Report No. 1700-BA Burma: Country Economic Mivemoranaum October 19, 1977 South Asia Regional Office 1ChD I~~~t~~IdI Al I C~~~~ fhLII IVp FORn OFF:C:A:USE ONLY F~i %-F rE % .F IPIL IL ~.II I Docu-ent of the "Workd 2Ba5nk This document has a restricted distribution and may be used by recipients only in the performance f heiro ofilcial duties. Ltscontents5 may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Report No. 1700-BA
Burma: Country Economic MivemoranaumOctober 19, 1977
South Asia Regional Office
1ChD I~~~t~~IdI Al I C~~~~ fhLII IVp
FORn OFF:C:A:USE ONLYF~i %-F rE % .F IPIL IL ~.II I
Docu-ent of the "Workd 2Ba5nk
This document has a restricted distribution and may be used by recipientsonly in the performance f heiro ofilcial duties. Ltscontents5 may nototherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS
From jan.1-ry 25, 1975 t-o M-y 1, 1977:
K 7.74 SDR 1.0.0K 6.67 US$1.00 (approximate)
From May 2, 1977 to date:
K 8.51 = SDR 1.007 ')' IT C' LS I AAv 7. JJ = u $1.00u (approximate)
1 viss (vi) = 3.600 lb (.001607 lg ton) 1.633 kgI pyi (1.302 vi) = 4.688 lb (.002092 lg ton) 2.127 kg0.2133 pyi (.28 vi) = 1 pound (lb) 0. 4536 kg0.4702 pyi (.612 vi) = 2.205 lb G 1)kg477.9 pyi (622 vi) = 1 long ton (2,240 lbs) 1,016 kg470.2 pyi (612 vi) = 0.9842 lg ton (2,205 lbs) 1 metric ton (m ton)
1 Basket Paddy (9.82 pyi) = 46.0 lbs (.0205 lg ton) 20.9 kg1 Basket Rice (16.0 pyi) = 75.0 lbs (.0335 lg ton) = 34.0 kg1 Bag Rice (34.1 pyi) = 160.0 lbs (.0714 lg ton) 75.6 kg
Fiscal Years - October 1 - September 30 (up to September 1973)October 1, 1973 - March 31, 1.974 -
April 1 - March 31 (from April 1974)y
Except otherwise specified, years in the report and statistical annex referto fiscal years.
This report is based on the findings of a mission which visitedBurma in May/June 1977 composed of Messrs. C. Robless (Chief of Mission),Y. Huang (Economist), S. Rajapatirana (Economist), and P. V. Thuyet(Industrial Economist).
FM OFFICIKL UV NLY
BURMA
COUNTRY ECONOTC2 MEMORANDUM
TABLE OF CONTENTS
Page No.
List of Tables in the TextCoULnitry IJataMap
SUMMARY AND CONCLUSIONS ..... ............................ i vi
I. INTRODUCTION ........................... 1
II. BASIC SOCIAL AND ECONOMIC OBJECTIVES .................... 3
Basic Needs ........................................ 3Population and Labor Force Growth .... .............. 5Policy Issues ...................................... 7
III. MAIN ISSUES AND POLICY RESPONSES ........................ 8
B. The Distribution System ..... ....................... 12C. Export Promotion ...... ............................. 13D. Resource Mobilization ..... ......................... 15
V. SECTORAL PROGRAMS ....................................... 33
A. Agriculture ................... ..................... 34B. Livestock and Fishery .............. .. .............. 37C. Forestry ....... .............. ...................... 38D. Mining ............................. 39E. Industry ............ ........... 40F. Transport ......................... 44G. Telecommunications ............ ........... 46H. Power .. 46
T-his document has a mtricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Dank authorization.
VII. EXTERNAL ASSISTANCE .......... ........................... 54
Volume and Sources ........ .......................... 54Priorities .............................................. J.+Terms and Conditions of Assistance .. ............... 56
Statistical Appendix
Chart on Iianrning Organization
LIST OF TABLES IN THE TEXT
Page No.
Table II-1: Alternative Population Trends, 1975-2000 ............... 6
Table III-1: Percentage Excess of Free MarketPrices over Controlled v.o lesaSl Pries 197=177 ... .i
IraUJ £ii. UllL~L fUUTT_1nCLUL uUget, .L U'C fUJIQ7I r JO ... IfTale II-2: C.LL onsolidated Public 8ector DBu d gt 1 946-197 /7 ......... .................... I I17
Table IV-8: Expenditure on Gross National Product, 1976/77-1981/82 .31
Table IV-9: Savings, Investment and Resource Gap, 1976/77-1981/82 .32
Table V-1: Employment in Manufacturing Industries ................. 41
Page 1 of 2 pages
COUNTRY DATA - BURMA*
AREA 2/ POPULATION DENSITY678.528 km- 31.5 million (1977) 46 per km-/
Rate of Growth:2.27. (from 1965 to 1977) 154 per km'/of arable land
POPULATION CHARACTERISTICS 1974 HEALTH 1976Crude Birth Rate (per 1,000) 33.7 Population per physician 6,760Crude Death Rate (per 1.000) 11.3 PoDulation per hospital bed 1,475Infant Mortality (per 1,000 live births) 55.8
iNCOME DlSTRTIBUTIN 1972 DISTRIBU`,1ON OF AUND OW%NER5CHIFof national incqme, higest quintile 407 % owned by top 10% of owners
lowest quintile 8% 7. owned by smallest 10% of owners
ACCESS TO PIPED WATER ACCESS TO ELECTRICITY% of population - urban %.. 7 of population - urban
- rural ..-- rural
NUTRITION 1972 EDUCATION 1974Calorie intake as % of requirements 102.2% Adult literacy rate % 67%Per capita protein intake 71.2 Primary school enrollment 7. 83%
GNP PER CAPITA inFY 1977:S- US$130
GROSS NATIONAL PRODUCT IN FY 1977 ANNUAL RATE OF GROWTH (%, constant prices)
US $ bin. % FY1965-70 FY1970-77 FY1965-77
GNP at Market Prices 3,968 100.0 2.0 3.5 2.6Gross Capital Formation 406 10.2 - 3.7 - 0.8 - 1.9Gross Domestic Saving 339 8,5 - - _Foreign Capital Inflow 67 1.7 - -Exports of Goods, NFS 212 5.3 - 13.6 4.3 - 3.8Imors of Goods, NS 270 10. - 78 8.2
OtirPuI, I.BOR FORCE ANDLPRODUCTIVITY IN FY 1977
Value Added Labor Force7 V. A. Per WorkerUS $Mln. % Mln. % US$ %
* All data for FY 1977 are revised estimates of the Government of Burma.a/ The Per Capita GNP estimate is based on a straight exchange rate conversion using FY 1977 GNP.bj rutal labor torce: unemployed are allocated to sector of cheir normaL occupation.c/ Includes livestock, fishery and forestry.d/ Mining, power, and construction.e/ Tncludes current surplus/deficit of Boards and Corporations.
not available
not applicable
Page 2 of 2 pages
COUNTRY DATA - BURMA
i970 1971 1972 1973 1974 1975 1976 1977
MONEY, CREDIT and PRICES Sep. Sep. Sep. Sep. Mar. Mar. Mar. Mar.(mln Kyats outstanding at end of period)
Money and Quasi Money 2422 2399 2793 3581 4065 5342 6052 6335
Bank Credit to Public Sector 2616 3043 3676 4342 5040 6447 6663 6429
Bank Credit to Private Sector 537 557 668 1000 685 639 956 1457
(Percentages or Index Numbers)
Money and Quasi Money as % of GDP 23.6 23.0 25.9 30.5 27.7 27.6 25.7 23.7
General Price index (1972 - 100) 91.0 92.9 100.0 123.5 156.6 206.4 252.6
i. Burma's real growth over the past decade and a half has been slow.E'er capita income at a aout . 1U _In/ I permts only a little above basic needs
for the greater part of the population. Unemployment is now over 10% of thelabor force, wwhile underemployment is pe-rv-asive. ro'reover, the socIal pro-gress achieved in the sixties has been gradually eroded. Burma urgently needsto accelerate its economic growth.
ii. The country's poor economic pertormance over the last decade anda half can be ascribed to a number of factors. Investment levels were low.Gross capital formation averaged 10 - 11X of GNP. Even this limited invest-ment was not directed towards the sectors having the greatest comparativeadvantage. Agriculture, forestry and mining did not receive due attention.The pricing policies of the Government exacerbated the problem. Low producerprices discouraged the production of paddy and other crops and led to dwindlingexport carnings. Furthermore, state industrial enterprises were not allowedfull recovery of their costs which led to a decline in their investible sur-plus and a low contribution to Government revenue. An increasing share ofproduction was either traded in the unofficial market or was smuggled abroadat a multiple of official prices. In both cases, taxable income was siphonedoff to the private sector with little opportunity for the private sector it-self to invest these resources productively in.the domestic economy. Thedistortions arising from this system were compounded by low official interestrates and an overvalued exchange rate.
iii. As a result. value added by the directly productive sectors of theeconomy lagged behind population growth, while export volumes declined formost of the neriod. The latter, in turn, reduced the capacitv of the economyto import essential raw materials, spares and capital equipment which led toinrreasing under-utilization of raparity in most sertors of the eronomy.
ing policies. Procurement prices of a variety of agricultural products havebeen rais oed while nothers hvave bbeeen deecorntroll-led. Th.e procurement price forpaddy was increased by over 150% during the period November 1972 and July 1974but has remained uchanged sirce then- Perhaps themost serous consequenceofthe present level of procurement prices is that insufficient incentive is pro-v4Aed to farmers l-a 4 ncrease the productior. 1 o4a agriculturalexprt commoditie
(paddy, beans and pulses and animal feedstuff), which in the short run affordsthle one ma'Jor opportur. Li-;LL Lto iLLLcLreaOs e tUL a rLriLL.LLs..
1/ Based on a straight exchange rate conversion using 1976/77 GNP.
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v. In industry, the Government increased the ex-factory prices ofISt-,t-P Economir Entrprrises (SEEs)- New rosting schedules-.- h2veu, heen est2b Iishedi
which in principle allow, for the first time, profit margins at the producinglevel. However, these ad,usct-menta romain ininmnl of PrPioc still do not
reflect capital costs and resource scarcities.
vi. Reductions in the official exchange rate of the Kyat by 23% inDJ ecemwler I 19 74I and .a furtler n9% in M. y 1977 IhLlaUve compensated partially 'orthe over-valuation of the exchange rate. In view of the importance of exportgrowth for the developmert oL the domestic economy, it is recessar-y thatthe exchange rate be kept under continuing review.
Public Finance
vii. A major tax reform was enacted in April 1976. It included the intro-duction of a Commodities and Services Tax and a Profits Tax. At the same time,revisions in the selling prices of SEEs in 1976/77, accompanied by improvedeconomic performance, raised the current revenues of boards and corporationssubstantially. These actions resulted in increasing Government revenue from9% of GNP in 1975/76 to 13% in 1976/77, in reversing the decline in domesticsavings, and in halting the rapid expansion in money supply that fueled a highrate of inflation. They represented a major turnaround in public finance andwere perhaps the most important achievement of the Government in recent years.
Macro-Economic Performance, 1974/75 - 1976/77
viii. These and other actions, including the increased allocation of invest-ment to the primary producing sectors, have undoubtedly improved the conditioinsfor accelerated economic growth and thereby contributed to economic performanceunder the Second Four Year Plan (1974/75-1977/78) which is currently beingimplemented. Yet, much of the output expansion during the first three years ofthe Plan reflected favorable weather conditions. In 1976/77, GDP is estimatedto have risen by 6% in real terms compared to 4.8% in 1975/76 and 2.6% in1974/75. After a decline in 1974/75, agricultural output growth recoveredmainly because of the aforementioned favorable weather conditions. The tradi-tionally important forestry and mining sectors also recorded some improvement.A welcome develonment was the exnansion of onshore crude oil nroduction by 21%in 1976/77. With the increased availability of raw material from the primarysectors and 12rgor imnnrts of intprmpeiate m,taeria1s and cenitA1 Pqiiinment, the
growth of the processing and manufacturing sector increased from 4.2% in 1974/75to I0.A6 i n 1Q76!77.
