In his televised New Year’s address to the country, Myanmar’s junta leader Min Aung Hlaing vowed to prioritize economic growth in 2024, apportioning all the blame for the country’s sharp economic contraction on the opposition his coup ousted almost three years ago.
Min Aung Hlaing made no mention of the military’s setbacks since the Three Brotherhood Alliance of ethnic armies in northern Myanmar launched their offensive on October 27, 2023. And while the losses, which include over 30 towns and the surrender of over 3,000 troops are real, the continued economic crisis remains the junta’s single largest vulnerability.
The economy has shrunk by 10-12 percent since the Feb. 1, 2021 coup that deposed the National League For Democracy-led government.
In a recent report, the World Bank predicted the country would only see 1% growth in 2024, given the "broad-based slowdown across productive sectors including agriculture, manufacturing, and trade."
Over half the population is living beneath the poverty line, while the World Bank found that 40% of surveyed families saw a decline in income in 2023 compared to 2022.
The kyat currency has lost half of its value since the coup and it now appears that the State Administrative Council (SAC), as the junta is formally known, has given up any hope of controlling it.
Forex woes
In early December 2023, the Central Bank of Myanmar announced that it would no longer fix the exchange rate, allowing the currency to trade at market prices.
This was a tacit acknowledgement that the gap between the official rate of 2,100 kyat per U.S. dollar and black market rate of 3,500 kyat per greenback was too large to ignore, and that the regime no longer had foreign exchange reserves to prop up the declining kyat.
The shortage of dollars also portends a further energy crisis. Electric black- and brown-outs have been common throughout the country, even in Naypyidaw. And shortages of gasoline and diesel increased in late-2023.
The SAC had subsidized energy imports by making dollars available to politically-connected energy importers at below market rates in order to ensure a steady supply of fuel. The junta no longer can afford that.
In late December, there were reports of tankers refusing to unload in Yangon’s Thaliwa port until they were paid, indicating a dire shortage of dollars.
The regime has been encouraging border trade with China and Thailand, which is conducted in Chinese yuan or Thai baht. But the loss of key border areas is hampering that.
While SAC forces still control the border city of Muse, which handles almost 90% of border trade with China, the Three Brotherhood Alliance now controls the Mile 105 Trade Zone as well as a host of smaller border crossings, such as Chin Shwe Haw. Muse and Lashio are the only towns in northern Shan State that are still under junta control.
Ethnic armies on the march
The Three Brotherhood Alliance – Arakan Army, Myanmar National Democratic Alliance Army, and Ta’ang National Liberation Army – now controls almost all towns along highways 3 and 34, to the border.
Ta'ang National Liberation Army forces captured a military camp as far west as Nawnghkio, which is only 15 miles from Pyin Oo Lwin, home of the Defense Services Academy, though the Air Force has intensified airstrikes to retake the town.
Among advances by other ethnic armies, Karenni forces now control much of the state including the trade routes to Mae Hong Son in Thailand. The Karen National Union has been consolidating its position along the Thai border.
Fuel prices, delays at the border and increased transportation costs resulted in some $500 million in lost border trade in the two months following the launch of Operation 1027 in northern Shan State. Border trade accounts for 40% of exports and 21% of imports.
Myanmar Now, citing Commerce Ministry figures, found that exports to Thailand and China in the last 9 months of 2023 fell by $178 and $157 million, respectively.
Sector after sector have been hit hard.
In late November, the SAC stopped supplying fuel to industrial estates, calling on factory owners to negotiate their own energy purchases.
In the key garment sector, 271 of 817 factories (33%) have shut down since the coup – due to shortages of foreign exchange to pay for raw materials, high energy prices, and the loss contracts and foreign investor unease with the human rights situation. Even Chinese-owned firms are closing.
For those still employed, wages are stagnant and being eaten up by inflation, which remains high at 29%. Prices of staples, including rice, eggs, and cooking oil, have soared.
The junta refused to increase the minimum wage for workers, instead offering a 1,000-kyat (US$0.20) daily allowance. The current minimum wage was set in 2018.
The agriculture sector has been impacted by changing weather patterns and shortages of imported fertilizers and pesticides. While the cost of production has soared for farmers, in mid-September 2023, the junta imposed price ceilings on wholesale rice trade to stabilize prices for urban consumers.
U.S.-imposed sanctions on the Myanma Investment and Commercial Bank and Myanmar Foreign Trade Bank, which were responsible for most of the U.S. dollar transactions, have crippled foreign trade. Singapore’s United Overseas Bank has been quietly closing Myanmar-linked accounts, further hampering their international transactions.
In December 2023, three Myanmar nationals, including Kyaw Min Oo, the CEO of Sky Aviator, were convicted of trying to smuggle 508,925 Singapore dollars (US $382,380), which speaks both to the dire shortage of foreign exchange and the degree to which Singaporean authorities are enforcing international sanctions on the military regime.
Sanctions bite
The U.S. Treasury Department imposed sanctions on both Kyaw Min Oo and Sky Aviator, a key supplier of military aircraft parts to the junta, on November 8, 2023
In November 2023, the Central Bank of Myanmar announced that it had joined China’s Cross-Border Interbank Payment System (CIPS) system, while it continues to try to develop a non-dollar settlement system with Russia.
The country's trade deficit hit $1 billion in the first half of the 2023-24 fiscal year. The entire trade deficit for fiscal 2022-23 was $732 million, which itself was very high. Exports fell by $400 million in the last nine months of 2023.
It is no surprise that businesses in 2023 operated at 56% of capacity, according to the World Bank, impacting tax revenue. The junta is moving to impose a 2% tax on the remittances sent home by the estimated 5 million overseas workers in Thailand.
In September 2023, the regime looked for scapegoats, arresting Lt. Gen Moe Myint Tun, who ranked number six in the SAC and chaired the Central Committee on Ensuring the Smooth Flow of Trade and Goods. The regime arrested his deputy and the deputy minister of commerce, the committee’s secretary.
The regime has interrogated a number of businessmen, including some people close to the junta, and arrested 16 edible oil traders in October 2023.
The SAC is desperate to find other scapegoats as the economy continues to slide and battlefield losses mount.
Time is running out for the junta, which has proven to be a self-serving and thoroughly corrupt institution, incapable of competent military and economic decision-making. In both spheres, it’s all coming crumbling down.
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.