and high transactions costs, and tioned earlier, Myanmar has one of the lowest rates of lacks depth in the provision of financial services. For electrification in Southeast Asia with connectivity to example, it is currently not easy to transfer funds into the public grid at less than 30 percent while overall ac- or out of Myanmar. Migrants do not have access to ap- cess to electricity (including private generators) at 48.8 propriate financial services for them to remit foreign percent. earnings back to their families. Access to loans is ham- pered by stringent collateral requirements while most banks do not offer credit card services. In addition, in- terest rates are administratively controlled which limits profitability of banks and hence their ability to extend credit. Source: World Development Indicators, 2014 Source: World Development Indicators, 2014 48 | World Bank Report 142. Low supply of skilled labor is another key con- straint mentioned by most investors in Myanmar. Since the country is emerging from a long period of isolation, there is a significant gap between locally available skills and the skills demanded by employers, particularly foreign companies just coming in. Apart from sector specific technical skills, many people who have graduated from schools within Myanmar also lack basic proficiency in the English language. In addition, most institutions offering vocational and technical edu- cation schools were converted into formal universities under military rule. Given the current wide gap, in- creasing the supply of skilled labor force would there- fore have a high impact on poverty reduction. 143. However, more sustainable actions to increase the supply of skilled labor will take time to show re- sults, hence the need for some necessary actions to start being implemented in the short-term. As Source: World Development Indicators, 2014 a stop-gap measure for filling the skills gap, the For- eign Investment Law currently allows companies to 144. ICT in Myanmar is significantly underdeveloped hire foreigners, initially up to 75 percent in the first two compared to other countries in the region and in years, then declining over the years. However, a long the world, although the situation is now expected term solution lies in the ability of the education system to improve rapidly. The most recent international- to produce enough numbers of people with the skills ly comparable data (WDI 2014), subject to the wide required in the market. This will take time to be imple- margins of error for the underlying data for Myanmar mented and to yield results therefore some small but (see Box 3) indicate very low mobile phone and inter- critical actions need to start now. In particular, there is net penetration rates of 1.1 percent and 0.3 percent, need to determine the nature of the skills in short sup- respectively (Figures 35 and 36). However, telecom- ply and come up with policies that will ensure that the munication sector reforms are taking place with the lib- public and private sectors are able to make and expand eralization of the market. A new Telecommunications investments in areas that will meet employers’ long- Law was approved in October 2013 and it is largely term skills needs. in line with good practice. Two new operators have been licensed through an internationally recognized transparent process and the incumbent state owned op- erator will soon select an operating partner. Myanmar will transition from a monopoly market into a multi operator environment. Key secondary legislation was also developed through a public consultation process and other issues are being addressed in the next phase. 145. Improving the supply of ICT services will have a high impact on poverty reduction by creating jobs, enhancing productivity, and improving access to information, markets, and services, hence the need to build on the significant progress already made by Myanmar so far. Given its many applications, ICT has great potential for transforming Myanmar’s economy and people’s lives. As experienced in more advanced economies, improved ICT can help create jobs through, for example, the emergence of new val- ue chains that provide online work opportunities for unskilled to higher skilled workers from anywhere in the world, as long as they have computers and internet access. In addition, it can help increase returns through use of more efficient ICT-based production and mar- keting applications and communication. Finally, pub- lic service delivery could be improved significantly in terms of quality, timeliness and reach by taking ad- vantage of the expected steep increase of internet and mobile penetration. Given these potential benefits, the World Bank Report | 49 country will now need to build on the progress it has most promising for Myanmar’s growth relate directly made of opening up the ICT market to competition. In to water, and particularly the Ayeyarwaddy, such as en- particular, there is need to provide an enabling regu- hanced production and trade in agricultural products, latory and policy environment for the country to start hydropower generation,40 and the expansion of nation- participating in the global online/virtual work opportu- al and regional green transport systems via rivers and nity. In addition, mobile and e-Government platforms ports. and services need to be developed in order to improve efficiency and reach in the delivery of services. 