-After stagnatinig in 1974/75, gross fixed capital formation increasedat an annual rate of about 14% in the two following years. Along with the; n_rease A- inves _tment*F,4 domesi Oaig exadd Th 4t - roveA UAi ge- Ary_. s .ttLt.L~a c L xIL .CLCDGtLt V D6CXL XVl a JLLDCOLLL Va .LL t.ajJILL.-L .L .kL&CIIjJt*V >L U- LLLL
5* .t
position of the Government lessened its dependence on the banking system whichin 'urn contr4lbuted to a reduct4on in th rat ofifation. uigclnaLII UL I LUL L L. ULU LU~£uU LJ.UL Ln LLL_ LCLLU L. L. LLL-L L±ULL .IJUL ±IL6, UldULLU.11
1976, the consumer price index at Rangoon increased by 22% as compared to ani l -c_ -ea s IC LO./ o 3 Ln 1 calenar 197.cincreLabU Ut UVCL Jku/. AA1 Ca±eUMUL L71J.
x. The value of exports (in US dollars) grew by 9.8% per annum during1974/75 and 1976/77 in nominal terms, principally the result of export priceincreases for most export products and an expanded volume of rice exports.This increase in exchange earnings, plus some use of external financing,enabled imports to rise although Burma's capacity to import continued tobe tight in relation to its needs.
Macro-Economic Prospects, 1977/78 - 1981/82
xi. The targets of the authorities for the next five year period entailGDP growth in real terms of 6.6% in 1977/78 and a minimum of 5.5% per annumunder the Third Four Year Plan (1978/79-1981/82). ARriculture is targeted toexpand by 5.5% per annum, and the processing and manufacturing sector by 8.5%.Total investment is planned to expand by 25% per-annumn-in-real terms. Withpublic investment growing by 20%, these targets call for a marginal savingsrate and marginal tax rate of about 26% and an increase in the external re-source gap from 1.7% of GNP in 1976/77 to 5.8% in 1981/82.
xii. A more modest view of the intermediate-term prospects of the econo-mv- hnwpupr- i fnrprelR in this Rpnnrt hprscati unnvoidalhv- it will takse
some time before recent reforms and intended new initiatives are fully imple-mented and begin to have a significant impact. Annual increases inGDP of 5%in real terms (with agriculture and manufacturing industry growing by 3% and8.5% per ann.umn, respectively) together with ar.nnual increaseos in ir.vestment 0_
about 13%, constitute a more reasonable set of expectations. The targets,alth..Lough modest, calla for a sublstat.tial i vemrt of perfo.ar.ce oe th
past decade. This level of investment will require growth of domestic savingsfom 9 .1 % of GPk -n 1976/7 to 11.1' in 1901 /82, plus continued substan,talLI'J11 . Io U.L iskr .LI I7IUJ I I LI II LI. LI 1 704L, jJ.LUO LIILL.UU 0UU aL..LL
foreign transfers of resources into Burma to complement domestic efforts.wLLe thLe taskI invol-ved will put heavy demands On the f iCl 1, admULinL'L traltive
and management capacities of the Government, it should be feasible, providedadequate action is taken to sharpen sectoral development strategy, consider-ably step-up the absorptive capacity of the economy for new investments, andintensify resource mobilization.
Sectoral Programs
xiii. The recent Bank Agricultural Sector Review as well as previouseconomic reports have drawn attention to the wealth of Burma's agriculturalresources, its importance for the country's economic development, and thedifficulties in achieving substained and more rapid growth. These difficul-ties include (a) the controlled price system which militates against fullerutilization of potential and timely adjustments of production to changes inexport market conditions; (b) insufficient supplies of essential farm inputs;(c) inadequacy of transportation facilities; and (d) shortages of basic farmservices, in particular, agricultural credit and extension services.
xiv. If Burma's agricultural performance is to be improved, intensive andcoordinated action will be necessary to deal with these difficulties. Alongwith such action, priority needs to be given to improvements of productivityin existing cultivated areas, with emphasis on quick-yielding proiects. To
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effectively implement this strategy, it is further necessary that the full
array of services be improved and the supply of inputs increased since the
factors affecting production are interrelated.
xv. Realization of the export potential of the forestry sector requiresa number of urgent actions. These include the rehabilitation of existing andthe purchase of new equipment; improved maintenance; construction of access
and feeder roads to forest areas; and better management and coordinationbetween Government agencies.
xvi. In the mining sector, the principal activity will be crude oil pro-diiction. Production is taraeted to exnand from 22,000 barrels per day to47,000 by 1981/82. The full potential of existing wells has to date not beenexnloited for lack of transportation facilities. The laving of the oil pipe-
line from Malun to Kwema and its extension to Syriam by 1978/79 will be a
major step in breaking this bottleneck.
xvii. Increases in the production of other minerals necessitate themodernization of existing mines and exploitation of new deposits. Progress
wit"h respect to the latter will depend upon i.-depth eval7-tion of potentialmining areas and the security situation in these areas.
xviii. Burma's natural resources afford it a base for industrial devel-opment, provided efficiency anA management development are pro oted. Incontrast to this potential, investments in the recent past have concentratedon industr4es W h,4C.ave no, always been 4n l4ne -th the coutry's compar-4-v
advantages. Notable cases in this connection are a number of heavy industrieswlhtere capacity h1das been built up over thLEe years t Lo 'leve'Ls that A o not permit
efficient production. A review of industrial strategy is needed, given thecnaracter of tLh'e country's resource endo-wents anU thLe LfscaL and alance of
payments implications of capital-intensive industrial development.
xix. Together with the development of the primary and secondary sectors,rehabilitation of the country's physical infrastructure, in particular trans-
portation, is required. The transport sector is in a serious state of disrepairfor lack of spares, new equipment and maintenance. Only some 60% of the stock
of diesel locomotives, 50% of the fleet of trucks in the public sector, and
75% of inland watercraft are in running condition.
xx. The transport sector accounted for about 15% of all developmentexpenditures during 1974/75-1976/77. An expanded share is justified during
the next five years. Within such an allocation, the highest priority needsto be given to the rehabilitation and maintenance of existing capacity. At
the same time, rationalization of transport pricing policy is essential. To
have any substantial impact, these measures must, in addition, be accompaniedby improvements in operational efficiency and management in the public sector.
Economic Planning and Administration
xxi. Tne need for institution-building and management development gearedto expanding absorptive capacity by improving the design, administration and
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implementation of development programs cannot be overemphasized. Tthe Burmeseplanning and administrative system, as it now exists, is complex, rigid inits manner of operation and excessively focused on the formulation ratherthan the implementation of targets. Streamlining of the entire planning andadministrative apparatus, decentralization of decision-making and strengthen-ing of the capability of Government entities to prepare and implement projectsare urgently needed.
External Assistance
xxii. In recent years, the Government has been able to acquire signifi-cantly increased aid from various quarters, particularly from members of theBurma Aid Group. But disbursements under these aid commitments have remainedat a very low level. Effective utilization of any increase in externalassistance will depend upon urgent actions being taken to improve Burma'sabsnrntive ranpaity,
vYiiii AQQi-tancr in the immediate fut-iure ia need for projects which
ease the most immediate constraints to growth, facilitate institution build-ina, and opntimize the imr.act of currenrt economic reIf-' Zf,r Sto 1ra , hIgh
priority would need to be given to projects which contribute towards the in-ten.sified use of existir.g cultivated -areass ar.d th"-e rec-lamati on of abandor.edland in agriculture, greater utilization of existing forest resources, effec-
tive dev7elopmer,t ofL Known milneral deposits, an' increased utilizatilon ofL.LVu UV±JJU1kI L UUi WiL4L U jt.~L, aU £LL~ U UL.L.A. J.k4.AL J
existing capacity in agro-based industries possessing clear comparativeadvantage. Alongside such UdLrectly productive proJects, infrastructure iln-
vestments, particularly in transportation, will be required to rehabilitateexisting capacity. Project loans and technical assistance will be justifiedfor projects in these fields. At the same time, a sizeable expansion ofpresent support for the import of materials, spares and equipment is vitallyneeded.
xxiv. Given Burma's low income level and the scarcity of foreign ex-change, such external assistance should be on concessionary terms and should,in addition, finance part of local cost requirements which cannot, at present,be covered adequately by domestic savings. Local cost financing is particu-larly needed for the agricultural sector where most investments have a lowforeign exchange component.
xxv. Burma's debt service ratio has gradually increased from 10% in thesixties to about 20% in 1976/77. By the end of March 1977, Burma's externalpublic debt, disbursed and outstanding, amounted to US$321 million. Withincreased foreign assistance, external public debt will rise further, butBurma should have no major problem in servicing this debt, provided effectiveaction is taken to develop the country's export potential.
xxvi. Burma is potentially one of the richest countries in South Asia.Apart from an impressive natural resource base, it is endowed with a healthyand literate population. The crucial question is the quality with whichthese resources will be managed and developed. While there are some signsthat Burma's performance in this regard is now being improved, these efforts
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need to be strengthened and broadened. In this connection, the newly enactedlaw on the "Rights of the Private Enterprise" is to be welcomed. By legiti-mizing private sector activity and establishing a clearer set of guidelinesfor the development of the public. cooperative and private sectors, somere-integration of the economy will take place which can be expected to havea hpnpfirial imnact *inon ecnnomTir nprformance. Provided Ruirma sustains its
efforts at utilizing its endowments efficiently, and combines them with anositive attituit townrds population planningj the task of economic develop-
ment should become more manageable, and the country should be in a goodposition to provide increasingly productive emplo, -ent for its people i-n the.
longer run.
xxvii. The Government concurs broadly with the above diagnoses of theprobLems andU th LLe iLssues which requiLre attentiorn.
I. INTRODUCTION
1.1 The Socialist Republic of the Union of Burma covers an area ofnearly 680,000 square kilometers. The dominant physical feature of the coun-try is the expansive valley of the Irrawaddy river which flows south from thefoothills of the Tibetan plateau to the fertile delta on the Bay of Bengal.Located at about the same latitude as Mexico. Burma has a tropical, monsoonclimate.
1.2 Burma's population of about 31.5 million, is predominantly rural,and noncentrated in the lower valleys of the three main rivers. The dominantethnic group is the Burmans, who number more than 22 million. The estimatedratep f arnwth of nnniilatinn is 229% npr annh,m Pnnuilnt-in dennsitV is ahniit
46 per square kilometer.
1.3 Since independence in 1948, Burma has been working to unify thecountry a-nd to r-ebuild the econoimy The in-itia1 tack of nat4 *d--_- ._ _ was
compounded by the necessity of governing through a coalition of widely diver-ger.t pollitical14 irterest-s and Athe contirun --- d t-o establish control over
various insurgent groups. When the present Government assumed control in16 7ULparliaWmentary uemocracy was declared a failure an.U a RevolutionaryCouncil was established with General Ne Win as its chairman. At the sameL Utime, LU, t UIm1e d - US:L dit P r -agL-dU pdL -rt SrrJ Wasb ebLUtuXlUllU dS LLIe Oll-y
authorized political party. In December 1973, a constitution was adoptedin a nationwide referendum. It vested supreme executive, legislative, andjudicial authority in the unicameral Pyithu Hluttaw (People's Assembly)which consists of 451 members elected in 1974 to serve a 4 year term ofoffice. During the recess of the Pyithu Hluttaw, the Council of State exer-cises power on its behalf.
1.4 The guiding philosophy ot the Government, as stated in the April1962 document on the "Burmese Way to Socialism", is based on a combinationof traditional Burmese values and socialist doctrine. Nationalist in charac-ter, it provided the doctrinal base for sweeping measures to eliminate theextensive domination of the economy by British, Indian and Chinese interests.Its economic objectives are set out in the Twenty Year Plan. Adopted by theBSPP in 1972, it is to be implemented through a succession of five Four YearPlans. The intent is to fashion a new order for Burma by reorienting theeconomy to provide adequate food, clothing, and shelter for the masses and toimprove the quality of social services. These goals are to be achieved bytransforming existing institutions to meet the needs of society. They haveentailed the replacement of parliamentary democracy with a socialist demo-cracy and continuing efforts by the Party and Government to unify the countryand politicize the population. They have also involved nationalization of themajor means of production with the notable exception, in practice, of agricul-ture. Nevertheless, private sector activity still remains substantial evenin the non-agricultural sectors, accounting for well over half of industrialoutput, 70-80% of transport and a significant portion of forestry and fisheryindustries.
