Interview: Linus Goh
In recent years Myanmar’s economy has undergone significant restructuring. How would you assess its financial sector reform so far?
LINUS GOH: By all accounts, there is much reason to be optimistic. Given the daunting task of liberalising the economy after decades of isolation, the progress achieved by the government in bringing about the reform has so far been very promising.
While the agenda ahead remains sizeable, important steps have been taken to address critical building blocks for a sound financial sector supportive of the opening up of the economy. I would point to the gradual liberalisation of the kyat, with the shift from the official peg to a floating rate mechanism, which paves the way for developing the formal foreign exchange market. The central bank has also been granted additional powers and has introduced foreign banks as part of its reform of the banking sector, with this set to facilitate foreign investments into the country.
Of course, there is still work to be done on foreign direct investment regulations, which are expected to give foreign investors and banks a greater sense of clarity as they participate in the building of the economy.
To what extent will the arrival of foreign banks act as a buffer for international firms looking to expand their operations in Myanmar?
GOH: There is a significant wave of interest from foreign firms, given the opportunities to build infrastructure and capabilities across many sectors like energy, telecoms and transportation.
The local banking sector remains limited in its ability to fully serve the requirements of international companies, and the foreign banks are expected to play a significant role, especially in large-scale project financing and foreign-related ventures. As much as 60-70% of the materials needed for infrastructure developments are imported, so dollar-based financing solutions from the foreign banks will be important.
Foreign banks are conscious of the need to partner with local banks in serving customer needs and also to build the capacity of the overall system so that it can sustainably support economic growth over the long term.
What strategies need to be prioritised to develop the financial services industry?
GOH: The financial services industry continues to offer short-term financing at high costs. The sector should move towards a broader set of financing capabilities to assist infrastructure projects and mortgage financing for end buyers. Over the next decade, we can expect to see a dynamic interplay between the kyat and foreign currency, so foreign exchange management and related hedging and financing options will need to be developed further. The development of capital markets will offer alternative access to funding for companies in the form of debt capital.
The establishment of the Yangon Stock Exchange will eventually offer equity-related or quasi-debt financing options, although its initial opening will be more symbolic than substantive in terms of offering a channel for Myanmar-based companies. Following its establishment, new regulations should be enforced to attract investors.
Moreover, the development of the interbank systems for foreign exchange – as well as money markets to keep the whole engine of assets and liabilities moving within the banking system – will be critical to the funding base for local and foreign banks alike. Lastly, payment and settlement systems should be upgraded, and an interbank settlement will be needed in order to improve the capabilities of the local banks.
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