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MYANMAR FI SCAL MON I TORING P. 2 Contents Preface and acknowledgments...................................................... 4 123 Executive summary.........................................................................6 Public finance Service delivery Long-term trends 20 assessment 8 of economic management 36 AGGREGATE FISCAL HEALTH SECTOR 22 ENVIRONMENT 8 EDUCATION SECTOR 28 REVENUE 11 SOCIAL PROTECTION 33 EXPENDITURE 18 MYANMAR FI SCAL MON I TORING P. 3 Figures FIGURE 1 FISCAL BALANCE (MMK, BILLIONS) 9 FIGURE 2 BUDGET OUTTURNS AND ESTIMATES FY2016–FY2023, MMK BILLIONS 10 FIGURE 3 MOPF REVENUE COLLECTION (% OF GDP) 12 FIGURE 4 REVENUE COLLECTION BY TAX TYPE 12 FIGURE 5 TAX COMPLIANCE % OF SURVEYED FIRMS REPORTING NON-PAYMENT OF TAXES (BY FIRM SIZE) 13 FIGURE 6 TAX COMPLIANCE % OF SURVEYED FIRMS REPORTING PAYING TAXES (BY INDUSTRY) 13 FIGURE 7 FIRMS REPORTING PAYMENT INCREASES AMONG TAX-PAYING FIRMS 14 FIGURE 8 AVERAGE TAX PAYMENT INCREASE (CHANGE IN THE PAST 3 MONTHS COMPARED TO THE SAME PERIOD A YEAR AGO) 14 FIGURE 9 REVENUE BREAKDOWN, BY TYPE (% OF TOTAL REVENUE) 15 FIGURE 10 PROFITABILITY IN ENERGY SEES PROFIT/(LOSS), FY2020–FY2023, MMK BILLIONS 16 FIGURE 11 BUDGET PRIORITIES (BY SECTOR/MINISTRY, % OF TOTAL) 19 FIGURE 12 HUMAN DEVELOPMENT INDEX 21 FIGURE 13 MYANMAR HEALTH INDICATOR TRENDS 22 FIGURE 14 BUDGET ALLOCATION AND SPENDING ON HEALTH IN MMK MILLION AND EXPENDITURE % OF UNION BUDGET (RHS) 24 FIGURE 15 MOHS OVERALL BUDGET EXECUTION 25 FIGURE 16 RECURRENT AND CAPITAL BUDGET EXECUTION 25 FIGURE 17 GENERAL GOVERNMENT HEALTH EXPENDITURE (% OF GDP) 27 FIGURE 18 GENERAL GOVERNMENT HEALTH EXPENDITURE PER CAPITA (CURRENT US$) 27 FIGURE 19 GROSS ENROLLMENT RATES 28 FIGURE 20 COMPLETION RATES BY EDUCATION LEVEL, 2010–2017 (%) 28 FIGURE 21 MOE BUDGET ALLOCATION AND SPENDING % OF UNION BUDGET AND % OF GDP (RHS), 2012–2023 29 FIGURE 22 SPENDING ON EDUCATION % OF TOTAL GOVERNMENT EXPENDITURE AND % OF TOTAL GDP: MYANMAR VERSUS NEIGHBORING AND COMPARATOR COUNTRIES 30 FIGURE 23 MOE BUDGET ALLOCATION BY DEPARTMENT FY2017–FY2021 (% OF BUDGET) 31 FIGURE 24 MOE OVERALL BUDGET EXECUTION 32 FIGURE 25 RECURRENT AND CAPITAL BUDGET EXECUTION 32 FIGURE 26 EAST ASIA AND PACIFIC REGION SPENDING ON SSN (% OF GDP, 2019) 33 FIGURE 27 MINISTRY OF SOCIAL WELFARE, RELIEF AND RESETTLEMENT 35 FIGURE 28 MYANMAR FELL BEHIND ITS NEIGHBORS (GDP PER CAPITA INDEX) 37 FIGURE 29 TAX COLLECTION (% OF GDP) 39 FIGURE 30 INFLATION (ANNUAL %) 41 FIGURE 31 PUBLIC HEALTH SPENDING 1971−2021 (% OF GDP) 42 FIGURE 32 SPENDING ON EDUCATION AND HEALTH 1975−1984, 1996−1999, AND 2020−2021 (% OF BUDGET) 42 MYANMAR FI SCAL MON I TORING P. 4 Preface & Acknowledgments This Budget Brief presents a summary of developments in Myanmar's public finances public finances. This re- port includes three sections that cover the aggregate fis- cal update, a primer on public finance developments in core service ministries, and a longer-term view of fiscal management in Myanmar. The report relies on data ob- tained from published reports of the Ministry of Plan- ning and Finance, open-source data, and news that was analyzed and cross-checked as part of the monitoring work. Where news reports are referenced, additional ef- forts were made during the monitoring process to trian- gulate reports from several reputed news media sources to ensure veracity of the information presented. The Myanmar Budget Brief was prepared by a team led by Ildrim Valley (Public Sector Specialist), Pike Pike Aye (Public Sector Management Specialist), and included Thanapat Reungsri (Consultant), Nang Mo Kham (Se- nior Health Specialist), Saw Thu Nandar (Consultant), Aung Phyo Kyaw (Consultant), Saurav Dev Bhatta (Se- nior Economist), Theingie Han (Consultant), Frances- ca Lamanna (Senior Economist), and Sandi Soe Lwin (Program Assistant). The report was undertaken under the guidance of Mari- am J. Sherman (Country Director for Myanmar, Cam- bodia, and Lao PDR), Kim Alan Edwards (Program Leader for EAP Equitable Growth, Finance and Insti- tutions Practice Group), Fily Sissoko (Practice Manag- er, Governance), Alma Kanani (Practice Manager, Gov- ernance), Yasser El-Gammal (Practice Manager, Social Protection), and Paul Jacob Robyn (Team Lead/Senior Health Specialist, Health). Ulrich Schmitt (Operations Manager) provided valuable advice. MYANMAR FI SCAL MON I TORING P. 5 The team would like to express its sincere thanks to Arnold Marseille, Kyaw Soe Lynn, and Tin Hninn Yu (External Affairs Team) for their support and guidance on publication; Sandi Soe Lwin for excellent adminis- trative support; and Kamal Muhammad for excellent assistance in formatting the report. The team is espe- cially grateful to all participants of this policy note for their time and willingness to provide information un- der challenging conditions and for their valuable advice and thoughtful comments. To receive email alerts for upcoming World Bank Myan- mar monitoring products, please contact Myanmar- Monitoring@worldbank.org For information about the World Bank and its activities in Myanmar, please visit https://www.worldbank.org/ en/country/myanmar. ● MYANMAR FI SCAL MON I TORING P. 6 Executive summary 1 Widening THE FISCAL DEFICIT widened in FY2021 (year ended Septem- ber), and a continued deterioration in the fiscal position is fiscal gap expected over the 12 months to March 2023. In nominal kyat terms, the FY2021 fiscal deficit was around MMK 8.9 tril- lion (9.2 percent of domestic gross domestic product [GDP]). The authorities’ first full-year budget covering the period from April 2022 to March 2023 projects a large fiscal deficit of around MMK 7.4 trillion (around 6.7 percent of GDP), de- spite an ambitious projection for revenue collection. The au- thorities’ financing estimates for the period of 6 months to March 2022 suggest increased reliance on the Central Bank of Myanmar (CBM) as a financing source, with the expec- tation that 55 percent of public financing needs during the period would be met by the CBM. 2 Budget BOTH EXPENDITURE and revenue outturns have declined as a proportion of the budgeted amounts, falling to 82 per- execution cent and 70 percent, respectively. This marks a notable worsened decline in aggregate budget credibility following strong in FY2021 performance between 2015 and 2020. 3 Tax collection has increases in tax col- PROSPECTS OF SIGNIFICANT lection remain low with only 31 percent of declined from 6.5% surveyed firms reporting paying any taxes, to 4.9 % of GDP down from 47 percent between August 2020 and January 2021. MYANMAR FI SCAL MON I TORING P. 7 4 State SEEs are adding to fiscal pressures, with LOSSES IN LARGE Myanmar Oil and Gas Enterprise (MOGE) recording a Economic loss of MMK 1.3 trillion in FY2021. The economic down- Enterprise turn and any further extraction of revenues from SEEs (SEE) vul- to compensate for declining tax revenues will further nerabilities exacerbate the financial risks and contingent liabilities from SEEs. 5 Low COVID- of spending during FY2021 LESS THAN 2.5 PERCENT (MMK 0.7 trillion, 1 percent of GDP) has been related reported under the COVID-19 Economic Relief expenditure Plan (CERP). 