1.5 Burma's foreign policy from 1962-72 was designed to isolate thecountry from external pressures by maintaining a policy of strict neutrality,limited use of foreign assistance and minimal contact with the internationalcommunity. MIore recently, however, the Government has made efforts to widen
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its contacts with forei2n countries and international institutions and in-creased its utilization of foreign assistance in an effort to achieve moreranid growth.
l 6 RAenonz17ng the deteriorat-ing cnonnnm4Ic ItuatIoin and the neeA tomake major changes in economic policies, a special session of the PartyCongress was co.vened i October 1976. At that session, it was decided to
call the Third Party Congress a year earlier than previously scheduled. Held4n Ferur 1977, 4t reaffirmed the ne-w orientatiorln ec__ono'i -policiCes th-at- - L - 4.',, , 4._ -. . ~.LL U~4 t_LL L LeU L _L.LU A. CL .ULLU LUii.LL U J.I.±;LId
the Government had been introducing over the past few years. Simultaneously,ILhe Congress reaff:irmedA the Party's prerogativre to _ deemn poic an set- 2- LLL~UUiIL~~~L~aLLLIuU LLII LdL LVt. LU UeLCLIL-UiU pU.L.c)' UIIU bt!
targets. During the March 1977 session of the Pyithu Hluttaw, a new Cabinetwas lormeU to carry out tLe Larty's directives.
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II. BASIC SOCIAL AND ECONOMIC OBJECTIVES
Basi4c Nee-dst
2.1 Burma's social andAeconcU poLiiLUe.s, as articulatLe in LLth Burme
Way to Socialism, accord priority to meeting the needs of the population forfood, shelter, clothing, educat'on and health. Although a-vailable data do rIotpermit a comprehensive assessment, there is evidence that some progress hasVeen maue.
2.2 During the sixties, significant reductions in the mortality ratetook place. The crude death rate declined from 18.4 per thousand in 1961to 10.8 in 1970 1/ and the infant mortality rate from 130 per 1,000 livebirths to 62. The crude birth rate also fell but much more gradually from39 per thousand in 1961 to 36 in 1970. Life expectancy at birth increasedfrom 45 years at the beginning of the decade to about 50 years in 1970.
2.3 Per capita food consumption levels were maintained in the face ofpopulation growth of 2.2% per annum. On the basis of FAO and WHO standards,these levels were generally sufficient to meet the minimum dietary require-ments of the population except for the lowest income groups. Within thesegroups, caloric intake was insufficient for pregnant women and lactatingmothers and children of pre-school age.
2.4 The access of the population to social services was expanded. Theflow of real resources into the health sector expanded by 20% between 1965and 1970. The population/doctor ratio decreased from about 11,500 in 1965 to8,500 in 1970 while medical services in the rural areas were expanded. Therewere 30% more rural health centers in 1970 than in 1965. The flow of publicresources in real terms into education services also increased by 30% between1965 and 1970. As a result, the enrollment ratio at the primary level rosefrom 58% in 1965 to 84% in 1970 and, at the secondary level, it doubled from6% to 12%.
2.5 Measures were taken to bring about greater equality in the distri-bution of economic opportunity through: land redistribution which ]ed to a moreequal size of holdings among farm families and, the nationalization of a numberof maior economin artivities; nartirularlv in trade and industry. Significantchanges in the distribution of income resulted. The share of the lowest 40%nf t-hp nnnitIntjon in,rPqqPd from 17V oEf t-tnl inronmn in 1Q59 to 915' in 1972while the share of the upper 20% dropped from 50% to 40%. In comparison,the lowest 40% of the population. receives about 18% of total income in SriLanka, 14% in the Philippines, 13% in India and 12% in Malaysia. 2/ Theseredistributive measures, however, alon affecte the pace of nomic ornwth
1/ Government estimates indicate, however, that the rate increased to 11.310In7/.inL L194.
-/ Size Distribution oui income: A Compilation of Data, Shail Jamn, 1975,The World Bank, Washington, D.C., USA.
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as public policies and public sector performance did not compensate for thedrastic declines in private investment and production which resulted.
2.6 The social progress which was achieved thus proved increasinglydi 4ffi cull to sustain as the economy's rsucpoionweakened. The rate
UJL-L .L U -L LU LO. LI L.LL= ULULLUIU) A. L OVUL;. L jJUZJ. LLULL WCCNLM MU * LI C LcaLC
of growth of the GDP averaged only 2% during the latter half of the sixties.G ross domestic savings fell from 12.8% of GNP ir. 1965 Lo 9.7% in 1970. Jov-ernment current revenue fell from 25% of GNP to 16% as a result of which thecurrent surpluses of the public bsCLUL to LILULI pLUgLebbively.
2.7 This deterioration in the economic situation continued into tneseventies, although some improvement has emerged more recently. The GDPgrew by 3% per annum during the period i969i70-i976/77 and gross domesticsavings fell further to 9.1% of GNP in 1976/77. The deterioration in theGovernment's fiscal position which was only recently halted, led to a signi-ficant reduction in the amount of resources that the Government was able toprovide for social programs.
2.8 The flow of resources into education and health progressively de-clined since 1973 with resulting reductions in service coverage. In education,enrollment ratios fell from a high of 87% in 1971 to 83% in 1976 at the pri-mary level, although it rose slightly from 13% to 14% at the secondary level.In health services, the population/hospital bed ratio increased almost con-tinuously since 1970. Due to inadequate resources, only limited attentionwas given to improving the access of the population to safe water supply andsewerage facilities. As of 1975, less than 18% of the population had reason-able access to safe water and less than 12% to sanitary excreta disposalfacilities. 1/ No adequate programs have been mounted to improve housingconditions for lower income groups.
2.9 With respect to nutrition, per capita food consumption continuedto be adequate for normal health, but this was at the cost of progressivelydiminishing exports. In rice production, the main source of dietary energyin the country, the share retained for domestic consumption was maintainedonly at the expense of a rapid fall in the share of production exported from23% during 1965-67 to 9% during 1975-77 -- a process which cannot be sustainedmuch longer.
2.10 Probably the most serious consequence of overall economic deteriora-tinn has been the slugaiqh girnwth of epovment. Agricrultiiral employment,which accounts for two-thirds of all employment, increased by only 1.6% perannum between 1969/70 and 1976/77. While non-agri1ulturnl Pmnloyment grewby 2.5% during the same period, it was far too slow to satisfy the growingdemand Fnr produtiver oc bsb nerw entrants tn theo labhror fnrrce Empl nxrmentin the public sector as a whole did not change much and remained at aboutone-UtentLh of tLotal employment. The -larg unoffcial makt a r- t -- - -
providing the main sou-ce of employment for those not absorbed by agricultureand iLndustry, in efffect compensating for the di stortior.s of pubi,c policy anda u LUU LA7 £1 LA LU .ULJ LOL..1 U L LLO LU LJ. U.jLU~ £J.. UA..J aULi
the distribution system which exist, as discussed in Chapter III.
.L Bank Water Supply and Sewerage Sector riemorandum, fr-LthcUmAiL,g.
-5-
2.11 Analysis of preliminary census data for 1973 indicates that unem-ployment was about 9.5% of the labor force in 1973/74. The Burmese authori-ties estimate that unemployment in the urban areas was 11.8%. Unemploymentis estimated to have further increased since then, with overall unemploymentrising to more than 10 in 1976/77 and urban unemnlovment to about 14%.
2.12 Although Aich levels nf une-mployment annpar moderate in romnarison
with the experience of other LDCs, they cannot but be a matter of serious con-cern in view of the extent of underemployment which they conceal. Availabledata on the occupational composition of the working-age population indicatethat about one-quarter of those classified as employed were in f-ct householdworkers other than housewives. Furthermore, an urban socio-economic survey.arrled out ir. goon in 1972 U *f- th-at r.early S.AW -f the employed were
working less than 30 hours a week while nearly 27% were earning less thanK 1UU per mor.th. LLUee'U, over 0X of all households in mJor to-W..s receiveda monthly income of less than K 300 and therefore suffered considerable economicharadsnhip.
Population and Labor Force Growth
2.13 The ability of the Government to satisfy basic needs and to provideproductive employment for its people in the future will depend on the measuresit takes to accelerate economic growth and to pare down expected populationincreases. Population control cannot be a substitute for faster economicgrowth but it should help in making the task of economic development moremanageable.
Table II-1: ALTERNATIVE POPULATION TRENDS, 1975-2000
Total fertility rate 4.785 4.785 4.785 4.785 4.785
Source: Burmese estimates: Projections prepared by Planning Department and
Immigration and Manpower Department beginning
from 1974. Estimates are for january 1 as
compared with July 1 estimates by the mission.
Mission Estimates: Population and Human Resources Division of the
World Bank, using a model for projecting life
expectancy at birth by sex on the basis of actual
figures for 1974 supplied by the Burmese authori-
ties.
2.14 If current fertility rates do not decline, as shown in Table II-1,
population growth would increase from 2.2% at present to 2.6% by 1990 and
2.7% by 2000, expanding the total population of 31.5 million by 12.3 million
in 1990 and 25.9 million in 2000. Even if fertility rates were to decline
moderatplv nponulation arowth would increase from 2.2% at present to 2.4% by
1985, given the current youthful age-composition of the population and the
further declines in mnrtalitv which may be expected. The rate of growth of
population would decline only after 1995 when fertility declines would more
than copernsate for diiminishing declines in mortality.
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2.15 The nroiertinns of the BRrmese authorities envisage somewhat lowerrates of population growth than the above. Population is projected to growby 2.2% per annin until 1985, 2.3% during the following five years, and 2.4%thereafter, thus adding 2.2 million people to the present population by 1980and 10.5 mll,on by l.on. 1 .Wit * the 6 .pecrtgeoLh pop ti.*.. * der2
years rising from 48% in 1960 to over 50% in the seventies, the growth ofthe l abor force 's expected to inces from 2.3 per -----a-pesnttoaLAL LUL L UJ. L ~ .L A LU LU UiLCUMI- .LLULU L. .J&IoJ9L dZIIUU.IIk CL. IJJL=D-LILL LU a&Ii
average of 2.4% over the next decade and a half. These projections are ontble cUnservdLive side. Tlhey require for their dLLdaitnent a mOre LLthan mUUoeate
decline in fertility of some 20% -- a difficult process given Burma's presentstage of economic development and tne absence ox population control policies.A program to provide contraceptive delivery and maternal counseling serviceshas been considered by the Government but is yet to be introduced.
Policy Issues
2.16 The three sets of projections illustrated in Table II-! have dif-ferent implications for the extent to which the Government will be able todeal with the basic needs of its people. Under any of the scenarios posited,acceleration of the present pace of economic growth is necessary. A scalingdown of present fertility rates is also warranted. A fall in fertility willnot by itself improve employment prospects for a considerable time. But lowerfertility leading to reductions in the dependency burden on the working pop-ulation should facilitate the growth of savings, investment and income, thusmaking the tasks of alleviating unemployment and underemployment and of meet-ing the basic needs of the population more manageable.
2.17 While the dependency burden would fall only marginally if fertilitylevels were not reduced, it would decline from 790 per 1000 in 1975 to 740in 1990 if moderate fertility decreases were realized. Indeed, unless thedependency ratio falls, it is difficult to see, given currrent economic condi-tions. how resources presently devoted to serving consumption needs are tobe channelled towards expanding productive capacity and thus improving laborproductivity by making possible a more rapid increase in the capital stock perworker. In fact, a rough calculation suggests that as much as 10% of the GNPwill be needed for canital formation iust to maintain the culrrent level of nercapita income.
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TII. MAIN ISSUES AND POLICY RESPONSES
3.1 Aside from a reexamination of its population policies, the Govern-met w.4 1 1ne- o -la AwAA-1- host of factrs .A FS A.4CI 1e AX "h Acoun Pry's poorIULIL L. WL.LL LLa IC tI X tIWL W1 W.L LL 0 IJ 113 V *i t LO.. *Vd J WllXI. L* .3 11 aU Lt L11 V>L L.JL L. 3. 0 VtL
economic performance over the last decade and a half. During this period,i;nvestm.ent levels were low. Gross .apitla' formation avrae I I 11% ofGNP.±LV_ II LL W L� LtW 'J tO LOjJLI..-O.LcL,~t. ~ ~J 0L .. dt /.&. L -J.. t .X3
Even this limited investment was not directed towards the sectors having thegreatest couiparatLiLve adUvantage. AgricuLture, Lforestry andiu mining did nLotreceive due attention. The pricing policies of the Government exacerbatedthe problem, especially in agriculture -where incentives to invest were ad-versely affected. As a result, value added by the directly productive sectorsof the economy lagged behind population growth, wnile export volumes declined.The latter, in turn, reduced the capacity of the economy to import essentialraw materials, spares and capital equipment which ied to increasing under-utilization of capacity in most sectors of the economy.
