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Military coup in Myanmar threatens economic recovery
After a decade of democracy, the Myanmar military has staged a coup ousting the newly re-elected NDL party. So far, the coup has been peaceful and we do not expect it to lead to any major social unrest or large protests amid public concerns about Covid-19.
However, we expect the increase in political risk and business uncertainty to lead to a slower recovery in investment and FDI inflows with the possibility of US sanctions also a risk.
Using two episodes of elevated political risks as benchmarks – Myanmar’s transition from the quasi-military government in 2016, and Thailand’s military coup in 2014 – we estimate that the coup could lead to a 2ppts drop in FDI inflows as a share of GDP and a delay in the investment recovery until 2022. All else being equal, this could lower GDP growth this year to around 2% versus our pre-coup forecast of 4.1%.
A key risk is that the military postpones the elected government’s reform agenda. This would hinder Myanmar’s ability to fully reap the benefits of its low-wage advantage and would see potential GDP growth fall short of our projected 6.2% pa over the next decade.
On February 1, Myanmar’s military seized control of the country, announcing a one-year state of emergency and the replacement of democratically elected President Win Myint with Myint Swe, a former general. State Counsellor Aung San Suu Kyi, President Win Myint, and other senior members of the elected government’s National League for Democracy (NDL) were also detained.
Excerpt from Oxford Economics Research Briefing
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