149. A fragmented approach to the management of the river basin has been a major risk to sustainable (d). Ensuring sustainability through improved and more inte- growth and development in Myanmar, but efforts grated environmental and natural resource management are now underway to address this problem. Due to institutional weaknesses in the public sector, eco- 146. Myanmar’s ability to sustainably reduce poverty nomic activities in the river basin have proceeded in will depend on its capacity to properly manage the a fragmented manner and without taking into account environment and its vast natural resource endow- their long-term impact on sustainability. To address ments. The country relies heavily on natural resources the broad inter-related risks and opportunities of the for its productive economic activities that are critical Ayeyarwaddy River, as well as to address the fragmen- to job creation including agriculture, mining, tourism, tations among the national water resources agencies, a transportation, and power generation. Therefore, to en- National Water Resources Committee (NWRC) was sure sustainability in the reduction of poverty, the coun- established by Presidential decree in July 2013. In ad- try needs to build effective institutions and implement dition, the World Bank plans to provide financial and reforms that are integrated into Myanmar’s environ- technical assistance to the Government of Myanmar ment and natural resource sector. that will help rationalize and strengthen public sector institutions for an integrated approach to the manage- 147. Hydropower is a major natural resource for Myan- ment of economic activities and projects in the river ba- mar. Hydropower investments carry a great potential sin, particularly large-scale infrastructure investments to contribute to poverty reduction and shared prosper- in agriculture, hydropower, navigation, municipal and ity if they are well executed, with benefits accruing to industrial water supply and wastewater treatment. the population at large, but they also carry huge risks if environmental and social considerations are not prop- 150. More broadly, sound management of natural re- erly integrated in an optimal hydropower development sources and the broader environment will be im- program. Currently, hydropower accounts for about portant to sustain economic growth and reduce 75% of electricity production in the country. Many poverty rates in Myanmar. Apart from the Ayeyar- new projects are at different stages of development waddy river, Myanmar is also rich in natural gas, has (58 projects totaling about 45GW, according to ADB sizeable oil reserves, and significant mineral resources and JICA draft master plans for the power sector), only (ADB, 2012a). These have been among Myanmar’s some of which are likely to be developed in the next growth sectors, registering an annual growth rate of 5-10 years. To realize the potential benefits of hydro- 15.5 percent during 2001-2006 (ADB, 2012b). At the power, Myanmar will depend on substantially strength- same time, without adequate safeguards, policies and ened government capacity for sustainable hydropower regulations in place and capacity to implement them, planning, in order to identify and prioritize the projects these activities can lead to irreversible eco-system deg- with the highest impact for development and poverty radation, deforestation, and water and air pollution. reduction. Donors support for institutional develop- Poor communities that depend on forests for wood ment and capacity building (currently led by the Gov- and non-wood forest products and use drinking wa- ernment of Norway) and participation of experienced ter from contaminated wells would be affected most private sector developers are essential for sustainable by such environmental impacts. A significant propor- development of hydropower in Myanmar. tion of natural resource extraction has taken place in ethnic minority areas and poor sector governance has 148. Critical to ensuring environmental sustainability fueled conflicts between armed groups and the central is the integrated management of the Ayeyarwad- Government, contributing to long-term poverty and un- dy river basin, which is central to Myanmar’s ca- der-development. pacity to exploit its full growth and development potential. The Ayeyarwaddy river basin has been de- scribed as the heart of the nation, accounting for about 60 percent of Myanmar’s landmass, and home to some 70 percent of its population. It is a river of global pro- River Commission, respectively. Recent literature (Robinson et al. 2007) portions, with an average annual flow of over 400 bil- suggests the Ayeyarwaddy’s volume may be even higher, in the range of 420 to 440 billion cubic meters (+/- 48 bcm). lion cubic meters, equivalent to roughly 85 percent of the Mekong.39 Many of the opportunities considered 40 In total, Myanmar has an estimated 100,000 MW of total hydropower resources. Of this, the Ayeyarwaddy River alone is believed to 39 Annual volumes of