3.2 Burma's natural resource endowments continue to provide a valuableopportunity to effect a turnaround in the economic situation and accelerategrowth. In response to past problems, some policy reforms have been effectedto help bring about efficient utilization of the country's resource endowment.In addition to major shifts in sectoral priority (para 5.2), improvements inpricing policy have been effected. Agricultural procurement prices have beenincreased nearer to free market or unofficial price levels while product pricesof the State Economic Enterprises (SEEs) have been raised to cover more nearlyfull costs. In 1975, a comprehensive set of guidelines was introduced to en-able SEEs to operate on a commercial basis while a major reform of the hithertopervasively rigid distribution system has been initiated which provide forgreater autonomy in the management of SEEs; standards by which their operationalperformance will be measured; more rational financial and costing practices;and the adoption of a Bonus Scheme under which management and the work forcemay be rewarded for successful performance. The guidelines also specify thetimetables by which these reforms are to be achieved. And, beginning with the1976/77 fiscal year, a major set of tax reforms was implemented, perhaps thesingle most important achievement of the Government in recent years. Together,however, these actions continue to constitute insufficient conditions forprogress unless institution building and management development are urgentlyeffected to improve the design, administration and implementation of develop-ment programs. As discussed in Chapter VI, Burma urgently needs more signi-ficant improvements in these areas if economic growth is to be acceleratedand social progress advanced.
A. Pricing Policies
3.3 The increased attention to the role of prices in the Burmese economicsystom 4i nf rocent nrigin_ Tt reflecrtc reogn4It4non nf the fact that a large
segment of economic activity is in the private sector where incentives are ofconsiderable importance as a means of stim.ulatin-g production. Moreover, evenin the public sector, failure to take prices into consideration was a major
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factor in the erosion of the revenue base. It is not vet clear, however.what role Burmese policy makers ultimately intend to accord to prices in theeconomic 6ystem; and therefore; whether they will npermit nrices fully to
reflect resource scarcities. In particular, it is unclear whether they seethe~ present riaid cor.trnlc uove nll caspect of eornomir decision-Tnnking,especially investments, evolving into one in which prices perform an allo-cation function.
3.4 L prouce pr1. J.. ice in the 4 pas decade dsug the production
and export of rice and other crops. Furthermore, SEEs were not allowed fullrecovery ofL their costs -whiLchL 'led to a udecllne ir thirirvetilesuplseL ~L V~L~iLL LI~.J- L~ L~Wiii~ii L~U U ~ ..LLLI~ L LI=Ll. LL Lly OL.LUJ.L- OUI.LU =
and a low contribution to Government revenue. An increasing share of produc-tLon was either traUeU in the free or u1oUuicial uiarket or was smUuggle dEDLUdU
at a multiple of official prices. In both cases, income was siphoned off tothe private sector with little opportunity for the private sector itself toinvest these resources productively in the domestic economy. The distortionsarising from this system were compounded by low official interest rates andan over-valued exchange rate.
Agricultural Prices
3.5 Since 1972, the Government has moved to introduce more rationalpricing policies. Procurement prices of paddy, maize, sugarcane and of manyvarieties of pulses were raised in 1975, following earlier revisions in 1972.Further revisions were effected in December 1976 for a number of export com-modities including maize, sugarcane, tobacco, rubber and a variety of pulses.These latter price revisions ranged from an increase of 26% for jute to 285%for pulses (matpe). At the same time, the prices of oil seeds, non-exportvarieties of pulses, onions and chillies were decontrolled.
3.6 The procurement price of paddy which had been increased by over 150%during the period November 1972 and July 1974 was, however, left unchanged.While it is the Government's policy to maintain remunerative prices for allmajor crops (paddy, sugarcane, jute, cotton, pulses and maize), constancy ofthe paddy price has reduced its profitability in relative and in absoluteterms. As paddy production costs have increased substantially since 1975,as indicated by farm budgets, though not as rapidly as the overall rate ofinflation, further adiustments in the paddy price warrant consideration.
3.7 Price revisions undertaken since 1972 annear to have been associatedwith declines in the ratios between free market and official prices as illus-trated by a samnpe nf lrect-ed agr4ririiltiire rommod4ties in Table TTT-T helow:
3.8 T.h.is decline in the ratios between the free ma-rk1et and officialprices, however, cannot be taken as an indication that the Government'sagr_Lculturl pi p . l1icies U..av l_:Auly _succ..1ssu l .. LUroved sOupp.ly
conditions were also a major factor, due at least partly to favorable weatherconditions in the last two years. Plerh-aps the most sroscneuneo
the present situation is that insufficient incentive is provided to farmersto increase output of agr.cultural export commodities which in the short Lun
affords the one major opportunity to increase export earnings. While increasedagricultural production requires strong institutional support (as discussed inChapter V), the role of more incentive oriented price policies cannot beneglected. Tnis is essential for farmers to be encouraged to improve farmpractices, undertake larger risks and deploy their efforts and resources inconsonance with the production and export objectives of the Government.
Non-agricultural Prices
3.9 In industry, the Government has undertaken a full review and revi-sion of the ex-factory prices of SEEs. New costing schedules have been estab-lished which in principle allow, for the first time, profit margins at theproducing level. This is a break with the past when only the state tradingcorporations were allowed to make a profit. Prices are determined by applyingdifferential profit margins to costs of production calculated on a uniformbasis. The profit margins in general vary from 5% to 12%; in the case of afew commodities, for example, cigarettes, a profit margin of 30% has beenallowed. Profit margins for essential commodities have been restricted.
3.10 Surpluses above costs which include prescribed profit margins,accrue to the enterprise except for a 20% share which is transferred to theUnion Government Consolidated Fund. The remaining 80% of the surplus is keptwithin the enterprise as a contribution to the Bonus Fund and for workingcapital and reinvestment. Where surpluses are insufficient for working capitalpurnoses; the enternrises concerned may borrow the additional funds requiredfrom the Myanma Economic Bank at an interest rate of 6%. All investmentcapital nronidPd throiugh the Budget prior to Mqrch 31, 1q75- will now consti-tute the equity of the Government in the corporation. Drawings made during
- 11 -
1975/76-1976/77 will need to be repaid to the Government but without interest.Drawings after M4arch 31, 1977 for investment will only be made from the MyanmaEconomic Bank at an interest rate of 3%. In effect, all SEEs will now haveaccess only to the banking system if their current surpluses and reservesprove insufficient for their working and investment capital needs. Thesearrangements represent another break with the past. SEEs will henceforthobtain capital only at a cost. although this will still be far lower thanthe opportunity cost of capital under current conditions.
3.11 A fundamental issue requiring the Government's attention is toensiire thar its, Ahiprtiup nf contrnlling infl%tlon dnoe not indormine thebasic objective of raising output. Despite price revisions since 1972, itannpprQ that aoriuiiltu-rnl andr indisitrial nrice npliries continiue t-o hp ipnnle -
mented with the aim of stabilizing prices through commodity-specific controls.Yet in man" cases such controls also reduce incenrtives to expand productionand utilize productive capacity more fully. They thus constrain the potentialFor expadin aggrgat supplie and dist4ort_ resourc 81ow.w Wile mAcroLJL b AjOlftJtI X
5 5obL c5 a ' °> e U OLjJrJL. u ant tL.. o vL . t*C.'fl .t L.ttPWVO TUI Lt . UZf lt.'
economic policies should continue to be directed at controlling inflation inIIIe short run, thLe long run alleviatior. oil Lthe problem can come only throu
the progressive expansion of aggregate supply, for which adequate pricingpolicies are essential.
3. 12 Tlle Government provided for profIt margins aL Lne level of Lne pro-ducing enterprises and introduced the Commodities and Services Tax with twomajor objectives in mind: first, to increase generally, the resources avail-able to the public sector as a whole, through means other than the creationof credit, so as to permit enterprises, in some relation to productivity,to raise wages and to provide a non-inflationary base for expanding invest-ment; second, to achieve certain social objectives by setting a price struc-ture that penalizes consumption of goods considered luxuries, through bothhigher profit margins and taxes for such goods. Clearly, these are objec-tives that are commendable. At the same time, it is clear that they are notoriented towards a system in which prices are set in such a way as to allowthose industries having comparative advantage to generate relatively largersurpluses so as to enable them to have the means to expand rather faster thanthe rest of the economy, by being able to invest more and pay higher wages.This observation relates, of course, to the question posed in para 3.2 aboveabout the role which Burmese policy makers will give to prices and relativeprofits in allocating resources for development of the economy.
3.13 Greater managerial efficiency will also require increases in themeasure of autonomy granted to SEEs. A useful step which is now being intro-duced is to permit SEEs greater autonomy in altering output prices in responseto changes in input costs, in particular import costs. However, it shouldalso be considered whether SEEs could be granted greater autonomy with regardto determining output volume, inventory and sales decisions, as well asadjustments in the size of their work force.
3.14 Despite improvements in the coverage of costs for price determin-ntion in repncrt of the SEER, nrirce still do not reflect full nroductioncosts. Depreciation is calculated at original rather than replacement cost
- 12 -
and, as far as working capital is concerned, no interest is charged on otherthan borrowed funds. Thus, the profits shown by Boards and Corporationsin the last two years, although proof of some improvement in financial per-formance, should be discounted appropriately.
Interest and Wage Rates
3.15 Further distortions in the use of capital will unavoidably continueunless the interest rate structure of the banking system is raised from itspresent low level (3-6% for SEEs) to levels which more nearly reflect thecost of capital. Until inflation is reduced. interest rate increases remaindesirable, both for their allocative effect and to encourage private savings.
3.16 The last comprehensive revision of wage and salary rates was in1972 Gos-t of living allowanres were provided to lnw innome wa e r
in the public sector in 1976. With high rates of inflation during the lastfive years, real wages have thus declined. In the light of these trends,payments under the Bonus Scheme serve as partial compensation for decliningreal i-ncomes of employees in th1e crS. TJnder tbe sch-eme, state enterprises-A. L. at .LLLttikJI~~~~~~~~~~~~~~~~~~~~~~O ~~~~JA. ~~~~~~LiAj.J.LtJJ ~~~~~~~~~~~~~~~ .LLL LLtL. L.ILdLJO * U,LLLA~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~L t.,,c OLLICUIC C L~~~~~~~~~~~~~~~~~~~~~~~L C CII L-CLJ. j91t L L C,Lp L-
contribute a sum amounting to 10% of their wage bill to the Bonus Fund ifthe production and operating ratio target s are met for eth year, subJect toa limit of 50% of the surplus earned during the year. Out of the total bonus,50% is paid to a" worL-ers 'except casual workers) in each corporation.Therefore, workers at enterprises who have not significantly contributed tothLe overall performance oUL the corporatULon will also earn Donuses out of this50% proportion. The balance of 50% however, is distributed to individuals orgroups of individuals who have directly contributed to improved performance.In 1976, some enterprises granted bonuses enhancing the wage income of theiremployees by 8-15%. wnile helpful in inducing greater productivity and morale,further refinements should be considered, aimed at a distribution of paymentswhich better reflects the contribution of individual workers to improvedperformance of the enterprises concerned.
B. The Distribution System
3.17 The distortions created by inappropriate pricing policies have beenfurther exacerbated by deficiencies in the distribution system. These deficien-cies created many artificial scarcities and gave rise to a flourishing blackmarket and smuggling. In response to these problems, a reorganization of thedistribution system was initiated in 1976 giving a greater role to producingagencies and the cooperative movement. The 22 Trade Corporations have beenmerged into 11 and their former staff of 56,000 cut almost in half. Theyare no longer responsible for the distribution of locally manufactured goodsand will only concentrate on wholesale distribution and exnort of maior Aori-cultural products, most notably rice, and of imports to the private sector.State manufactuiring ente-rnrisctes will sell t-hpir ohutp-nts-- and bilu t-hair innpit-s
without the intervention of the Trade Corporations. Major export commoditiessuch as teak, base metals and oil will be handled by the producing agenciesthemselves.
