Opposition battlefield gains are not just a military setback for the junta, but an important economic blow that is compounding their already dire fiscal straits – something China should ponder as it moves to bail out the military regime in Myanmar.
The junta’s egregious economic mismanagement had been a greater threat to their rule than any potential military challenge, until Operation 1027 was launched by a trio of ethnic armies in late 2023.
GDP has fallen by 20% since the coup. The kyat is now trading around 7,000 to the dollar, from 1,350 prior to the coup. Inflation is currently over 30%, and the price of staples has increased by 200% since the military takeover.
Projected economic growth in 2024 has been halved to 1%. Real wages have plummeted, impacting domestic consumption.
The coup eviscerated 15 years of sustained economic growth, and plunged more than half of the population beneath the poverty line. Public health and sanitation are so underfunded that the country is seeing an increase in cholera cases.
Currency controls have wreaked havoc on importers. The government has an acute shortage of foreign exchange and has to allocate it to pay for petroleum products, including jet fuel, and other staples. To stem bank runs, the regime has limited daily withdrawals at banks to 200,000 kyats (US$406).
Military losses cause economic pain
The opposition claims to have effective control of over 50% of the country and one-third of the cities and towns. The over-extended military is increasingly reliant on conscripts at the front lines, while its logistical ability to sustain the war is breaking.
Due to their urgent need for conscripts, the regime has tried to block young men from emigrating, but at the same time, it is trying to increase the taxes from overseas wages to 25% which must be paid through state-owned banks that convert the foreign exchange at the artificially low official rate.
Military losses have only exacerbated the regime’s already dire economic predicament by cutting into key sources of income: gem sales, oil and gas rents, military-owned enterprises, and corporate taxes.
On July 26, the Ta'ang National Liberation Army captured Mogoke, the ruby mining center. The wholesale trade of gemstones in Mogoke and elsewhere is largely controlled through military-owned companies.
The Kachin Independence Army has stepped up their control over key jade mining centers, most recently capturing two military bases in Hpakant township.
In early August, the opposition National Unity Government's people's defense forces, or PDFs, took over the Tagaung Taung Nickel Mine, north of Mandalay.
The mine is one of China’s largest foreign investments in the country, and prior to the coup is thought to have earned the junta over $120 million in annual rents. Its operator, Wanbao Mining, is a subsidiary of the Chinese arms conglomerate NORINCO.
Opposition wants pipeline rent
Since the capture of Wanbao, China has reached out directly to the NUG. PDFs are now providing security and rents will no longer be paid to the junta.
Also in August, PDFs briefly took over a pumping and off-take station for China’s oil and gas pipelines. Junta troops retook the facility, as the regime is desperate for the rents from China.
The NUG and allied ethnic armies have repeatedly pledged to protect China’s economic interests in general, and the pipelines, in particular, but have pushed for rents to be paid to them, not the junta.
In western Myanmar, while the Arakan Army has not taken over the port of Kyaukphyu where a Chinese SOE has been trying to construct a deepwater port and special economic zone around its pipelines, it controls all of the territory surrounding the important Chinese Belt and Road Initiative project.
The PDF militias captured their fourth oil field directly owned by the Myanmar Ministry of Oil and Gas Enterprises, since March.
The regime has long used its two conglomerates - the Myanma Economic Corporation, or MEC, and Myanma Economic Holdings Limited, or MEHL – as cash cows. Together the two firms own over 120 different corporations across almost every sector of the economy.
The NUG has had a sustained campaign to boycott Mytel, the country's largest telecommunications provider, as well as owner of Myanmar and Dagon Beers, and Red Ruby and Premium Gold Cigarettes.
Currency controls spur capital flight
While the full impact of the boycotts as well as other dislocations is unknown, MEHL has not paid an annual dividend since the coup in February 2021, which is devastating to military morale. All military personnel are required to invest a fixed amount of their paltry salary, determined by their rank, in MEHL every month. The annual dividend is a financial lifeline.
Corporate taxes are down, in parallel with the overall collapse of the economy. New foreign investment, except from some Chinese and Thai investors, has dried up.
Only $150 million in new foreign investment was pledged in the first 7 months of 2024. Key foreign investors in the textile sector, including Primark, H&M and Inditex have all pulled out. Capital imports have ground to a halt.
The military regime has been largely funding its war efforts through its currency control mechanism, requiring all companies to sell 65% of their foreign exchange at artificially low rates.
Jared Bissinger argues in a recent report that the junta had raised $1.8 billion through arbitrage in 2024 alone. This takes away productive revenue that could be used to generate economic growth, and spurs more capital flight. Exporters are likely under-reporting their sales to hide assets abroad.
Economic activity has also been hampered by the irregular and dwindling supply of electricity. Hong Kong's V-Corp shuttered a number of projects, while Singapore's Sembcorp recently indefinitely suspended operations at a 250 MW facility, outside of Mandalay, compounding the dire shortage of electricity.
Although the government has pledged $100 million to pay for the import of petroleum and diesel, nothing has happened, leading to nationwide shortages and spiking prices.
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A Chinese financial lifeline?
Due to the shortage of hard currency, the junta has pushed for more border trade, which can be settled in kyat. But even that is no panacea, as the ethnic armies control most of the border crossings and a growing number of transit and trade hubs along the Chinese border.
Given the shortage of cash, the regime has prioritized indigenous production of arms and ammunition. But in August, PDFs attacked an MEC-owned mill in Myingyan that was producing steel for shells, grinding production to a halt.
The NUG is now starting to regularly target the regime’s ability to wage war.
In the face of this, Chinese Foreign Minister Wang Yi recently offered the junta a $3 billion financial lifeline.
This has to be seen as an inducement to get the State Administrative Council, as the junta calls itself, to accept a nationwide election as an offramp from the civil war, but it could also give the junta the confidence that it can continue to afford to fight on.
The NUG issued an immediate warning to China, with Tin Tun Naing – the NUG’s Minister of Planning, Finance, and Investment – telling Beijing that any post-coup government would not honor debts and liabilities incurred by the junta.
“It is unforgivable and impermissible for the illegal military council, which has no claim to represent the people, and which has usurped state power by force from the people, to fund their apparatus of terror, persecution, and slaughter by borrowing from domestic or foreign lenders under the guise of raising public debt,” he said.
As the junta continues to lose on the battlefield, they will lose streams of revenue and further stress the government’s shaky financial situation.
Caveat creditor.
Zachary Abuza is a professor at the National War College in Washington and an adjunct at Georgetown University. The views expressed here are his own and do not reflect the position of the U.S. Department of Defense, the National War College, Georgetown University or Radio Free Asia.