Following the significant volatility that characterized much of 2022, economic conditions in Myanmar have shown tentative signs of stabilization in the first half of 2023. The parallel market exchange rate remained broadly stable between January and May, albeit 27 percent lower against the US dollar than in June 2022 and depreciation pressures appear to have reemerged in recent weeks (Figure ES 1). The official rate has remained unchanged, but a 25-30 percent gap with the market exchange rate persists. After spiking in the second half of 2022 (Figure ES 2), inflation in food and fuel prices appears to have eased more recently, although the level of prices remains very high. Most economic indicators over the last six months suggest that economic activity is continuing to slowly trend upwards, though from a very low base and with uneven performance across different sectors and firms. Manufacturing output and new orders have risen quickly since the beginning of the year, after a long period of contraction (Figure ES 3). In the April 2023 round of the World Bank Firm Survey, firms on average reported operating at 75 percent capacity, a markedly higher rate than in previous quarters (Figure ES 4).

But several factors continue to constrain the recovery. Amid high prices and import restrictions, many businesses are finding it difficult to source the inputs they need to operate. With the exception of the agriculture sector, reported profits have declined from their levels a year ago, with the price of imported inputs rising sharply over that period. Power outages have become an even more pronounced challenge since early 2023, with 42 percent of all firms and over half of manufacturing firms reporting power outages as the most significant constraint to their operations in March. Conflict and logistics constraints continue to raise costs and cause disruption in large parts of the country. Indicators of investment remain very weak: as of May 2023, capital imports were about half their pre-pandemic levels, FDI commitments have remained negligible, and new business registrations between October 2022 and January 2023 were 43 percent lower than in 2019. The business environment remains challenging and many firms are finding it difficult to access foreign exchange, obtain trade licenses, import raw materials, and adapt to logistics constraints.

In addition, exporters are facing challenges from a combination of waning external demand, an overvalued official exchange rate, and foreign exchange conversion requirements. Goods exports declined by 16 percent in the first five months of 2023 compared to the same period last year, driven by a decline in manufactured exports, largely garments and natural gas (Figure ES 5). Despite higher prices, agricultural exports have also declined, reflecting weaker domestic production as well as the imposition of foreign exchange surrender requirements and the suspension of export licenses for rice. With exports declining and imports remaining broadly stable, Myanmar returned to a trade deficit in the six months to March 2023.

Amid the weak recovery, labor market conditions remain precarious. As analyzed in detail in Part III of this report, labor market pressures persist. Estimates based on the Myanmar Subnational Phone Survey (MSPS) conducted at the end of 2022 and early 2023, suggest that around 9 million people were added to Myanmar’s working-age population between 2017 and 2022/23. But employment only grew by 2 million over this period, and as a result the number of people not in employment, education or training (NEET) increased by almost 6 million, now comprising nearly 40 percent of the total working age population (Figure ES 7). The combination of lower rates of employment, fewer hours worked, and increasing incidence of casual work and selfemployment has reduced the income-earning capacity of many households. Reduced labor productivity and a lack of labor demand – combined with faster inflation – have seen workers’ wages fall by 15 percent in real terms over the five years to end-2022.