J. 10 ooperatives hUav nOw Lakell over mIost 01o Lhe wnoiesale d1SLLtbULtLUo
function, and except for rice, procure most basic consumer goods directly fromproducers. Tne cooperative shops, whnose management is selected and paid bythe members, are said to be more responsive to the interests of the consumersthan the previous People's Shops operated by the Trade Ministry. while thisreorganization is thought to have been successful and partially responsiblefor the abatement of inflation, problems of coordination, transport and stor-age remain to be solved.
C. Export Promotion
3.19 Export promotion has become a priority objective of Governmentpolicy. A Trade Council under the chairmanship of the Mlinister of Trade hasspecific responsibilities for monitoring performance and coordinating actionin this regard. A number of institutional measures have been introduced insupport of the effort to increase and smoorin the flow (if exports. In the past,all exports were required to be sold through the Myanma Export and ImportCorporation. This system has been recently decentralized. A number of SEEsare now permitted to export directly. Rice, rice products, pulses, beans, jute,and animal feedstuff are exported by the Agriculture and Farm Produce TradeCorporation; teak and hardwoods by the State Timber Corporation; and crude oilby the Petrochemical and Natural Gas Industries Corporation. The Myanma Exportand Import Corporation's principal responsibility at present is to import goodsfor the private sector. The renuirement that exnorting agencies should use
only the national shipping line has also been relaxed. Exporting agencies maynow crniire additiornal s1 hipping space through the iicus of chartPr qrrangemen.ts.
3.20 The most serious constraint domestically to export expansion hasbeen the transport bottleneck. Timber exports have suffered most from this
sta-- w1.__1 th wastLage ofaL paOU__vsrn I hl the watgeo pdy ar.d pullses coll.ected for export butkept in open storage has led to lower export volumes even at current procure-Tmnert levelso
Trade Bank, was created in September 1976. Under this scheme, the Kyatequivalent of all export procUed LLcUeiLLtU LU LIIth FUnU. WnLIe export
prices exceed their supply prices 1/, export corporations are allowed toretain 50% of the surplus. The balance is transferred to the Government'sbudget. Where export prices are lower than supply prices, export corpora-tions are granted a subsidy from tne budget amounting to i% of the costs ofproduction. However, to be eligible for the subsidy, which is paid on acommodity basis, the supply price should not exceed twice the export price.In its first year of operation, corporations exporting rice, teak, beans,and rubber earned surpluses while corporations exporting a range of mineralproducts, jute, and prawns received subsidies under this scheme.
1/ Including costs of production/procurement, distribution costs, profitmargins and taxes.
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3.22 The creation of the Fund allows export enterprises to tap a partof the surpluses generated by exports that are profitable at present. Moreimportantly, it has brought about a closer relationship between export pricesand prices received by exporting agencies. In the case of non-profitableexports, the provision of Government subsidies can be considered a construc-tive feature in those cases where it assists potentially viable export enter-prises to arow to maturity or overcome temporary nroblems, in this connection,however, the provision of such subsidies has to be carefully monitored if itis not to become an onpen-ended inQtrulment for the permanent shelter of uznviableenterprises. Already, the accounts of the Fund indicate that subsidy paymentshave riqpn tn Kyats 40.8 millionr or one-fifth of the surplus receipts of theFund in 1976/77.
3.23 On the whole, the Fund can be expected to promote production forexport 4if, 4n additilon to its presen-t fceatures, there Is the assurance th-atJ. I J aU ULJAI LULb~~L LeLL, L I~L LJLk sUric Laprocuring agencies as well as producers gain from exporting activity in amountswhich are more in line with export prices. As the efficient development ofexport potential requires that product as well as input prices be more closelylinked to world prices at a realistic exchange rate, a continuing review ofboth procurement prices as well as the current exchange rate will be important.
3.24 Reductions in the official exchange rate of the Kyat with respectto the U.S. dollar by 23% in December 1974 and a further 9% in May 19/7 havepartially compensated for the over-valuation of the exchange rate arising fromthe diminished capacity of the economy to export and the 156% increase in thedomestic price level since 1972. In view of the importance of export growthfor the development of the domestic economy, the authorities should continueto keep the exchange rate under active review.
3.25 Within the set of efforts required to increase exports, the searchfor overseas markets is vital for Burma's principal exportables includingthose in the manufacturing sector having promising possibilities such as woodand marine products. In this regard, the development of adequate qualitystandards which meet overseas marketing requirements will be important. Theattention being given to the improvement of rice milling operations in orderto produce better quality rice and reduce the large discounts which exist atpresent is a most useful step in this direction.
3.26 In the effort to expand access to international markets, the Gov-ernment recognizes the contribution that can be made by coonpertion betweenforeign enterprises, public and private, on the one hand, and SEEs on theother. It seeks to establish suitable arran8ement s for undertakings inthe fields of wood products, offshore fisheries, and offshore oil exploration.In the light of npat developments, however, speci-arl efforts will be necessaryto assure the creation and maintenance of a favorable investment climate ifinterest on the nart of foreian enterpris is to be elicited. T egislation
establishing the framework of the terms and conditions under which mutuallybeneficial arrangements are to operate will be helpful.
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D. Des-u-C M.obli"at4-o
3.27 The April 1976 Tax Reform was perhaps the major economic policyachiLevemter,t iLr recent years. It efL£lectiveL rLYL.evereu LLIh sevee dter.LLo1r-
tion in the fiscal position over the past decade. Prior to the reform, thebudgetary picture was one of an overall worsening situation, reflected inthe emergence of growing current account deficits and the increasing need forcentral bank and external financing. After a brief period of improvement in1964/65, when the current account of the public sector showed a surplus ofK 1,101 million due primarily to strong rice export earnings, it deterioratedto a deficit of K 151 million in 1971/72, and a very serious deficit of K 938million in 1974/75. During this period, current expenditures rose only mod-erately, but current revenues declined from K 2,591 million in 1964/65 to alow of K 1,560 million in 1972/73. In real terms current revenues in 1975/76were less than half of that in 1964/65 (Appendix Table 5.3). Concurrently,the surpluses of the Boards and Corporations increased only marginally upthrough the early seven)ties and then turned into deficits in 1973/74 and1974/75.
3.28 This poor performance was largely attributable to the general stag-nation of the economy and particularly of activities which are of primeimportance for Government revenue such as industry and foreign trade. Thesharp decline in real resources available to the Government curtailed capitaland current expenditures and in turn contributed to the slow growth of theeconomy. The situation was exacerbated by the impact of the administered pricepolicies for SEEs that kept their prices stable in the face of rising costs sothat their financial surnluses dwindled. In addition. because indirect taxesare collected from public enterprises at the production or distribution stage,the orowinp divpr.ion of trnnAetrtionr frnm offirial t-o irnnffininl rhannple
entailed a progressive shrinkage of the tax base. Another major factor wasthe loss of revenues due to the declirn. iin nar cpita production in agricultureand a consequent decrease in the quantity of rice available for export. Thefall in export earnings in turn necessitated a marked contraction in impnrtswhich affected revenue directly, through reduced customs collections, andin4 iAR e t y1 be aue 4 dte Arsoed nA 4-A.. ot-r4 e 1 o t
4 a4 et. n.l 4 t.l- 4 --, A 4 4 cn.,rnL
of commercial taxes.
3.29 Inadequate revenues made it difficult to sustain the rate of growthof Goverr,ment expen,diur reuie -to manti eve -- moert pac of devel=--A - -_ -_pA -UL UV~LLW~kI ~AJ~LLULUJ. e LC'4U.LLCU L.U LuId.LLLL.a.LLL e-V=ii CL LUUeCLai.. FlkJ.L U.LVC.L-
opment. In addition to the damaging effects on social development programs,a'locatoions ULor econLomiLc purposes including mainten,an[ce exper.diures weregrossly inadequate. In contrast, outlays for general services more thandoubled since 1971 due primarily to the creation or representative govern-mental bodies with the new Constitution and the resulting rapid expansion incurtent expenditures, despite a freezing of pay scaies. Tne budgetary deficitbecame so large that inflation emerged as a serious problem and capital ex-penditures had to be reduced sharply. Since the public sector is virtuailythe only important investor in the Burmese economy, total investment droppedoff sharply. Under these circumstances, there could be no doubt about theneed to improve the fiscal situation.
- 16 -
The Tax Reform
3.30 Apart from customs duties and taxes on the use of state nronerties,the tax system after the April 1976 reforms can be classified by taxpayer:the public sector and industrial producers' cooperatives are now suhiectsolely to the Commodities and Services Tax (CST), whereas the private sectoris subiect solely to the income tax and the new Profits Tax. The CST ismore than just a consolidation of the sales tax and excise duties that itsupersedes as it both broadens the tax base covering previ-ulyl untaxed ser-vices such as transport and trade and substantially raises effective rates. 1/The existing income tax continues to apply to salaried employees, coopera-tives (other than industrial producers' cooperatives) and private enterpriseswith well-documented accounts. All other income earners in the private sectorare now subject to the new Profits Tax (PT). A relatively pragmatic approachisc being taken Jn 4ts -Implem.entation, aimed essentially att reduclng opportur.-1el - - - L. Cl L...y ai.~ UU..±1 JJ)U £ LLU .1
ties for income tax evasion. 2/
3.31 The actual implementation of the price adjustments following theintroduct-ion of the CST' was carried out 4n two steps. In the first phasethe CLaLLI~ IUL LWU Li LIt LLL.L piascompleted in June 1976, actual costs of production of all SEEs were re-evaluated as the bas4s for new selling prices and tax rates. Based or, theseresults, the retail prices for Trade Corporations were calculated in thesecond phase, whLIich Lasted throughL mid-August. I* e Impact on revenues of thedelay in raising prices was, however, minimal as price changes for importantrevenue earners suchi as sugar, alcoholic Deverages, and cigarettes, wereapproved at an early stage and became effective by late May 1976.
Budgetary Impact of the Tax Reform
3.32- The results were impressive, not only in dramatically improvingthe fiscal position but also in terms of the skill and speed with which theGovernment implemented the new measures. A comparison of the 1976/77 revised
1/ At the production level, the CST has ten basic schedules for commoditieswith ad-valorem rates ranging from 0% to 60%, as compared to the fourbasic schedules of the previously existing sales tax, with rates rangingfrom 0% to 15%. A separate schedule of the CST applies to goods pre-viously subject to specific taxes -- its ad-valorem rates range from30% to 225%. In addition, a flat rate of 5% is levied, at the tradestage, on public sector sales, even in the case of traditionally exemptgoods such as rice. Previously untaxed public passenger transportationis now subject to an 8% tax on the value of fares.
2/ Assessment of the PT is based on taxpayers' lists drawn up by local com-mittees, including members of the Executive Committees of the People'sCouncils (the main organ of local government), who rely on their know-ledge about the financial status of the members of their communitiesand on obvious signs of wealth. Apparent but unexplained income islabeled "income from undisclosed sources" and taxed according to theschedule.
= 17 -
budget estimates (after the tax reform) with the original budget estimates for1976/77 (made before the reform) provides an indication of the fiscal impactachieved by the reform measures. Due largely to the surge in tax collections,current revenues increased by K 1,333 million, equivalent to an increase of62% over actual collections during the previous fiscal year and by K 914million or 36% over the pre-reform budget estimates (Table 11-2). The newcosting procedures together with improved performance moreover increased thesurplus of SEEs in 1976/77 to K 1,323 million trom K 739 million in 1975/76and a deficit of K 261 million in 1974/75.
Table III-2: CONSOLIDATED PUBLIC SECTOR BUDGET, 1964/65-1975/76(in millions of Kyats)
Current Expenditures 23.8 20.6 14.0 12.5 14.1 14.4Boards and Corporat4or.
Surplus/Deficit 4.3 0.8 -1.4 3.2 4.2 4.9Current Surplus/Def- lct 14.4./ -0).1 -5.0 02 -. .~ULLILL~UL.LUI UjL.LLLL I L4. -t U. I V If . J*. I
Capital Expenditures 7.2 7.6 3.5 3.3 5.0 6.4
/a Derived from the liquidation and sale of state assets.
Source: Government of Burma Budget Department.