6 Budgetary priorities THIS IS ACCOMPANIED by reduced planned spending on health, education, and so- lean toward energy cial protection, at the time when the vul- & defense nerable are most in need of fiscal support. Underinvestment in these sectors places recent hard-won gains in the provision of core public services at risk. 7 Current policies are budget policies IN THE DECADES PRIOR TO 2011, contributed to a minimally functioning reminiscent of those state dominated by military concerns of earlier military rather than social services, diverting re- governments which sources away from public service provi- prioritized defense sion. At the same time, the state contin- spending and costly uously struggled to mobilize tax revenue, import substitution with revenue generation relying on nat- over social spending ural resource extraction through SEEs as well as on implicit and informal taxes, with the latter contributing to the distrust between taxpayers and the government. MYANMAR FI SCAL MON I TORING P. 8 1 Public finance trends 1.1 Aggregate Fiscal Environment A detailed understanding of the fiscal position is constrained by limited ac- cess to fiscal data. Few publicly avail- able documents provide a glimpse into budgetary priorities and fiscal position. These include the 6-month interim Budget Law, 6-month National Planning Law, 1 Starting in April 2022, Myanmar's budget calendar and 6-month Citizen’s Budget for October 2021 to has changed from October– September to April–March. This March 2022, quarterly reports covering FY2021, and the marks a return to the fiscal calendar used before FY2019. 12-month Budget Law and 12-month National Planning To accompany the change, a Law for April 2022 to March 2023—made public on the 6-month interim budget was introduced to bridge the end Ministry of Planning and Finance (MOPF) website.1 of FY2021 on September 30, 2021 and the new FY2023 that The availability of these data is a result of the contin- commenced on April 1, 2022. In this note, FY2021 refers to the ued practice of some of the fiscal transparency measures year ended September 2021, developed as part of previous public financial manage- FY2022 refers to the 6-month interim budget period, and ment (PFM) reforms. However, access to the type of dis- FY2023 refers to the year ended March 2023. aggregated data that was previously available is limited. MYANMAR FI SCAL MON I TORING P. 9 This includes, for example, an economic breakdown of expenditure data at 2- and 4-digit levels (for example, payroll), monthly tax revenue collection by tax types, and government financing (for example, central bank financing and debt). The fiscal deficit remains wide amidst low revenue col- lection (Figure 1). In nominal kyat terms, the estimat- ed revenue collected during FY2021 has fallen by nearly 30 percent year-on-year, from MMK 27,200 billion to MMK 19,197 billion. The drop has been partially offset by reduced spending, but still contributed to a fiscal gap of MMK 8,880 billion (9.16 percent of GDP) for FY2021. The authorities’ own budget projections for FY2023 in- dicate a sizable deficit of MMK 7,400 billion, which will keep the fiscal gap at elevated levels as a share of GDP. FIGURE 1 FISCAL BALANCE MMK, BILLIONS Source: https://www.mopf.gov.mm/; World Bank Staff estimates. Budget execution worsened in FY2021. Both expendi- ture and revenue outturns worsened in FY2021, declin- ing to 82 percent and 70 percent, respectively (Figure 2). This marks a notable decline in aggregate budget cred- ibility following strong performance between 2015 and MYANMAR FI SCAL MON I TORING P. 1 0 2020.2 The drop in budget credibility could be explained by the events which followed the 2021 February coup, with capacity to spend and raise revenue both adverse- ly affected, including because of the Civil Disobedience Movement (CDM) which has had implications for pub- lic sector staffing and the payment and collection of tax- es and fees. Going forward, the first quarterly reports for the 6-month budget in FY2022 and FY2023, the first full-year budget under the authorities, will provide an indication of whether there could be a reversal in poor budgetary outturns. FIGURE 2 BUDGET OUTTURNS AND ESTIMATES FY2016–FY2023 (MMK, BILLIONS) Aggregate expenditure outturn (RHS) Aggregate revenue outturn (RHS) Note: Actual/TA = actual outturns or temporary estimates. Source: https://www.mopf.gov.mm/; World Bank Staff estimates. 2 The latest public expenditure and financial accountability (PEFA) assessment in Myanmar, covering FY2015–FY2018, rated the aggregate expenditure and revenue outturns with the highest rating (criteria: outturn deviated by less than 5 percent from the approved budget in two of the last three fiscal years) although these mask considerable composition variations, for example, weak budget credibility and in-year adjustments at the ministry level. MYANMAR FI SCAL MON I TORING P. 11 The use of CBM financing appears to have increased, with a shift away from T-bills and T-bonds issuance. Since February 2021, the domestic securities market has become a less viable source of financing and develop- ment assistance has declined. According to the 6-month Citizen’s Budget issued by the authorities for the 6 months to March 2022, 55 percent of public financing needs were expected to be met by the CBM, with only 18 percent being covered by the issuance of T-bills and T-bonds. This marks a significant unwinding of previ- ous efforts to reduce the share of CBM financing. By comparison, across the FY2020 and FY2021 budgets (on average), it was projected that those proportions would be roughly reversed, with 17 percent of financing needs to be met by the CBM and 52 percent to be covered by bill and bond issuance. ● 1.2 Revenue T 3 The Specific Goods Tax Law replaced ax collection declined from 6.5 percent commercial tax on a list of specific goods that to 4.9 percent of GDP in FY2021 (Figure are imported into Myanmar, manufactured in Myanmar, or exported to a foreign country. The 3). The decline in tax revenue was led by list of specific goods includes products such as cigarettes, tobacco leaves, cigars, wine, a weakened collection of income taxes, beer, as well as natural resource products such as teak, lumber, jade, kerosene, petroleum, specific goods tax (SGT),3 and commercial diesel and natural gas. The SGT rates range from 5 percent to 60 percent. tax—the three largest tax sources. Income tax receipts fell by 40 percent in FY2021, from MMK 4 In retail and hospitality sectors, commercial tax is usually paid in the form 3.5 trillion to MMK 2 trillion, followed by a 35 percent of stamps that businesses buy from the Internal Revenue Department and then affix decrease in collection of the SGT and a 25 percent de- to a customer’s receipt. Reports indicate that several businesses are no longer affixing these crease in commercial tax. Overall, tax revenue declined stamps and/or accepting customers’ requests by 35 percent in nominal terms, from MMK 7.3 trillion not to pay (Myanmar Economic MonitorJuly 2021, World Bank). in FY2020 to MMK 4.7 trillion in FY2021 (Figure 4).4 MYANMAR FI SCAL MON I TORING P. 1 2 FIGURE 3 MOPF REVENUE COLLECTION FIGURE 4 REVENUE COLLECTION BY TAX TYPE % OF GDP FY2018–FY2021 (MMK, BILLIONS) Source: https://www.mopf.gov.mm/. Source: IRD Annual Report for FY2021. The