the Ayeyarwaddy (410 bcm) and the Mekong account for 38,000 MW of potential installed capacity. The total installed (475 bcm) are as reported by the Government of Myanmar and the Mekong capacity of existing hydropower plants is 2,660 MW. 50 | World Bank Report 151. The development of a nationally agreed Environ- recently been made to improve transparency and ac- mental and Social Safeguards framework that is countability through the EITI process - Myanmar re- based on best practices will be critical to ensuring cently attained EITI candidacy status,41 but more work that investments in the various intervention areas remains especially in ensuring that states and regions proceed in a manner that is consistent with long- from which resources are extracted feel that there is term environmental sustainability. A key opportu- fairness in the manner in which natural resource reve- nity arises from the fact that there is wide awareness nues are allocated across the country. amongst stakeholders in Myanmar, within and outside Government, about the need for environmentally res- 154. Given the growing rate of urbanization and high ponsible investments. At the same time, there is a risk levels of urban poverty in Myanmar, it will also that planned investments could face significant delays be important to ensure that urban development unless there is evidence that they have passed environ- proceeds in a sustainable manner. In response to the mental and social impact assessments that are based on reforms, most new investments coming into the coun- a nationally agreed framework. Therefore, a key pri- try are locating in the country’s main cities and other ority going forward is the preparation of a nationally urban areas since infrastructure and services are rela- agreed framework for Environmental and Social Safe- tively better than in rural areas. Similarly, most people guards. looking for jobs are flocking to towns and cities. Rapid industrialization and urban population growth are 152. Similarly, Myanmar does not have a well-functioning therefore putting pressure on the country’s cities and framework for the management of natural resource its environment. Data on the rate of urbanization are revenues that ensures long-term sustainability of not available although anecdotal evidence suggests that development. As already mentioned, natural resource it is high. revenues are the dominant source of public revenues in Myanmar, and are set to increase with new gas 155. Promoting sustainable urban development will be field coming on stream and significant scale up of oil a complex and long-term agenda, but some critical production planned. Experience from other countries first steps could be taken to lay the foundation for shows that these natural resource revenues can be the future. In particular, it is important for Myanmar volatile, as demand and prices are subject to global to start investing in proper urban planning and strength- political and economic events. In addition, given that ening policies and institutions for sustainable urban de- natural resources are finite, there is need to ensure velopment. The goal should be to ensure that cities and that the management of natural resources also caters other urban areas continue to function at levels of quality for future generations. Unless there is an appropriate of life desired by the community without restricting the framework, volatility in natural resource revenues can options available to the present and future generations lead to unwarranted volatility in expenditure. Similarly, and causing adverse impacts inside and outside the ur- imprudent use of natural resource revenues threatens ban boundaries. In the medium-term, the development the sustainability of development beyond the current of Special Economic Zones will ensure that industriali- generation. Currently, Myanmar does not have any zation proceeds in a more systematic manner and without framework for managing the volatility of natural re- putting pressure on cities and towns. source revenues that promotes the build-up of fiscal buffers through saving in good years that can then be spent prudently over the medium term, or for ensuring savings for future generations. 153. The management of natural resource revenues is also seen to lack in transparency, accountability, and fairness, although progress is being made to enhance transparency of natural resource reve- nues. There is general been lack of publicly available information about contracting arrangements, payments made by companies, volumes of revenues received, and destination of revenues and extent to which revenues are included in budget. In addition, a large portion of potential revenues is currently not captured – Myanmar 41 This means that the International Board of the EITI confirmed is the world’s leading producer of jade, sapphires, and that Myanmar has, amongst others, successfully put in place a Multi-Stake- rubies. Data on the gems trade is very limited, with holder Group comprising representatives from government, civil society poor accounting and reporting of sales and a very large and operators. As an EITI Candidate country, Myanmar is now required to publicly disclose a range of information