3.33 The expansion in resources available to the public sector permittedan increase in current expenditures of 32% in 1976/77 in contrast to the tight
- 18 -
controls imnosed over the previous 4 years. This made possible the provisionof a temporary cost of living allowance for low income earners in the publicsector totallina K 330 million (nara 3.15). The current surnlus of K 949 mil-
lion facilitated an increase in capital expenditures to K 1,704 million in1976/77, more f-han douiihl the lovels arhieved in 1974/75 and 197s/76. Com-bined with a large inflow of foreign assistance, this expenditure program wasach4eved without resortin.g to borrowir.g from the banking system fo tha firt
time since 1965/66. In real terms, the results of the tax reform were equallyimpressive. ur-rent revenues -n rela,.-4n t C-GNP 4icre-ased from 9.2X ir. !975
76 to 13.0% in 1976/77 and the current surplus (public savings) as a percent-age of GNP rose from -0.2% to 3.6%.
m-le improvement in tne consolduaLeu UUUgeL Lii YVI/I /U riotreflect the potential net impact of the tax reform on a full year's basis.The delay in adjusting wholesale and retail prices as the CST was beingimplemented may have reduced the surpluses of SEEs by as much as K 200-300million. Tnis effect is a one time occurrence. Tne revised costing pro-cedures undoubtedly had a significant but unquantifiable effect on improvingthe financial position of the SEEs and, provided that prices continue to berevised regularly to reflect changes in costs, this benefit should continueto be realized in future years.
Prospects
3.35 Since the CST is weighted in favor of industrial production andexternal trade, both of which should grow faster than GNP, tax revenues couldremain relatively bouyant in the immediate term. In addition, most of theimplementation problems experienced in 1976/77 should by now have been elim-inated. Compared with needs, however, even this impressive performance mustbe carried further to have a sustained impact on accelerating growth.
3.36 Further progress will depend on the efforts made to capture thelarge differential still prevailing between official and black market priceson goods manufactured and/or traded by the State sector. This could beeffected through a combination of more adequate costing of the output ofSEEs (para 3.13) and higher indirect taxation. This could be implementedthrough gradual increases in CST tax rates over a period of 3-5 years. Inthe longer run, the scope for tax increases may be limited and improvedresource mobilization in the public sector will be dependent chiefly onincr;as; inc thp slrn1 iisR of thp SESR.
3.37 The Government ic concideorng the rPn1.qrPmPnt of tfhe rST with a
Turnover Tax. The aim appears to be |the establishment of uniform prices for4r.d iv idu al1 comdtie readls o n~ cf Adif fea rencesP inr n csts r n a % produci ngin
factories, and the maintenance of stable retail prices irrespective of costfluctuations. Under such a system, retail and wholesale prices would beset independently, with the difference, irrespective of its amount, beingLiL eLurnover 'Lax. T olesale prices tben CUIA. be rev-sed w1.-ithout necssai
altering retail prices, with the value of the Turnover Tax changing accord-ingly. Lilere are two obvLous ULLL£ficulties with the concepti of tL1Le TLu r.rover
Tax as we understand it. First, there is the danger that, when costs of
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production rise, surpluses in the public sector, in real or even nominalterms, will once aogin hp erndod with the consenuence that the funds avail-
able for development will decline. This would in turn adversely affect theincrease of production which, in the ai crirmstncefsr of Btirm, i s the nnly
means of stabilizing prices. Second, it is obviously incompatible with theobJ4e ct i ve o f p r o m oti-ng e f fi4-cie a -ncy i- Jn.a inusa-t rialn e n terprises-
E. Conclusion
3.38 Ine poJymdflain escribed above indcate cons-"era'l-3. iie policy modificationsu U~LuU duau V UL L U
improvement in the use of pricing policies as compared with the situation inpast years. Agricultural procurement prices have been adjusted to influenceproduction decisions at the farm level. Though prompted by budgetary consid-erations, the raising of SEE product prices to more fuliy cover productioncosts has had the effect of reflecting resource scarcities more accurately.The operations of the Export Equalization Fund have provided a iink for thefirst time between world prices and domestic production costs. These modifi-cations have, however, not gone far enough. Most importantly, the potentialrole,of prices in promoting allocative efficiency has remained under-utilized.The impediments have been pervasive. They continue to include rigid controlsover the access of individual farm operators and other enterprises to creditand essential inputs; and detailed output assignments and input authorizationsfor SEEs. These have acted to create structural rigidities in the economicsystem which have prevented the incentive effects of price changes to betranslated into the production changes sought. Thus distortions in the useof resources have persisted.
3.39 Even if it were possible for central planning to take the place ofprices in promoting allocative efficiency as far as the socialized sector isconcerned, it will continue to be impracticable for the economy as a wholegiven the existence of a large non-socialized sector. The Burmese economicsystem is still in the process of evolution. As it develops further, in-creased attention has to be paid to the manner in which current pricingpolicies will need to induce greater efficiency and flexibility in the useof scarce resources.
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T I? %AA (flf. _'IVOAM XT1 n' D 'fl 'CflXAM~f'1V A% ~T~ nfI 0-1
j. v. 1:1MLM LAIULIV7"r 1 F r LXr UtJr%XLt'Mk,L tuli rr aDrLAui.
4.1 The first section deals with the period 1974/75-1976/77, the firstthree years of the Government's Second Four Year Plan. The second sectioncovers the five-year period 1977/78-1981/82, comprising the final year ofthe present Plan and the entire duration of the Third Four Year Plan.
4.2 By virtue of its considerable natural resource endowment, Burma hasand will continue to be influenced to a significant extent by developmentsin the primary sectors of its economy. Agriculture, including livestock,fisheries and forestry, now accounts for 36% of GDP. Within the agriculturalsector, the cultivation of paddy is the dominant activity. Closely linkedto agriculture, the industrial sector is modest by comparison. Contributingabout 11% towards GDP, the principal activities are food processing and tex-tile production. Mining, before the second World War, was a source of majoreconomic activity. The importance of the sector has, however, diminishedalthough its developmental potential is still promising, with petroleumrepresenting a significant new source of growth. The supportive and servicessectors together with activities outside the official market make up the restof the economy, with trade responsible for almost one-quarter of GDP and Gov-ernment services accounting for a steadily rising share.
Macro-Economic Performance, 1974/75-1976/77
4.3 In the last three years, Burma has achieved a modest accelerationin its economic growth. GDP growth increased from 2.6% in 1974 to 4.8% in1975/76 and an estimated 6.0% in 1976/77. averaging 4.5% over the three-yearperiod, as shown in Table IV-1. Important contributory factors were: theincreasing emphasis on agricultural development: the design and annlic2tionof more rational pricing policies for agricultural produce and the productsof State Economic Enternrispe (SEEq): the measures ta-ken to imnronvi effic-iencu
in the operations of public enterprises; and the execution of a major fiscalreform Pffnrt- nwpuver- an imnortant part of the progress achieved was alsoweather-related. The economy benefitted from generally favorable weatherconditionQ follnwinng the unprecedented floods of 1974/75 h ricultural
output declined. While many of the policies and programs initiated duringthe Plan period h-ave imroe -h - -A onditions - for --oth the case reais o-F VW - LAL LLU'L. LLOLJL £~UL rLLJWLL1, LIElt- --LOb LCLUdii1L. LUJ
a more intensive developmental effort, if the economy is to grow along ahighL.e r andAmore stable path.
(Revised Average Annual Growth (%)1973/74 /±im ) J'1974/-75 I-176/I77
Agriculture (includinglivestock and fisheries) 35.4 33.7 2.9
Forestry 2.2 2.3 6.1
Mining 1.1 1.3 10.3
Processing andManufacturing 9.8 10.7 7.7
Construction 1.7 1.7 3.6
Transportation,Communicationsand Power 6.3 6.0 3.1
Trade and Services 43.5 44.3 5.1
Total GDP 100.0 100.0 4.5
Source: Planning Department.
4.4 The growth of value added by the agricultural sector averaaed 2.9%during 1974/75-1976/77 with food production increasing by 3.7% per annum.Net output from the cultivation of paddy which accounts for some 45% of agri-cultural value added grew by just 3.0% per annum. It stagnated in 1974/75,expanded by over 8% the next year and grew by iust 1% in 1976/77. The nrin-cipal sources of agricultural growth were the output of other cereal crops(mainly wheat). beans and nulses. tobacco. and snices. accounting togetherfor some 20% of agricultural output.
4.5 A complex set of policy, institutional and technological problemsaffprt the agrjiclt-ivA1 Qetor= Government programs have endeavored to
address some of them through improvements in farm practices and expansion ofthe sown area by brin-in 4allown 1w1 st l da 1 ioA 4 TM ivaton through
reclamation and flood protection works. Agricultural procurement pricepolicies also havN bleen .--eA 4to imp:o tfhe nam- 4
-4-. -ar. speed up the pace
of agricultural production. The paddy procurement price was raised signifi-cn Ly in 14 -WhLLLich hIJMelpdU stimuLatLe productior.n. iLnLc LLthn, hLVWeVeL , the
price has not been increased further in spite of inflation. On the otherrLL.U, thLe relativtely sh1arp upturns 'L theI PrOductioL OrL ereaLs (othL-Ler than
rice), horticultural produce and spices during the period under review appear
- 22 -
to have been associated with the substantial raising of procurement pricesfor beans and pulses, tobacco and sugarcane in 1976 and the freeing of wheatand spice prices.
4.6 Forestrv output was constrained by limited extraction and trans-portation capacity in consequence of shortages of spare parts and equipmentnarticularlv in 1975/76. Without the increases which took place in theproduction of hardwood by the private sector, the growth of the sectorwould havp hppbe Qignifirant1V less- In min-ingi the only source of arowth wason-shore crude oil production which jumped by 21% in 1976/77 permitting selfsufficiency ton be att-a4ned Other m4nnrsalas whic-h ,econ,,nt fnr mnre th-an nn*-
third of mineral production, of which tin and tungsten are the most important,increased marginally.
A.7 Growing from a small b.ase, value adAeA by tbe pro.esaing anAmanufacturing sector expanded by 7.7% per annum to increase its share in GDP-C r 7'.4Y.. 1071I7I o 10 7 4_ 1 071777 '4 /A .._ JA,.-- I a -- A 1 _CrawLL Ulll 7 . I n ±U ± L J/ It 1 L LU /* in 0.61ii* LIIa LuL.LaO=u OUFFL.L= LL ±aw
material from the primary sectors in combination with enlarged imports ofintermediate and capital goods afforded the opportun'ity for thi's expansion.Equally important, the introduction in 1975 of the commercial guidelinesprovUeu thLe SEEs with L pLUVCU prLUUcLtLU nLcULnVt's and gLteaLtL m1agmet1U
autonomy at the unit level. This had the effect of placing Burma in a betterposition than it has been in in the last decade to capitalize upon the manyopportunities open to it for raw material-based industrial development.The impact of the guidelines on industrial relations was signiricant. Incontrast with the situation in 1974/75, when there was much labor unrest,industrial relations appear to have considerably improved in the last twoyears.
4.8 As noted previously, one of the most pressing constraints ongreater utilization of capacity throughout the economy was the severe short-age of intermediate goods, spare parts and capital equipment. The transportsector was especially affected by such shortages which brought about severeunder-utilization of existing capacity. Its value added grew by only 2.8%per annum during the three year period under review. Resulting transpor-tation bottlenecks in turn constrained overall economic development byrestricting the marketing and distribution of essential input supplies andfinal products. In agriculture, transportation bottlenecks affected thedistribution of even the limited supply of fertilizer and diesel fuel forpump irrigation. In forestry, lack of transport facilities constrainedextraction, while several hundred thousand tons of teak and hardwood piledup at river depots, mills and the port awaiting transportation. In mining,some oil wells had to be temporarily closed, curtailing production to levelsbelow the current annual potential of 11 million barrels.
