Moves have been made to create an independent central bank and a new Central Bank Law was introduced in July 2013, granting far greater autonomy to this institution than was previously the case. The Central Bank of Myanmar (CBM) and the government have committed to gradually phase out the monetization of budget deficits. If this is achieved, it can be expected to deliver significant macroeconomic benefits.
With so many changes occurring in both the political and economic spheres, financial risk is high; and the World Bank has identified weak internal control and central oversight of spending and revenue collection as potential barriers to effectively dealing with this risk (World Bank 2013). And while the increased revenues that will arise from the move to a realistic exchange rate are certainly welcome, the increased contribution of natural resource revenues to overall revenues will inevitably increase the volatility of overall revenues.
The last couple of years have seen big increases in spending on health and education, and large rises in civil service pay and pensions. However, military spending has also continued to increase over this period and accounted for 27% of government spending for FY2013, i.e., still higher than spending on health and education combined (Section II.A). Current expenditure has increased relative to capital expenditure, but Myanmar's spending is still more tilted toward capital expenditure than that of other countries in the Association of Southeast Asian Nations (ASEAN).
The 2008 Constitution stipulated that certain fiscal responsibilities should be decentralized to the governments of states and regions. In a speech made in August 2013, President Thein Sein outlined additional decentralization of certain fiscal operation (The New Light of Myanmar 2013); and further fiscal decentralization is possible within the next few years. In the long run, these changes should make spending more efficient and responsive to public needs and desires, but the low capacity that subnational governments currently have for carrying out fiscal responsibilities mean that considerable efficiency gains are unlikely to arise from this change in the short run.
The government has committed to implementing the Extractive Industries Transparency Initiative (EITI), which will help boost fiscal transparency. The Budget Law was made public for the first time in FY2012, also representing a significant step toward greater transparency of fiscal matters. However, although important steps have been made to increase transparency, much remains to be done. Many government and other public sector entities do not fully report their financial operations, and “Other Accounts” are widely used (there are over 13,400 in total).1 The amount of key fiscal information made available to the public also remains lower than in most other countries, limiting the input citizens and other nongovernmental actors can have on fiscal management issues.
The Internal Revenue Department has adopted a strategic reform plan that includes the establishment of a Large Taxpayer Office (LTO), which became operational in April 2014. The LTO has introduced taxpayer self-assessment and issued unique taxpayer identification numbers, and will be used as a model for establishing Medium Taxpayer Offices, and the reform of small taxpayer compliance methods. These changes should help the government to improve its revenue collection. Technical assistance for these changes is being sought from international organizations, as is the case with a variety of other changes the government seeks to make to its fiscal administration (IMF 2013). Following the political liberalization of the last few years, the international community has abolished or suspended most sanctions, relations with major international financial institutions (IFIs) have been normalized, and more than half of Myanmar's external debt has been written off. These changes can be expected to improve Myanmar's future fiscal performance.