administration projects ambitious revenue col- lection for its first full-year budget in FY2023. The budget estimates revenue collection of MMK 23,434 bil- lion. This is over 22 percent higher than the MMK 19,197 billion collected during the last full 12-month fiscal year (FY2021). This appears unlikely, considering the current levels of economic performance and data from a sample of Myanmar’s firms. Over two-thirds of sampled firms report not paying tax- es (Figure 5). The share of firms not paying taxes appears to have increased since before February 2021. According to the World Bank Firm Survey, April 2022, around 69 percent of the 473 surveyed firms indicated that they had not paid taxes in the previous 3 months, noticeably high- er than the 53 percent of firms reporting nonpayment between August 2020 and January 2021. Nonpayment of taxes is higher among smaller firms (1–4 employees) and less common among medium (20–99 employees) and large firms (more than 100 employees). Across sectors, tax compliance is highest among firms in the food and beverage sectors (37–38 percent), manufacturing (36 per- cent), and retail/wholesale (34 percent) (Figure 6). MYANMAR FI SCAL MON I TORING P. 1 3 FIGURE 5 TAX COMPLIANCE FIGURE 6 TAX COMPLIANCE % OF SURVEYED FIRMS REPORTING NON-PAY- % OF SURVEYED FIRMS REPORTING PAYING TAX- MENT OF TAXES (BY FIRM SIZE) ES (BY INDUSTRY) Note: ITC = Information Source: Myanmar Firm Surveys, Technology and Communication. Round 11, April 2022. Prospects of significant increases in tax collection re- main low. Only 18 percent of tax-paying firms report an increase in tax payments when compared to the same period last year (first months following the February coup, Figure 7). The large majority of firms (78 percent) reported that tax payments remained the same while 4 percent of firms reported a decrease in tax payments. Out of the firms that reported an increase in tax payments, the average increase was around 5 percent (Figure 8). This includes variation across sectors with nearly all of the increase in payments concentrated in the agriculture sector, where firms report an increase of over 27 percent. Declines in tax collection are shifting revenue reliance toward non-tax revenue and SEE contributions. The revenue data between FY2019 and FY2023 budgets sug- gest a shift away from tax revenues, comprising three major taxes: income tax, commercial tax, and SGT. Tax revenue collection declined from 31 percent in FY2019 to 27 percent in FY2021 as a share of total revenue collected. MYANMAR FI SCAL MON I TORING P. 14 FIGURE 7 FIRMS REPORTING PAYMENT FIGURE 8 AVERAGE TAX PAYMENT INCREASE INCREASES AMONG TAX-PAYING FIRMS CHANGE IN THE PAST 3 MONTHS COMPARED TO THE SAME PERIOD A YEAR AGO OVER 3 MONTHS COMPARED TO THE SAME PERIOD A YEAR AGO Note: Sample size: 141 firms. Source: Myanmar Firm Surveys, Round 11, April 2022. This is projected to decline further to 26 percent in the FY2023 budget. However, the actual collection may put this figure lower (Figure 9). Non-tax revenues account for a large share of total revenues but have declined in nominal terms. Non-tax revenue typically provides over two-thirds of total reve- nue, the large majority of which is derived from SEEs in the energy sector. Non-tax revenues are estimated to ac- count for 69 percent of total revenue in FY2023, higher than the actual collection of 64 percent of total revenue in FY2020. Despite the projections of non-tax revenue accounting for the larger share of total revenue, collec- 5 A year earlier tion in nominal terms is estimated to decrease to MMK implies the last 16 trillion in FY2023, down from MMK 19 trillion (19 full-year budget in FY2022. percent of GDP) a year earlier.5 MYANMAR FI SCAL MON I TORING P. 1 5 FIGURE 9 REVENUE BREAKDOWN, BY TYPE % OF TOTAL REVENUE Note: BE = budget estimates; PA = Source: MOPF - https://www.mopfi.gov.mm/; World Bank Staff estimates. provincial actuals; TA = temporary actuals. Losses in large SEEs are adding to the fiscal pressures. Nontax revenue includes collection by Ministries, Nay Pyi Taw Development In FY2021, energy SEEs recorded a loss of MMK 1,235 Council, and the Central Bank of Myanmar. billion (equivalent to around 6 percent of overall reve- nues), down from the profit of MMK 419 billion record- ed in FY2020 (Figure 10). The overall loss is possibly attributable to losses at electricity-related SEEs and a decline in gas export earnings, with gas production and export volumes declining between October 2021 and February 2022.6 The authorities’ own revenue projec- tions estimate a loss of MMK 151 billion in the 6-month interim budget (FY2022) and a further loss of anoth- er MMK 712 billion in its first full 12-month budget in FY2023. The FY2023 budget estimates a loss of MMK 1.7 billion in the electricity sector. The countrywide pow- er cuts worsened since early 2022, driving households 6 World Bank 2022. “Myanmar and businesses into deeper hardship.7 The reduction in Infrastructure Monitoring: Energy Sector.” available power capacity is largely driven by suspen- https://documents1.worldbank.org/ curated/en/099045104062298290/pdf/ sion of LNG power plants. The surging LNG price and P177540085ed880ca098230031387b28dd2. pdf depreciating Kyat against the US dollar rendered some 7 https://asia.nikkei.com/Spotlight/ operations not financially viable. Furthermore, revenue Myanmar-Crisis/Myanmar-energy-crisis- collection challenges in the power sector, cash shortag- deepens-as-power-plant-investors-balk es, and the banking sector crisis reduced the ability of the regime to pay the power producers. MYANMAR FI SCAL MON I TORING P. 16 FIGURE 10 PROFITABILITY IN ENERGY SEES PROFIT/(LOSS), FY2020–FY2023 (MMK, BILLIONS) Note: BE = budget estimate; TA = temporary actuals. Energy SEEs in the figure include the Myanmar Oil and Gas Enterprise, Electricity Supply Enterprise, Electric Power Generation Enterprise, Myanmar Petroleum Product Enterprise and Yangon/Mandalay Electricity Supply Corporation (YESC/MESC); YESC/MESC distribute electricity in the two largest cities. Electricity is produced by either the state-owned plants or private companies, which is then sold to Electric Power Generation Enterprise at a contractually determined rate. Source: MOPF - https://www.mopfi.gov.mm/; World Bank Staff estimates. Despite this, SEEs appear to be returning to a more dominant role in Myanmar’s economy and public fi- nance. They are involved in most sectors and are now estimated to contribute to over 50 percent of the gov- ernment’s fiscal revenues. According to the authorities’ budget, SEEs are estimated to contribute to at least 52 percent of budgeted revenue for the FY2023 budget. These are expressed through direct SEE contributions8 and ‘other current receipts’ (Figure 9). The revenue reli- ance on SEE activity is likely higher, with both tax and non-tax collections also directly and indirectly linked to 8 “Contributions from SEEs” are reported separately from the SEEs. With the economy in a bind and a deteriorating SEEs operational revenue. fiscal environment, SEEs are likely to exert an even more 9 https://www.gnlm.com.mm/ considerable influence on Myanmar’s economic compo- mse-branded-ord-production-to- resume-operations-in-july/. sition and growth. Recent