4.9 Exacerbating the problems faced by the transport sector, the con-tribution of the construction sector to GDP was minimal. Value added by theconstruction sector increased by 3.6% per annum with road works accountingfor only about 10% of the total. In contrast to developments in the rest of
- 23 -
the economy, the Government services sector, in particular general adminis-tration, expanded by about 10% per anumi or more than double the rate ofoverall economic growth. Value added by wholesale and retail trade expandedin line with GDP growth. Such growth in Government services will not befiscally sustainable unless the tax base is enlarged through expansion of
M 7 ,LI G j LS.JUU. L Lon
t.10V OveraLl., the growLh oL thLe GDPr perLLItLLdU LULfL cUUUUIpL.LUL LU 11-
crease by 4.3% per annum in real terms from 1973/74 to 1976/77. In contrast,gross fixed capital formation is estimated by the authorities to have in-creased by 16.2% in 1975/76 and 12.6% in 1976/77 after having stagnated in1974/75, giving an average annual growth rate of almost i0%. Though thisestimate is somewhat on the high side in view of the shortfalls which arelikely to be recorded when the actual 1976/77 figures become available, anincreased effort on the part of the Government to begin the task of developingthe capacity of the economy was evident. Expenditure trends in current pricesare shown in Table IV-2.
Table IV-2: EXPENDITURE ON GROSS NATIONAL PRODUCT, 1973/74-1976/77(in current prices)
GrowthRate p.a.
Kyat millions % of GNP 1974/75-1973/74 1976/77 /a 1973/74 1976/77 1976/77
Consumption 13,482 24,266 91.8 91.0 21.6
Gross Fixed Investment 1,146 2,305 7.8 8.6 26.2
Stocks 352 600 /b 2.4 2.2 19.5
Exports (GNFS) /c 798 1.479 5.4 5.5 22.8
Imports (GNFS) /c -1,042 -1,877 -7.1 -7.0 21.7
Net Factor Payments -52 -73 -0.3 -0.3 12.0Abroad
GNP at Market Prices 14,684 26,700 100.0 100.0 22.1
/a Provisional Pst4matpe-/b Adjusted for unshipped export stocks and thus differs from estimates
in Apnendix Tahle 2.4.
/c Export and import data are from the balance of payments accounts andre not- rernnrciA'1lbh with Gonvernmpnt national arcounts data (Annendix
Table 2.3) which are for merchandise only on a shipment basis. Netfactor payments estimates are a1 :n that of thP healance of paNments.The consumption estimates were adjusted for the resulting differences..
Source: Planning Department and Bank Staff estimates.
- 24 -
4.11 I A-og acltir ugsstat domestic saig ncurrent pricesJ.1 I .rough ca cd.u'd±Lato uget tLIIL UWLC .5dViLigb LiiLL~1 pL1
rose from 8% of GNP in 1973/74 to about 9% in 1976/77, implying a marginalsavings rate of about 10%, as shiowfl in Table ±V-3. TIe improve buuugetary
position of the Government was a major factor facilitating this savings effort.While current expenditures of the Union Government (including local authorities)were maintained at about 14% of GNP, entailing a continued salary freeze, theratio of current revenue to GNP was increased from about 10% in i9i3/74 to 13%in 1976/77 and the contributions of the SEEs to general revenue raised sub-stantially. As a result, the investible surpluses of the Government grew sig-nificantly, reversing the long-term deterioration in the budgetary position.The overall improvement in the savings rate was also helped by the introduc-tion in 1976/77 of a compulsory life insurance scheme for all public sectoremployees and a third party insurance scheme.
Table IV-3: SAVINGS AND INVESTMENT, 1973/74-1976/77
Share of GNP (%)
1973/74 1976/77
Gross Investment 10.2 10.8 /bGross Domestic
Saving 8.2 9.1 /bResource Gap /a 2.0 1.7Marginal Savings Rate
(1973/74-1976/77) - 10.2%
/a Defined as the current account balance, exclusiveof grants from balance of payments data. Thisdiffers from the export-import gap in the nationalaccounts which covers goods and non-factor servicesonly.
/b Differ from estimates in Appendix Table 2.4 in viewof adjustments to stock estimates as explained infootnote b to Tahle IV-2.
Source! PFlnning Department and Rank Staff PetimatPes
4 12 The fisca l measures deirt-ao-kPn were alson Qianiflrnnt in thpir imnpe-t
on the growth of money supply. Bank credit to the private sector grew stronglyby 29% per annum during the period under revIew in the effort to expand anddevelop the cooperative movement. On the other hand, the growth of bankcred Ai tt1 0 L to the GI LV c iDnd -2 Lo 34 a 1e7*EE7_
and to a negative 3.5% in 1976/77. With the growth of money supply reduced4f romi 30%W Lin 1973'/74. to L 'n in 176 /77, a powerful source of wflato was
brought under better control. Combined with expanded agricultural and indus-trial production and imprVovements ir. the distribEJLu tion tystem,L t vell
impact on inflation was noteworthy. The annual increase in the consumer priceindex in Rangoon fell from over 3u0% in calendar 1975 to abDout 22% in ca'LenUdar1976 despite some substantial increases in agricultural procurement and indus-trial product prices and the imposition of the CST.
- 25 -
4.13 The financing of the investment-savings gap necessitated externalcapital inflows amounting to about 2% of GNP. Earnings from exports were anegligible 5-6% of GNP, and grew by 9.8% per annum during 1974/75 to 1976/77in US$ terms as shown in Table IV-4. (In Kyat terms, exports of goods andnon-factor services expanded by 22.8% per annum reflecting the effects of thedevaluation of the Kyat with respect to the U.S. dollar by 23% in December1974 and a further 9% in May 1977). Rice and rice products, accounting forone-half of the value of all exports, benefitted from world price levels whichwere more than three times the levels of the early seventies. Export volumesexpanded following the doubling of the procurement price in 1973/74 andfavorable weather conditions in the two following years. However, the 1976/77volume of 650 thousand tons was still smaller than that of 1969/70.
Table IV-4: BALANCE OF PAYMENTS, 1973/74-1976/77(in millions of US Dollars) /a
/a Converted from data in Kyats at annual average exchange rate.
/b Six months interim period October 1973 - March 1974. Values were doubledto derive per annum growth rates for the Second Four Year Plan.
/c Contains since June 1962 imports of certain defense stores which werepreviously recorded under services.
Source: Union of Burma Bank.
- 2v
Similarly, in the case of teak and hardwood, Burma's second most importantexport category, no advantage was taken of strong worid demand. Pricesincreased steadily, but the volume of teak exports remained below earlierlevels in the seventies while hardwood exports declined sharply during theperiod under review.
4.14 The expansion of imports by 8.9% (in Kyat terms by 21.7%) waslargely for intermediate and capital goods. The limited import capacity ofthe economy forced consumption needs to be restricted to 13% of the total,with 52% for intermediate goods and 35% for capital goods. Nevertheless,many intermediate and capital goods needs remained unsatisfied.
4.15 Given these trends, the external resource gap amounted to aboutUS$90 million in 1974/75, $50 million in 1975/76, and $70 million in 1976/77.(The rather sharp improvement in 1975/76 was illusory for it appears to haveresulted principally from a decline in imports recorded on a payments basisbut not for imports shipped.)
4.16 Almost the entire size of these gaps was covered by foreign grantsand long-term project loans, mainly from Japan, the ADB and the IDA. Asshort-term capital and other outflows were also large in 1975/76 and 1976/77,gross foreign exchange reserves, after having increased in 1974/75, weredrawn down from $173 million that year to $109 million in 1976/77. In thelatter year, they amounted to just over four months of imports.
Macro-Economic Prospects, 1977/78-1981/82
4.17 The macro-economic targets of the Government are contained in the1977/78 Annual Plan and the Guidelines for the Third Four Year Plan; 1978/79-1981/82 which were adopted at the Third Party Congress of the Burma SocialistProgramme Party.
4.18 The taraets of the authorities call for anfp growth in real termsof 6.6% in 1977/78 and a minimum of 5.5% under the Third Four Year Plan.The agricuiltiirnl spetnr will crntinii ton determine t-ha npae for overall
economic growth. Agriculture is targeted to expand by 5.5% per annum andthe pocssnandmanufacturingsectorby8.5 Q%.r- Th expa o e n vsa4_e
for the agricultural sector involves developments which would be difficult torealize within a span of five years. Continued improvements in agriculturalprocurement price policies for paddy, beans and pulses, oil seeds, jute andother crops can lue expected to stm.:LUaLte pLUUUc.L1UL Litt t arim level anaencourage the adoption of improved farm practices. But these in turn wouldneed to be comleerte with Lthe implementatLiLLOn oi a range of inevitably
time-consuming measures aimed at increasing security of land tenure, improv-ing extension services, expanding tne availability of vitai farm inputs,and developing the network of transport services for timely and efficientdistribution and marketing.
4.19 In the circumstances, even a 50% increase in the rate of growth ofproductivity and cultivated acreage for paddy leading to an annual growth in
- 27 -
real output of 3% would be a significant achievement. A rate of increase forother crops which in total amounts also to 3% per annum, would be a reasonableexpectation. With respect to forestry, growth of the order of 4.5% per annumis indicated if teak and hardwood extraction in 1981/82 approximates the annualallowable cut.
4.20 The targeted growth of the industrial sector at 8.5% per annum is areasonable prospect if the light and raw material-based industries for whichBurma has a comparative advantage are allowed due priority. As will be shownin Chapter V, substantial excess capacity exists. Given expanded suppliesof comnlementarv raw matprials; intprmediatp goods. spare parts and canitalequipment, the achievement of a pace of growth equivalent to that in thelaqt twn yearR :f Ahnout 9% nor annuim shniild hp feasihlp-
4.21 I.n support of these developments, the contr4bution.s of transportand communications, in particular, will need to be intensively promoted.Provided the osevere botlenctr curren1tl 4---A4- -- A-*og4- -A A4.+t"4-
bution are alleviated, aggregate GDP growth of the order of 5% per annum inreal 4-terms may be foresee.
4.2 Th e targets of th'e BUurmese authoritiCes implyf 'LLWtha usatal£ 1.L.L L LUR ULLI y~V
enlarged share of the GNP generated during the next five years will bedevuteu to capita' 'ormation, as snuwn in iaoie 1V-J buusumptiOn gruwLu
is to be limited to an annual 4% in real terms (11.4% in current prices), 1/- .1 01 1fl -1 , 4.involving a steep decline in the consumption/GNP ratio from 91% in 17/7oii
to about 83% in 1981/82, to allow for a projected 25% growth per annum intotal investment (32% in current prices).
1/ Information provided to the Mission was in real terms. The currentprice series was developed assuming domestic price increases similarto projected international prices of about 7-8% per annum and stabilityin the terms of trade.
- 28 -
Table IV-5: PLAN EXPENDITURE ON GROSS NATIONAL PRODUCT,1977/78-1981/82
(in current prices)
Share of GNP (%) AverageAnnual Growth (%)
1976/77 1981/82 1977/78-1981/82
Consumption 91.0 82.8 11.4Gross Fixed
Investment 8.6) 2;.Changes in Stock 2.2) 3Exports of Goods and 5.5 8.3 23.1 /aNon-Factor ServicesImports of Goods and -7.0 -13.9 30.1 /aNon-Factor Services
Net Factor PaymentsAbroad -0.3 -0.3 13.9
GNP at MarketPrices 100.0 100.0 13.5
/a After adjustments for the devaluation of the Kyat by 9% in May 1977.
Source: Planning Department and Bank Staff estimates.
4.23 Some 57% of the investment is to be undertaken by the public sectorwith the cooperative sector accounting for 10% and the remaining 32% to comefrom the private sector with significant public financing of the cooperativemovement envisaged. Withi moreo than 70°7 of total 4ir.vestmen 4n the recent
past undertaken by the public sector, the attainment of the targets for thepr 4v te s ector W4 1 1 re u r A - 4-- A _ II 1 _ - Af IIe r_ _ __ _ I
v c- * OCL uLL L L ; GL a aL jiJ E tV V CU LL L .- - 1.i CL.- * v L - CIIC -LV ULLLLIIL LV
create a favorable climate for private investment. The recently enacted lawon ILh1e "iT,ghts of th-e Private Entepi" ------ mak -d menngu coti-bution'-11E LIC X.L ~ IL~U LEI L- i LVaL C LL" J:L~L CL L. W±.L..L UIdNr, Cl U1t_-diI_L1r,1U_ Ui ULILL LVUL.LULL
to this end only if it is followed by the establishment of a framework underwhtich the private sector c0uLU expect to receive thLI active support 01 Lthe
Government in its activities, including access to bank credit, foreign ex-cllange ana essential input supplies.
