IMF sees stronger growth in Myanmar, but Rohingya crisis may hurt investment

YANGON (Reuters) - The International Monetary Fund on Friday forecast an economic rebound in Myanmar this year, but said the Rohingya refugee crisis may dampen investment as the country faces international pressure over its treatment of the Muslim minority.

A view of the Myanmar industrial port terminal at the banks of the Hlaing river in Yangon, June 9, 2016. REUTERS/Soe Zeya Tun - S1AETJATENAA

More than 600,000 Rohingya have fled to Bangladesh since late August, driven out by a military counter-insurgency clearance operation in Buddhist-majority Myanmar’s Rakhine State.

A top U.N. official has described the military’s actions as a textbook case of “ethnic cleansing”. Myanmar denies that.

While there is no sign of a major, direct economic impact, the crisis has dented hopes of a Western investment boom as European and U.S. companies are wary of the reputational risks of investing.

Last month, the World Bank froze $200 million in budget funding for Myanmar over the crisis.

“The internal conflict and humanitarian crisis in northern Rakhine State could affect development finance and investor sentiment, although direct economic impact appears to have been largely localized,” the IMF’s Myanmar mission chief, Shanaka Peiris, told reporters in the commercial capital of Yangon.

“Myanmar’s economy is rebounding and macroeconomic imbalances are stabilizing. Growth is expected to rebound to 6.7 percent,” he said.

However, the near-term growth trajectory was moderately weaker than previously expected, reflecting a subdued pick-up in domestic investment and uncertainty surround the Rakhine State crisis, particularly for tourism, he said.

The IMF had previously downgraded its gross domestic product growth forecast for Myanmar for 2017-2018 to 6.7 percent from 7 percent, but Shanaka said it still represented a “significant acceleration” compared with 5.9 percent from a year ago, thanks to a recovering agriculture sector and exports.

The government led by Aung San Suu Kyi had seen “a challenging first year”, he said, with lower-than-expected growth, but the medium-term outlook remained “favorable” as higher tax revenues could support growth.

Frustration over the government’s management of the economy has grown in recent months.

Foreign investment approvals have slowed since Suu Kyi’s National League for Democracy won an election in late 2015, and took office early the next year.

Still, Myanmar has enjoyed one of the fastest growth rates in the region after the military, which ruled for nearly 50 years, ceded power in 2011 to a quasi-civilian government that ushered in rapid reforms, including the relaxation of foreign investment rules in 2013-2014.

Reporting By Yimou Lee; Editing by Robert Birsel