news of reviving operations of 10 https://www.gnlm.com. some state-owned enterprises (such as the Myanmar Salt mm/beef-up-implementation-of- steel-mills-in-myingyan-pinpet- Enterprise9 and steel mills10) is an indication of efforts to regions/. exert stronger state direction in the economy. MYANMAR FI SCAL MON I TORING P. 1 7 The overall health of SEEs could be a source of fiscal risk. In addition to fiscal pressures in electricity SEEs, as highlighted above, other SEEs may also be experiencing a build-up of vulnerabilities. Even before the pandemic, state-owned enterprises in developing countries have been characterized by poor performance and financial health.11 The profitability of Myanmar SEEs has been further undermined by the dual shocks of covid and coup. The worsening performance in SEEs would con- tribute to a weaker fiscal position and increased pres- sure to fund their operations and debt obligations from other sources of public sector revenue. The economic 11 Fiscal Monitor (IMF, April downturn and any further extraction of revenues from 2020). Core issues that are seen to be contributing to poor SEEs to compensate for declining tax revenues will fur- financial health (for example, unclear/ unfunded mandates, ther exacerbate the financial risks and contingent liabil- limited transparency, weak ities from SEEs by reducing their ability to service debt governance oversight) are present in Myanmar. and other obligations. ● “Even before the pandemic, state-owned enterprises in developing countries have been noted for poor performance and financial health” MYANMAR FI SCAL MON I TORING P. 18 1.3 Expenditure T he FY2023 budget increases allocations as a share of budget toward energy and defense with reduced planned spending on health, education, and social protec- tion (Figure 11): → Energy spending continues to domi- nate, taking up around one-quarter of the budget with increases in allocation as a share of the budget. The sec- tor has seen the largest increase in its share of the bud- get—2.2 percentage points compared with FY2021 bud- get. Nearly all of it is budgeted under the energy SEEs. The increase could be, at least partially, reflecting the downward pressure on the exchange rate. Exchange rate depreciation increases the kyat value of spending, particularly in the import dependent sectors (for exam- ple, energy and defense). → Under the authorities, budgeted defense spending (12 percent) continues to be larger than allocations to health (2.8 percent) and education (7 percent) com- bined. Spending on defense has increased from 10 per- cent of the budget in FY2021 to 12 percent in the FY2023 budget. The extent of off-budget military spending is not clear. MYANMAR FI SCAL MON I TORING P. 1 9 → Budgeted spending on health, education, and social protection, already taking up a relatively small share of the budget, has each decreased by over 1 percent of the budget. Collectively, they account for just over 10 per- cent of the overall budget. These are discussed in more detail in the following section. Less than 2.5 percent of spending during FY2021 has been reported under CERP. The 2020 CERP commit- ted to ambitious plans to mitigate the impacts of the COVID-19 pandemic while establishing foundations to support rapid economic recovery.12 During FY2021, MMK 700 billion (approximately 1 percent of GDP) was 12 CERP articulated 7 goals, 10 strategies, 36 action plans, recorded as CERP spending. Most of the CERP expendi- and 78 actions, covering a broad range of extraordinary ture for FY2021 (MMK 551 billion out of MMK 700 bil- fiscal measures, combined lion) was reported under MOPF for the cost of the vac- with a set of human-focused and commonsense policy cine. The rest of the CERP expenditures were reported responses. The plan did not make budgetary commitments, under the Social Security Fund (MMK 48 billion), the the cost of CERP is estimated to be between MMK 2.9 and Ministry of Health (MMK 46 billion), 14 states/regions MMK 3.7 trillion (2.5 to 3.2 (MMK 36 billion), and the Ministry of Defense (over percent of GDP) depending on the coverage of the plan. MMK 11 billion). ● FIGURE 11 BUDGET PRIORITIES BY SECTOR/MINISTRY, % OF TOTAL Note: BE = budget estimates. Transport and energy sectors are predominantly SEE spending (80% and 90% of the sector, respectively). ‘Other’ includes ministries of labor, industry, natural resource Source: MOPF - https://www.mopfi.gov.mm/; and environment, information, border affairs, international cooperation, and so on. World Bank Staff estimates. MYANMAR FI SCAL MON I TORING P. 2 0 2 Service Delivery F ollowing significant increases in expen- diture on health and education since 2011, budget resources for these sectors are now decreasing. Increased share of resources under the FY2023 budget to- ward energy (25 percent) and defense (12 percent) comes at the expense of planned spending on health (down to 2.8 percent from 4.2 percent of the bud- get in FY2021), education (7 percent from 8.4 percent in FY2021), and social protection (0.3 percent from 0.5 percent in FY2021). In nominal kyat terms, the FY2023 budget implies a decline in spending of 17, 33, and 35 percent on health, education and social protection, re- spectively, from FY2021 budget levels. Data availability limits the analysis of spending cuts in services. The projected declines in spending on so- cial sectors could be reflecting the decreased demand for services as well as supply-side constraints through a decrease in external financing, lower priority placed on social sectors, and staffing issues (including because of MYANMAR FI SCAL MON I TORING P. 2 1 FIGURE 12 suspensions and/or participation in the Civil Disobe- HUMAN DEVELOPMENT INDEX dience Movement). In 2021, one-quarter of Myanmar’s more than 12 million students have reportedly enrolled for the new school year.13 Reduced planned spending could also reflect the decrease in the availability of ex- ternal financing provided by donors. Access to a more detailed breakdown of planned spending would help determine the drivers for the decline and where the re- ductions in planned spending are concentrated in the budget. Even before the COVID-19 shock and the military coup, Myanmar lagged behind the region on the Hu- man Capital Index (HCI). The HCI measures the amount of human capital that a child born today can expect to attain by age 18. It conveys the productivity of the next generation of workers compared to a benchmark of complete education and full health. In 2020, Myanmar’s Source: World Bank Human HCI was 0.48 (Figure 12), lower than the average for the Development Index. region (0.61). The index of 0.48 indicates that a child born in Myanmar will be 48 percent as productive when 13 https://www.straitstimes.com/asia/se- s/he grows up as s/he could be if s/he enjoyed complete asia/myanmar-students-skip-school-amid- boycott-fear-of-bombings education and full health. ● MYANMAR FI SCAL MON I TORING P. 2 2 2.1 Health sector H ealth outcomes in Myanmar have improved over the last few decades but remain among the lowest in the region. Life expectancy at birth has FIGURE 13 risen from just 42 years in 1960 to MYANMAR HEALTH INDICATOR TRENDS 67 years in 2020. Since 1990, the un- der-five mortality rate (U5MR) has