about its extractive industries in proportion of sales going through unregulated border an annual EITI Report. This includes payment and revenue data, produc- trade. Finally, many of Myanmar’s natural resources tion data as well as information about how licenses are allocated, who the are concentrated in the ethnic minority states and re- license holders are and other contextual information about the extractive gions, home to the world’s longest running civil wars, industries. Myanmar has 18 months to produce its first EITI Report. and have fueled generations of conflict. Progress has IV. KNOWLEDGE GAPS, IMPLICATIONS, AND PROPOSPED ANALYTICAL WORK AGENDA 52 | World Bank Report 156. In spite of best efforts, knowledge and data gaps lenge. Similarly, while it is generally understood that have imposed limitations on some of the analyses more broadly, there are weaknesses in the capacity of in the SCD. Going forward, a number of knowledge the public sector to design, coordinate, and deliver ser- gaps have been identified in various areas, together vices, there is need for a more in-depth understanding with current plans and future options for filling these of the critical capacity constraints within each sector. It gaps (See Table A.1 in the Annex). This list is by no would also be useful to understand the impact of poli- means exhaustive but provides pointers to critical areas tics in decision making within the country’s bureaucra- where future analytical work may need to focus on. cy. To fill these gaps, there is need to conduct a compre- hensive public-sector assessment. 157. Data constraints have limited the poverty analytics in this SCD. In particular, it has not been possible to 160. On service delivery, knowledge gaps exist in the assess how poverty has changed in Myanmar since the area of outcomes and government performance, 2009/10 IHLCA survey was conducted. In addition, particularly in hard-to-reach areas; and potential there is still no clear understanding of some aspects of of private sector participation in the provision of poverty and of local context in conflict affected areas. public goods. For example, in education, there is cur- Going forward, the Bank plans to undertake a Myan- rently no national assessment of learning outcomes at mar Poverty and Living Conditions Survey (MPLCS) the lower levels of basic education. As a result, no one in 2014/15 that will aim to quickly provide up-to-date knows how much learning actually occurs at differ- and credible estimates of poverty, and to inform the ent levels of basic education. Going forward, there is design and implementation of the large-scale (18,000 need to conduct an assessment of students’ learning households) national survey that the government is outcomes at key stages of the education cycle, starting planning to undertake in 2015. It is hoped that the next with Early Grade Reading and Math Assessments. In surveys will be able to cover the border areas that have health, there is lack of robust information at community not been properly represented in previous surveys. This level, particularly in hard to reach areas. Conducting will need to be complemented by targeted studies to un- service delivery satisfaction surveys would also pro- derstand better the local context of the social, political, vide invaluable information on Government perfor- and economic issues in the conflict-affected minority mance in the delivery of services, particularly in hard to areas. reach areas. Finally, it also not been possible to assess the potential of private sector participation in the pro- 158. Similarly, lack of data has hampered analyses of vision of public goods. The Bank recently conducted unemployment and the job market in Myanmar. such an assessment in the power sector as part of the There are currently no recent and credible unemploy- PER. Going forward, there is need to extend this type ment figures, labor income trends, migration patterns of assessment to other sectors with potential for private within and beyond Myanmar, and returns to education. sector participation in the provision of services. The last labor force survey was conducted in 1990. The Ministry of Labor recently signed an agreement 161. While the on-going PER has started filling some with the International Labor Organization to conduct of the gaps on revenue and expenditure patterns a new labor force survey. In addition, there has not in Myanmar, additional work will be warranted. been a comprehensive analysis of the labor intensity of It has not been possible to conduct a more comprehen- various sectors. As a result, it has not been possible to sive assessment of the level of Government revenues assess in empirical terms the potential contribution of due to limited knowledge on revenue levels from Gems various sectors to job creation. On the demand side, trade and the mining sector. This gap will be filled by there is also lack of more comprehensive information a comprehensive analysis of revenues from the mining on the type of skills on demand in the market or by sector and other extractives currently planned under the potential entrants to the market would be useful to help EITI support program. Similarly, while the PER shows