fallen from 106 per 1,000 live births to 50; infant mortality rate (IMR) has declined from 76 per 1,000 live births to 40; and the ma- ternal mortality ratio (MMR) fell from 520 per 100,000 live births to 227 (Demographic and Health Surveys [DHS], 2015–2016) (Figure 13). However, Myanmar still lags behind in health outcomes compared to its neigh- bors in the region (Table 1). Childhood and maternal undernutrition continue to constitute a serious public health and development concern. In 2015, 29.2 percent of children under 5 years of age in Myanmar were stunted (DHS, 2015–2016). Wide variations in health outcomes and access to health services are also observed across Source: World Development Indicators (WDI). the country based on geography, gender, and income. TABLE 1 SELECTED HEALTH OUTCOME INDICATORS MYANMAR VERSUS COMPARATOR COUNTRIES 2015 Indicator Myanmar Cambodia Lao PDR Thailand Vietnam Life expectancy 66 68 66 75 76 IMR (per 1,000 live births) 40 25 51 11 17 U5MR (per 1,000 live 50 29 67 12 22 births) MMR (modelled estimate 178 (227 161 197 20 54 per 100,000 live births) from DHS) Source: WDI database, Myanmar DHS. MYANMAR FI SCAL MON I TORING P. 2 3 The hard-won gains Myanmar has made in its health outcomes since 2021 are under threat, first by the COVID-19 pandemic and then because of disruptions in the essential health services and supply chain, and decrease in the health workforce especially in the pub- lic sector due to the CDM. Though the availability of routine health services has improved with a decline in COVID-19 cases, it is still showing a significant decline compared to the pre-coup period. Despite the gains since 2021, Myanmar's health sec- tor faces several persistent challenges as a result of decades of neglect and underinvestment. The Nation- al Health Plan (NHP), 2017–2021, identified important challenges in health systems including public finance management. Underinvestment, lack of clear recruit- ment and deployment policies, limited clarity around roles and responsibilities of different health cadres, im- balance in pre-service training, project-oriented in-ser- vice training, and limited continuous professional de- velopment have led to chronic shortages, inappropriate balance and mix of skills, inequitable distribution, and difficulties in rural retention among human resources for health. Decades of underinvestment in the sector before 2011 resulted in weakened health infrastructure, compounded by a lack of a clear nationwide infrastruc- ture investment plan and standardized design of health facilities. Rural and frontline facilities providing prima- ry care had received less attention and investment over the past few decades compared to tertiary care facilities, and this has resulted in limited availability, readiness, and coverage of primary care services. The situation is more dire in conflict-affected and hard-to-reach ar- eas and communities. Myanmar also lags behind in its preparedness to prevent, detect, and respond to disease outbreaks and pandemics ( Joint External Evaluation and Global Health Security Index). The COVID-19 pan- demic and the military coup have further exposed and exacerbated these challenges in the health systems. MYANMAR FI SCAL MON I TORING P. 24 With historically low levels of public funding for the health sector, the financial burden has to be borne by households. Out-of-pocket (OOP) spending accounts for more than 75 percent of total health expenditure in Myanmar, and as a share of household spending, it is greatest for the poorest, with adverse implications for financial protection. Approximately 16 percent of Myanmar households are spending over 10 percent of their total expenditure on health. In 2017, more than 3 percent of the population spent more than 25 percent of household consumption or income on OOP health care expenditure, only second to Cambodia. With the shift in government priority toward social service sectors since 2011, there was a significant ef- fort to increase public spending on health (Figure 14). Between FY2012 and FY2018, the government increased its allocation to health from 0.19 percent to 1.16 percent of GDP or from 1.21 percent to 5.23 percent of the union budget. However, because of the historically low levels of spending, in 2015, Myanmar’s total health expendi- ture per capita continued to be low at MMK 70,100, or US$54 per year (Health Financing Systems Assessment, FIGURE 14 MOHS BUDGET ALLOCATION AND SPENDING IN MMK, MILLIONS (PRIMARY VERTICAL AXIS) AND BUDGET AS % OF UNION TOTAL (SECONDARY VERTICAL AXIS), FY2012–FY2023 Note: A = actuals; BE = budget estimates; PA = provisional actuals; TA = temporary Source: MOPF - https://www.mopfi.gov. actuals. FY2022 6-month budget is omitted from the analysis mm/; World Bank Staff estimates. MYANMAR FI SCAL MON I TORING P. 25 2018). After 6 years of steady increase, the health share of the union budget started to decline in FY2019, and stood at 4.2 percent of the union budget or 1.5 percent of GDP in FY2021. There has been a persistent challenge with execution of the budget in the health sector. Execution rate hov- ered around 90 percent between FY2011 and FY2016 and then proceeded to decline further. FIGURE 15 MOHS OVERALL FIGURE 16 RECURRENT & CAPITAL BUDGET EXECUTION BUDGET EXECUTION PROVISIONAL ACTUALS VERSUS BUDGET PROVISIONAL ACTUALS VERSUS BUDGET ESTIMATES (%), FY2012–FY2021 ESTIMATES (%), FY2012–FY2021 Note: MoHS = Ministry of Health and Sports. Annual health spending by the authorities declined Source: MOPF - https://www.mopf.gov. mm; World Bank Staff estimates. by 35 percent in FY2021. Despite the nominal increase in allocation to the MoHS (from MMK 1,172 billion to MMK 1,429 billion), the expenditure execution dropped to 48 percent (52 percent of recurrent budget and 40 percent for capital) or around 0.7 percent of GDP. This translates to a decrease from 0.9 percent of GDP a year earlier, the lowest spending in the region (Figure 17). This sharp drop in budget execution has come at a cru- cial period where more efficient execution is needed to address the spread of the COVID-19 pandemic and sus- tain essential health services to maintain the gains made MYANMAR FI SCAL MON I TORING P. 2 6 previously in health outcomes. Data availability places limits on identifying the bottlenecks in execution; how- ever, it is likely that boycotts and the CDM across the country have likely constrained the public sector’s ca- pacity to provide critical health services. Specifically, the CDM has resulted in the lack of manpower at the fa- cilities to deliver services. At the same time, staffing is- sues may have constrained the functioning of the MoHS bureaucracy at the management and decision-making levels, leading to delayed and oftentimes ineffective de- cisions and approval processes. Fiscal resources in the health sector are being squeezed under the authorities’ first full-year budget. The FY2023 budget allocates MMK 861 billion to the health sector14, a decline from 4.2 percent to 2.8 percent as the share of the total union budget. This amounts to about US$7.8 per person, lower than US$9.5 per person in 2019 which 14 In July 2021, the authorities was already the lowest in the region (Figure 18)—for ex- separated the MoHS into two different ministries: Ministry of ample, lower than US$25 per person in the Lao People’s Health and Ministry of Sports and Youth Affairs. In FY2023, Democratic Republic (Lao PDR) and US$28 per person MMK 861 billion was allocated in Cambodia in 2019. The actual spending will likely be to the former and MMK 46 billion to the latter. lower, given the weak execution in recent years. ● Despite the gains since 2021, Myanmar's health sector faces several persistent challenges as a result of decades of neglect and underinvestment MYANMAR FI SCAL MON I TORING P. 2 7 FIGURE 17 GENERAL GOVERNMENT HEALTH EXPENDITURE % OF GDP Source: WDI. FIGURE 18 GENERAL GOVERNMENT HEALTH EXPENDITURE PER CAPITA (CURRENT US$) Source: WDI. MYANMAR FI SCAL MON I TORING P. 28 2.2 Education sector M yanmar has made remarkable improvements during the past decade in ensuring access to school education. This includes increased rates in gross enrollment between 2010 and 2017 at all levels of schooling (from primary schools to higher education institutions) as well as an increase in completion rates (Figure 19 and Figure 20). These translate to increased years of learning, which ultimately lead to improved learning outcomes, boosting human capital. FIGURE 19 GROSS ENROLLMENT RATES FIGURE 20 COMPLETION RATES BY EDUCATION LEVEL, 2010–2017 (%) BY EDUCATION LEVEL, 2010–2017 (%) Source: Bhatta and Katwal (2022) using 2017 Myanmar Living Conditions Survey (MLCS) data. MYANMAR FI SCAL MON I TORING P. 29 The COVID-19 global pandemic has added further challenges to the education system and resulted in considerable learning losses, exacerbated by the mil- itary coup. Schools were closed as the number of con- firmed COVID-19 cases were increasing in 2020. Public schools closed for the entire 2020–2021 school year, af- fecting all students and resulting in a significant negative impact on expected years of schooling (EYRS), learning adjusted years of schooling (LAYS), learning outcomes, and income earning potential. The situation has deterio- rated since February 2021. The 2015 Law Amending the National Education Law has specifically prescribed education expenditure to reach up to 20 percent of the total union government expenditure in Myanmar. While short of achieving this aspiration, public resources allocated to educa- tion have increased significantly over 10 years, reflect- ing the priority given to the education sector by the last two administrations. The total budget allocation for the MoE BUDGET FIGURE 21 ALLOCATION & MoE amounted to only MMK 310 billion in FY2012 and SPENDING increased over nine-fold up to MMK 2,873 billion in MMK, MILLIONS (PRIMARY VERTICAL AXIS) AND % OF FY2021 (Figure 21). Nevertheless, at 8.4 percent of the UNION BUDGET AND GDP (SECONDARY VERTICAL AXIS), total union budget and 2.4 percent of GDP in FY2020, FY2012-FY2023 public education expenditure in Myanmar remains con- Note: BE = budget estimates; TA / PA / A = temporary, Source: MOPF - https://www.mopf.gov. provisional actuals and actual outturns. FY2022 mm; World Bank Staff estimates. 6-month budget is omitted from the analysis MYANMAR FI SCAL MON I TORING P. 30 siderably lower than in neighboring and comparator countries (Figure 22). This is set to decrease in FY2023, with only around 7 percent of the total union budget al- located to the MoE. Most of this increase in the education budget can be allocated to the increase in the Department of Basic Education (DBE), which accounted for over 70–80 per- cent of total MoE planned spending between FY2017 and FY2021. Other key departments include the De- partment of Higher Education (DHE) which accounted for 14–18 percent and the Department of Technical, Vo- cational Education and Training (DTVET)15 which con- stituted 1–7 percent of the total budget between FY2017 and FY2021 (Figure 23). FIGURE 22 SPENDING ON EDUCATION % OF TOTAL GOVERNMENT EXPENDITURE AND % OF TOTAL GDP: MYANMAR VERSUS NEIGHBORING AND COMPARATOR COUNTRIES Source: World Bank’s Education Statistics (EdStats) and internal documents, Citizen’s Budget (FY2020). 16 15 Since the authorities announced the reorganization of the MoE into two different ministries— the MoE and Ministry of Science and Technology (MoST)—in June 2021, DTVET was transferred under the supervision of the MoST. Moreover, the MoST has reestablished the Department of Advanced Science and Technology (DAST) which administers all technological and computer universities (TUs/CUs) similar to the DHE under the MoE. 16 Data on Education Financing for Indonesia, the Philippines, Thailand, Cambodia, and Timor- Leste are obtained from various internal documents of the World Bank. Data for Lao PDR, Malaysia, and Vietnam are extracted from the World Bank’s Education Statistics (EdStats) portal and data for Myanmar is taken from the Citizen’s Budget (FY2020). 2020 is the most recent year for which data are available for Indonesia, Thailand, Cambodia, Myanmar; 2019 for Malaysia, the Philippines, and Timor-Leste; 2018 for Vietnam; 2014 for Lao PDR. MYANMAR FI SCAL MON I TORING P. 31 FIGURE 23 MoE BUDGET ALLOCATION BY DEPARTMENT FY2017–FY2021 (% OF BUDGET) 80.6% 80.4% 75.9% 74.6% 74.3% 14.5% 15.8% 17.5% 17.0% 17.1% 6.7% 6.7% 1.6% 2.5% 4.2% 0.4% 3.2% 0.4% 1.2% 1.2% 1.3% 0.7% 1.2% 1.0% 1.3% Source: MoE; World Bank Staff estimates. Budget outturns worsened in FY2020, following a rel- atively fair performance in budget credibility. With the nationwide school closures due to the COVID-19 pandemic, the execution rate decreased to 89 percent in FY2020. Following the dual shocks of COVID-19 and the coup, the execution rate continued to decline further to 70 percent in FY2021 (Figure 24). Challenges in implementation are observed across both recurrent and capital budgets, slightly worse for the latter. Before COVID-19, delays in procurement processes were of- ten cited as a reason for poorer execution of the capi- tal budget. Affected by both COVID-19 and the political crisis, only 69 percent of the capital budget was spent in FY2021. Possibly owing to a considerable number of MoE teaching and nonteaching staff joining the CDM, the MoE budget implementation capacity was con- strained, resulting in only 70 percent of the recurrent budget being implemented in FY2021 (Figure 25). MYANMAR FI SCAL MON I TORING P. 32 FIGURE 24 MoE OVERALL BUDGET EXECUTION FIGURE 25 RECURRENT AND CAPITAL BUDGET EXECUTION PROVISIONAL ACTUALS VERSUS BUDGET ESTIMATES (%), FY2012–FY2021 PROVISIONAL ACTUALS VERSUS BUDGET ESTIMATES (%), FY2012–FY2021 Source: MOPF - https://www.mopf.gov.mm; World Bank Staff estimates Access to more detailed data breakdowns could strengthen the analysis. A 2- to 4-digit breakdown by economic classification is essential to analyze the de- tailed pattern of expenditure for both departmental and school levels. Considering the significant involvement of the education workforce in CDM, one would expect to see a decrease in payroll and allowance (01 budget code) and changes in goods and services (03 budget code) and transfer payments (05 budget code). The MoE uses the 03 codes to hire daily-wage teachers and staff, teaching assistants, and ethnic language teachers and incur printing and publishing costs and office expens- es. Since the DBE has been providing the school grant, School Improvement