in the design of programs aimed at filling the skills gap. that SEEs contribute significantly to public sector rev- The design of such program would need to be informed enues, a more detailed analysis is warranted in order to by an assessment of the effectiveness of existing pro- understand the different contributions of various SEEs. grams for increasing the supply of skills in the market. This will help determine the potential implications on Finally, due to the expected role that ICT is likely to Government revenues, of the various types of SEE re- play in creating jobs in Myanmar, an in-depth study on forms being envisaged by the Government, including ICT and the jobs agenda would be warranted beyond corporatization and privatization. Finally, the sector the Ericsson Study on the potential economic impact of level PERs on health, education, and energy should be mobile communications in Myanmar. expended to other sectors as well, particularly agricul- ture and transportation. This will help determine priori- 159. In addition, it has not been possible in some cases ties for public expenditure in these sectors. to fully understand the scale of certain develop- ment challenges. Detailed and more robust macroeco- 162. As mentioned earlier, knowledge gaps have made nomic analysis has not been possible due to the lack it difficult to identify priorities at a more granu- of credible national accounts data. Planned support by lar level or make specific recommendations within the ADB to update the SNA will help address this chal- sectors or thematic areas. For example, the SCD has World Bank Report | 53 highlighted the importance of increasing productivity, need for a comprehensive assessment of the political diversification, and value addition. However, yield data economy of land in Myanmar and an analysis of op- is unreliable and there is little information on the status tions for land reform that draws on lessons from the of diversification in the country. Therefore, a compre- experiences of other countries with various types of hensive and in-depth study on agriculture diversifica- land reform. tion would be useful. A farm production economics study is planned by the World Bank. The study seeks 164. Similarly, without robust information, specific to determine farm production costs in Myanmar which and prioritized recommendations have not been will be used to compare the likely costs and benefits of possible in the areas of safety nets, financial sec- various policy interventions. tor, and access to microfinance. In the area of safety nets, it will be important to conduct an assessment of 163. A key area where additional analytical work is government-led safety net pilots (such as stipends and necessary before undertaking significant addition- maternal and child health vouchers) as well as selected al public action is land reform. First, there is limit- safety net programs being implemented by develop- ed knowledge on the relationship between land tenure ment partners. It would also be useful to conduct a security and agriculture investment in Myanmar. An feasibility assessment for making benefit payments in-depth study would therefore be warranted. Second, through financial institutions. In the financial sector, the there is need to understand the full scale of the current finalization of the Financial Sector Master Plan current- land problems including the extent to which complaints ly under preparation with help from the World Bank on land are related to past injustices or new land laws, will be helpful. However, beyond preparation of the the transition, and other policies and institutions. More plan, a Financial Sector Assessment Program will be fundamentally, there is need to understand the binding warranted in order to gauge the stability of Myanmar’s constraints to secure land tenure in Myanmar. Land financial sector and assess its potential contribution to governance is about power and the political economy growth and development. In microfinance, there is also of land. To understand the land-related problems that need for a comprehensive assessment of the industry in challenge Myanmar, and to appreciate the challenges order to understand its dynamics including the scale of facing land-sector reforms, it is therefore necessary to demand for microfinance from micro enterprises and understand land’s role in the country’s historic political households. economy and the history of land-related legislation and ownership. 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Zuijlen, M., (2006), “Assessing Gender Equality in Myanmar,” Gender As- sessment Undertaken for DFID South East Asia World Bank Report | 61 ANNEX Table A. 1: List of knowledge and data gaps that need to be filled 62 | World Bank Report World Bank Report | 63 64 | World Bank Report World Bank Report | 65 Table A. 2: Summary of SCD consultation meetings and key focus areas identified by stakeholders 66 | World Bank Report World Bank Report | 67 Photo by: Ni Ni Myint/World Bank, 2014 World Bank Office Yangon No.57, Pyay Road (Corner of Shwe Hinthar Road) 61/2 Mile, Hlaing Township, Yangon Republic of the Union of Myanmar +95 (1) 654824 www.worldbank.org/myanmar www.facebook.com/WorldBankMyanmar