Support Program (SISP), using a simple formula, the grant expenditure of schools in the designated 13 budget codes could be used to conduct a school-level spending analysis. ● MYANMAR FI SCAL MON I TORING P. 33 2.3 Social Protection M yanmar has an underdeveloped social protection system. This is critical as social protection could play a key role in reducing poverty and inequality and fostering hu- man capital. The overall spending and coverage of social protection programs, particularly for a social safety net (SSN), remain limited (Figure 26). Spending on SSNs in Myanmar is significantly lower than in other countries, at only 0.2 percent of GDP in 2019 compared to East Asia and Pacific regional aver- age of about 0.8 percent of GDP with a global average of about 1.5 percent of GDP.17 Myanmar’s neighbors spend larger shares on social protection, for example, 0.8 per- cent of GDP in Thailand. FIGURE 26 EAST ASIA AND PACIFIC REGION SPENDING ON SSN % OF GDP, 2019 17 Latest data for East Asia and Pacific region, O'Keefe, Dutta, Palacios, and Moroz. Forthcoming. “Diverse Paths: The Dynamic Evolution of SP in Asia and the Pacific.”and for global average World Bank. 2018. “State of Social Safety Nets, 2018.” Source: O'Keefe, Dutta, Palacios, and Moroz 2022 MYANMAR FI SCAL MON I TORING P. 34 After increases in budget allocations for the Ministry of Social Welfare, Relief and Resettlement (MSWRR), over much of the past decade, these trends have re- versed since FY2021 (Figure 27). Recognizing the ne- cessity to invest in protecting the poor and the most at- risk population and the need to enhance human capital and productivity, a National Social Protection Strategic Plan (NSPSP) was developed in 2014 and accompanied by a 2018–2022 Medium-Term Sector Plan. Building on the NSPSP, in recent years before the pandemic, the Gov- ernment of Myanmar has made major commitments to expand its social protection system through the MSWRR. The budget allocations have increased nearly nine-fold between 2016 and 2021, albeit from low levels. This trend was largely driven by increases in the maternal and child cash transfer (MCCT) program. This has been reversed under the new FY2023 budget, with the budget alloca- tions to the MSWRR declining to 0.31 percent of the to- tal union budget from 0.45 percent a year earlier (Figure 27). This translates to a decrease to MMK 97 billion from MMK 160 billion in FY2021. Annual spending by the MSWRR has also declined. Actual spending declined by 35 percent in FY2021, de- spite higher allocations. Budget execution dropped to 55 percent of allocations in FY2021, a significant departure from spending outturns in recent years. The level of spend- ing is far from sufficient to support the country’s vulnera- ble, particularly amidst increasing food and energy prices. Data limitations present a gap for understanding the decline in budget allocations and the spending pat- tern. Access to government accounts at a 2-digit level may help determine the level of allocations to key policy programs, such as the cash transfers to the vulnerable, implemented by the MSWRR, or budgeted amounts for disasters under the emergency reserve fund. Further- more, as with the other sectors, budget data on payroll will provide an indication of the ministry’s staff head- count and the impact of the CDM. ● MYANMAR FI SCAL MON I TORING P. 35 FIGURE 27 MINISTRY OF SOCIAL WELFARE, RELIEF AND RESETTLEMENT MMK, MILLIONS AND % OF TOTAL UNION SPENDING, FY2012-FY2023 Note: BE = budget estimates; TA / PA / A = temporary, provisional actuals and actual outturns. FY2022 6-month budget is omitted from the analysis BUDGET OUTTURN, % OF MINISTRY BUDGET Source: MOPF; World Bank staff estimates. MYANMAR FI SCAL MON I TORING P. 36 A 3 longer-term perspective on fiscal management T his section provides a broad historic perspective on Myanmar’s economic governance. Myanmar's economic histo- ry in the 50 years to 2011 can be broadly characterized by two periods: the first be- tween 1962 and 1988, referred to as ‘Bur- mese way to Socialism’, followed by a transition toward a market-based system between 1988 and 2011. The gov- ernments during these periods focused on the suppres- sion of separatist movements, resulting in minimally functioning state institutions dominated by military concerns rather than social services—ultimately divert- ing resources away from public services and limiting potential growth (Figure 28). These have left the chal- MYANMAR FI SCAL MON I TORING P. 37 FIGURE 28 MYANMAR FELL BEHIND ITS NEIGHBORS GDP PER CAPITA INDEX Source: WDI; World Bank Staff estimates. lenging legacy of a weakened social contract, top-down decision-making, and a weak orientation toward ser- vice provision, which remained a considerable obstacle to reforms since 2011. Political and economic reforms, which commenced in 2011 as part of a transition to quasi-civilian rule, have promoted growth and improved welfare outcomes. The first democratic elections in five decades were held in 2015. The transition from a planned to an open mar- ket economy brought about average annual growth rates of 7 percent and a decline in poverty rates, from 38 percent in 2010 to 26 percent in 2015. The impact of these transitions has been felt by all sectors of society. For example, access to electricity has nearly doubled for Myanmar’s population, particularly in rural areas, albeit from a particularly low base, and mobile phone ownership rose from 4.8 percent in 2010 to 82 percent in 2017. Throughout the different military governments, the state struggled to mobilize tax revenue. Tax collection has consistently suffered from weak administrative ca- pacity, prevalent evasion and granting of exemptions, and at times complex taxation structure (IMF 1999; MYANMAR FI SCAL MON I TORING P. 38 World Bank 1985).18 Relatively high levels of tax col- lection in the 1970s can be partly attributed to the in- troduction of the commodities and service tax (CST), which included a tax on all imports by SEEs which supplemented import licenses and duties, and a tax on goods and services produced by SEEs. By taxing all SEE output and their imports, the tax base was broad- ened considerably. The growth rate for CST eventually declined relative to the relevant tax bases, possibly be- cause of complex rules and exemptions.19 Scarce data for the period suggest low levels of compliance and contin- ued widespread granting of exemptions. For example, in 1980, only about 16,000 individuals were subject to income tax, including fewer than 1 percent of civil ser- vants (World Bank 1985). Against poor tax collection, revenue generation in- cluded implicit and informal taxes, contributing to the distrust between taxpayers and the government. Myanmar’s recent tax reforms, which commenced in early 2010, had to navigate the perceptions that tax col- lection had previously been incorrect, arbitrary, or un- accountable. These were not easily linked to corruption or a lack of capacity in government, but rather close- ly tied to the long-standing distrust between citizens, businesses, and the state for decades under military rule (Bissinger 2016).20 People did not perceive that taxes led to improved goods and services that promoted well-be- 18 IMF Staff Country Report No 99/134. 19 Imports by government ministries, exempted from CST, may have been rising as a share of total imports, and there may have been an increase in the use of the so-called Special Order procedures whereby imports can be removed from customs before completion of the necessary paper work for collecting CST and custom duties by promising that the payments would be made in the future. 20 Bissinger, J. 2016. “Local Economic Governance in Myanmar.” The Asia Foundation. MYANMAR FI SCAL MON I TORING P. 39 ing or a better business environment. During Myan- mar’s socialist era, when many businesses were not legal, people had to hide their economic activity due to fear of arrest. Even after some sectors were liberalized, taxation, licensing, and other aspects of business-gov- ernment engagement were arbitrary and often perceived by businesses as unfair. A number of taxes were levied in nonstandard ways. For example, in the 1990s, farmers were required to sell a fixed number of baskets of rice per acre to a state enterprise (Myanmar Agriculture Procure- ment Trading) at a below-market price. Such practices were estimated to yield 2–3 percent of GDP in FY1999, al- most as large as actual levels of tax collection (IMF 1999). FIGURE 29 TAX COLLECTION % OF GDP Source: WDI The state had to disproportionally source earnings from state-owned companies (SEEs), which have long relied on natural resource extraction. SEEs heavily dominated the economy since the 1960s. SEEs were introduced in Myanmar in 1962. Considerable nationalization of firms took place and the total number of SEEs is anecdotally thought to have been around 15,000. Estimates of reve- nue collection in the 1980s show that 85 percent of pub- lic revenues were collected from the SEEs (World Bank 1985).21 21 This includes direct SEE contributions, revenue from the CST which was primarily levied SEEs have continued to evolve since the socialist era, on SEE imports and production, with government policy changing significantly after and royalties from natural resource extraction. 1988. This culminated in the establishment of a Privat- MYANMAR FI SCAL MON I TORING P. 4 0 ization Commission in 1995, which privatized 772 en- tities between 1995 and 201122. Since 2011, the number of SEEs continued to fall from 44 to 32 in 2018. Twelve SEEs were integrated into ministries and departments, ceasing to be SEEs and converted into regular admin- istrative units in government, although still earning nontax revenues and owning assets. Of the remaining 32, 7 SEEs have been corporatized and have been able to operate with a greater degree of autonomy. SEEs ac- counted for between 35 percent and 45 percent of pub- lic sector expenses and receipts between 2013 and 2016. However, SEE revenues have declined significantly as a share of GDP, from 10 percent of GDP in FY2014 to 6.4 percent in FY2018, driven by declining profitability be- cause of lower natural gas prices, inefficient production methods, and exposure to market competition. While SEE expenditures have also declined (especially with re- spect to capital expenditures), from 6.6 percent of GDP in FY2014 to 5.3 percent in FY2018, they have not been able to offset the fall in revenue.23 During the 1980s and 1990s governments ran per- sistently high deficits, financed through the CBM. During FY1981–-FY1985, the overall deficit in the con- solidated public sector budget ranged between 9 per- cent and 12 percent of GDP. In the late 1990s, the overall deficit had decreased but consistently remained above 5 percent of GDP. The financing of the deficit relied primarily on borrowings from the domestic banking system and to a smaller extent on foreign borrowings, which amounted to 8 percent and 4 percent of GDP, re- spectively, in FY1985. In the 1990s, the deficit contin- ued to be primarily financed by the CBM. Bank credit provided financing between 4 percent and 8.3 percent 22 World Bank. 2017. “Myanmar Public Expenditure Review of GDP, with an estimated 90 percent of the bank fi- 2017: Fiscal Space for Economic Growth.” World Bank, Yangon, nancing taking the form of CBM credit. A corollary of Myanmar. reliance on CBM financing was persistently high rates 23 “A Country Private Sector of inflation (Figure 30). SEEs acted as the chief factor Diagnostic: Creating Markets in Myanmar - Building Markets for a behind the public sector deficits. Despite contributing Sustainable Economic Recovery” May 2020 a lion's share of public resources, the SEEs retained MYANMAR FI SCAL MON I TORING P. 4 1 24 Subsequently, they also consumed a large share of weak financial positions24 and presented a drag on pub- available credit; credit to SEEs lic finances. In the early 1980s, the deficit in the SEEs has grown from around 13 percent of GDP in 1979 to 57 amounted to around 8–9 percent of GDP. percent in 1985. TABLE 2 OVERALL BUDGET BALANCE AND FINANCING 1981–1984 AND 1995–1998 (PERCENT OF GDP) FY1981 FY1982 FY 1983 FY 1984 FY 1995 FY 1996 FY 1997 FY1998 Overall balance −8.90 −10.14 −10.87 −8.56 −6.10 −6.20 −6.60 −5.10 Domestic bank finance 4.99 5.32 4.97 5.17 5.70 8.30 4.40 4.00 Source: IMF 1999; World Bank 1985. FIGURE 30 INFLATION ANNUAL % Source: WDI; World Spending on education and health in the past decades Bank Staff estimates. has been low (Figure 32). In FY1976, government ex- penditure on health was approximately 0.8 percent of GDP (Figure 31). This fell to 0.4 percent of GDP by FY1996 and just under 0.3 percent of GDP by FY2011. Education spending has generally been higher than on health. In the mid-1970s, spending on education ac- counted for about 12 percent of public sector spending. This has fluctuated since, remaining largely under 10 percent of spending for the sample of years throughout the three decades (Figure 32). Underfunding in services MYANMAR FI SCAL MON I TORING P. 4 2 has contributed to Myanmar’s persisting weak human capital (Figure 12) and parallel institutions for service provision. In the absence of sufficient government pro- vision of public goods and services, informal and com- munity-based institutions have often filled the gaps. Many such institutions are primarily financed by do- nations through the self-organization of communities to provide essential services. Subsequently, donations 25 McCarthy, G. 2016. “Building account for a substantial share of household spending, on What’s There: Insights on Social Protection and Public with households estimated to pay more than twice to Goods Provision from Central- community groups than they pay in taxes annually (Mc- East Myanmar.” International Growth Centre. Carthy 2016).25 Ultimlately, these budget policies contributed to a minimally functioning state dominated by military concerns rather than social services, diverting re- sources away from public service provision. The state continuously struggled to mobilize tax revenue, with revenue generation relying on natural resource ex- traction through SEEs as well as on implicit and infor- mal taxes, with the latter contributing to the distrust between taxpayers and the government. ● FIGURE 31 ANNUAL PUBLIC HEALTH SPENDING FIGURE 32 SPENDING ON EDUCATION & HEALTH 1971−2021 (% OF GDP) 1975−1984, 1996−1999, AND 2020−2021 (% OF BUDGET) Source: WDI; IMF 1999; World Bank 1985.