4.24 Public investment is targeted to grow by about 20% per annum in realterms over the next five years. The annual average development expendituretargets for 1977/78-1981/82 are approximately four times the correspondingfigure for 1975/76. Although very necessary in view of the low levels ofinvestment in the past, the targets of the authorities are overly ambitious.Past shortfalls (between budgeted provisions and actual expenditures) haveranged from 25-50%. Given the serious limitations of implementation capacitywhich exist, there is little basis for the expectation that investment levelscan be dramatically increased in the short run.
4.25 The feasibility of the targeted investment effort is also necessarilysubject to fiscal considerations. The investible surpluses of the public
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sector will nped to onntinue to exnand ranidlv if Government rlaimr on thebanking system are not to lead to a growth in money supply which significantlybanking system are not ton lea to0 agrorwth in money supnlv whirh significant1lyoutpaces GNP expansion so that inflationary pressures are exacerbated. (Evenwith substantially increased external assistance, an investment program of theamount planned will inevitably entail that tax revenue be increased by at leastth L ree times in1 curen ---es the current rever,ue/GNP7 ratio risin8 -from 13%
LILL L.LA1~~ .L L-ULXL LU &L jL U LI U ULL L. L % iV =LUV~ J%JL . QLCLU I A.LO.LLr6
A_.W -
at present to about 20% by 1981/82). While further efforts to increase theLLscaL baste are WaLLLULeU, iLt wouldU riot be L'easibLLe to mobilize tLle fullamount of the financing required if recourse to inflationary financing isto De a-voiedU.
4.6o Even taking account of t'ne current liquidity oI the economy, tLletargeted growth of private investment will at the same time necessitate en-larged claims by the private sector on the banking system. For the economyas a whole, the attainment of the investment target implies an expansion indomestic savings in current prices from about 9% of GNP in 1976/77 to some17% in 1981/82, with a marginal savings rate of 27%. Even so, the investment-savings gap would more than treble as a proportion of GNP, as shown inTable IV-6.
Table IV-6: SAVINGS AND INVESTMENT, 1976/77-1981/82(in current prices)
Share of GNP (%)
1976/77 1981/82
Gross Investment 10.8 /a 23.1
Gross Domestic Savings 9.1 /a 17.3
Resource Gap /b 1.7 5.8
Marginal Savings Rate 26.6
/a See footnote b, Table IV-3./b See footnote a. Table IV-3.
Source: Union of Burma Bank, and Bank Staff estimates.
4.27 The finaneial feasibilitv of the proponsd development nrogram canalso be assessed from the external angle. In this connection, it appears thatthe policy implications of the targets on the balance of na,ents warrant care-ful consideration.. Exports are projected by the authorities to increase inreal terms by over 13% pr annum an.d imports by a hefty 60% in 1977/78 and anannual 12% thereafter. On the basis of forecasts of stability in the termsofL tradue, exportLs in currer.t prices would grow by 21% ')I annu --- -- mports
UL L~UV, VAjJL LO Iii ULLVLL jL..LLV~O WUU.LU 6
LL/W UJ)' - F* ~ CjAV A. V U. -f -- -F-'A..-
by 28% in U.S. dollar terms (23% and 30% respectively in Kyat terms). As aresult, the resource gap will expand Lrom about USV70 million in 1976/77 LU
about US$400 million in 1981/82, as shown in Table IV-7. Inflows of externalcapital will need to expand very substantially. While new sources of capital
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are always a possibility, the prospects for measurable increases in the inflowof private long-term capital will be limited even if significant improvementsin the climate for such a development take Dlace given the long lead-timesinvolved.
/a Assumes that current ratio of reserves toimports of goods and services is maintainedat .37 or 4.4 months coverage.
Source: Union of Burma Bank; and Bank Staff estimates.
4.28 Current evidence indicates that the intermediate term prospects ofthe economy are more modest than that envisaged by the authorities. An illus-trative set is suggested in Table IV-8 below. Given the many problems facingthe Riirmepp Pconomy, an anniual ratp of grnwth of GDP of 5% in real terms wonildbe a significant achievement. Annual increases in investment of about 13% inreal terms, though lower thar. ernvisaged, hu the n1pnnearQ hbut higher than tholast three years, would also be a more reasonable prospect. Such increaseswould still constitutea significant effort in developing the basis for accel-erated growth in the eighties.
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Table IV-8: EXPENDITURE ON GROSS NATIONAL PRODUCT. 1976/77-1981/82An Illustrative Mission Projection
(in ._urrent nrices!
Average AnnualShare of GNP (%) Growth (%)1976/77 1981/82 1977/78-1981/82
Consumption 91.0 89.0 12.1Cross Fixed
Investment 8.6) 15.1 20.2wla;:: LUt .ouoR S. /..
Exports of Goods and Non- 5.5 7.6 19.9 /aacLtoLVSL OLvie
Imports of Goods and Non- 7.0 11.4 24.0 /aFaCLUL OULVIces
Net Factor Payments Abroad 0.3 0.3 10.5GNP at Market
Prices 100.0 100.0 12.6
/a After adjustment for the devaluation of the Kyat by 9% in May 1977.
Source: Planning Department and Bank Staff estimates.
4.29 The overall growth rate of exports is forecast at 20% per annum incurrent Kyat prices (10% in real terms), with rice exports increasing by 18%per annum as Burmese rice export prices rise in consonance with world pricetrends. The value of teak and hardwood exports can also reasonably be pro-jected to grow by 16% if extraction capacity is expanded and transport facil-ities improved given the strong world market prospects for these products.Though other exports will be growing from a low base, increased tin exportstogether with the development of new possibilities in petroleum, fish andmarine and wood products can furthermore be counted upon.
4.30 Imports must necessarily be planned to expand strongly if the pro-ductive capacity of the economy is to be rehabilitated and expanded. Annualgrowth of about 24% in current Kyat prices (14% in real terms) is indicatedif the availability of capital and intermediate goods is to be expanded insupport of the effort to expand productive capacity and to promote its fullutilization. Appropriate provisions also appear to be necessary for a moreliberal approach to the import of wage goods in support of the Government'saim to progressively reduce inflationary pressures on the economy as well asto provide adequate incentives for producers.
4.31 The fiscal and balance of payments implications of such an alter-native set of development possibilities are illustrated in Table IV-9.Domestic savings would have to grow from 9.1% of GNP in 1976/77 to 11.1% in1981/82 with the marginal savings rate raised from 10% to 13.6%, even without
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allowance for the optimistic levels on which the 1976/77 estimates are based.Capital inflows would need to be targeted at a level which is three timeshigher than at. -en -i - h 4sr g U 4ap is to ue covereA -an 4-oregn ex=
change reserves maintained at their present level in relation to imports.
Grants and Long-term Capital (net) 47 310Reserve Drawdown (+), Accumulation (-) 20 - 50
Gross International Reserves /c 109 280
/a See footnote b, Table IV-3.
/b See footnote a, Table IV-3.
/c Assumes current ratio of reserves to imports of goods and servicesis maintained at .37 or 4.4 months of coverage.
Source: Planning Department, Union of Burma Bank and Bank Staff estimates.
4.32 The tasks involved will strain the administrative and managementcapracity onf the Government. Bti- thpv shouild be feasible tasks if rontinuied
improvements are made in macro-economic policy, if the absorptive capacityof the Goverr.ment is expanrded for new investment and if mnrp iius Jq masid nf
the potential for an expanded flow of external resources. The implicationsfor sectoral actions are indicated in the following chapter=
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V. SECTORAL PROGRAMS
5.1 Burma's low rate of growth in the decade 1965-1975 was partiallydue to a shift away from agriculture (including livestock, fishery, and for-estry) and mining, the sectors with greatest comparative advantage and exportpotential, in favor of industry. Reflecting this emphasis, the share of in-dustry in total public capital expenditure rose from less than 10% in theearly sixties to a high of 45% by 1969/70. During this same period, theshare allocated to agriculture was cut by half to around 7-8%. Infrastruc-ture was similarly affected; the share of transportation and communicationswas reduced from about 20% in P:he early sixties to 9.5% by 1971/72.
5.2 In a major policy announcement in 1973, the Government reaffirmedits aim "to transform the economy of the Union of Burma from an agriculturalto agriculture-based industrial countrv arde thence gradually to an industrialnation." In the same st3tu;aent, however, the Government accorded priorityat the present stage of the country's development to improvements in agricul-tiirp. fiqh(r{s_s livpstork and fnreRtrv: thp Pstablishment nf rconsumer goodsindustries based on the raw material resources of the country; and the expan-sion of mineral p-ourvrinn. Mnrp rpe-pnt-lv the nee,cd to increase produitionfor exports has also received increasing attention. The new ranking of pri-oritipq refl_petei a rcprncnlit-inn thart indiistrti-rlza1tio7tn has- to-n hp based nin
prosperous primary producing sectors. In line with these new objectives, theshare of P.b' A O vest?nt a1 to + c : incre ased 1 .A t-- 1 i. th'e in ,-h
first three years of tle Second Four Year Plan, while industry's 3hare fellto 2 3. 1%". The guidelines for the1- Third Flour- Ye_ar Pl_an stipulate that agricul-ture's share is to increase even further to 33.3% while industry is to receive',V. I/O.
J. J Fr LItL, g .ivnI DULrLma ULrgtL nieeUb 'oL a sLtppd-uUp pace UL grLUWLL,
emphasis is being given to quick-yielding projects in those sectors that havebUeer recognized as having the greatest potential. LTe investmenLt strategy forthe Government's Five Year Development Program 1/ also envisages a greaterroLe fLor the cooperatiLve and pr'LatLe sector. Ur.UdeL Llth 1.LLU YUU e ardL L.Lan,
the cooperative sector is to obtain more than 10% of the planned investment.In the agricultural sector, the long-term aim is that the State should accountfor 10% of cultivated acreage; the cooperative sector, 50%; and the privatesector, 40%.
5.4 The "Rights of the Private Enterprise" law recently passed at the 8thSession of the Pyithu Hluttaw has specified the activities in the economicfield to be reserved for the State alone and the activities which the Stateand the private sector (including cooperatives) may undertake alongside oneanother. The range of activities in which the cooperative and private sectorsmay participate, will remain wide. Although the cooperative sector will beactively supported, the private sector, given its substantial size, can be
1/ Covering the period 1977/78-1981/82, comprising the final year of theSecond Four Year Plan and the entire duration of the Third Four YearPlan.
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expected, nevertheless, to continue to play an important role in the economy,particularly in agriculture, smallscale industry, transport and trade.Against this background, Chapter VI reviews the performance of the majorsectors, the constraints that they face, and indicates briefly the principalconsiderations that need to be taken into account in the formulation ofstrategy.
A. Agriculture
5.5 Real growth in the agricultural sector increased to an average of57- in 1975/76 andi 1976/77 in repnnnse to more favorable weather conditionsand higher procurement prices. This contrasts with the performance of theprevious decade, when value added rose by only 1_2% per annlm and pnroducirtinnof paddy, the main crop, was stagnant. Some 433,000 acres of paddylandin Lower Burma were abandoned between 1964 and 1974, asaresult of inadequatepricing policies and the failure to maintain flood control and drainagestructure. Rice exports fell from almost 2 million tons in the early 60'sto a low of 200,000 tons in 1974/75 before recovering to 650,000 in 1976/77.Exports of other crops such as pulses and , e rined similar declines.
economic reports have drawn attention to the wealth of Burma's agriculturalresouces,its mportance 'or Burm`' ecoomi deelpmnt an hedffclresoJurces, L L~ II9 . LaLk _ £LUJ. UU L uia ~_J_LLULLL.U. UXZV _LUVLHt:LLL., CaiLu LIM: U.LJ-L £ -UL
ties in achieving sustained and more rapid growth. The potential for expand-L1g production fLrom acreag increass isb vast. *Wh.ile UL a net basis only
500,000 acres were brought into use over the last decade, some 21 millionacres of "cultivable waste landa- exist wnich are suitable for cultivation.Irrigated acreage has not increased significantly over the past few years due,in part, to insufficient fuel for powering water pumps, and now stands atabout 12% of total sown area. Limited storage facilities have permitted only14% of the irrigated land to be double cropped. About four million acres ofpaddyland would be suitable for growing HYVs but inadequate water control andshortage of seeds have restricted the use of HYVs to less than one millionacres. Furthermore, fertilizer application for rice production, while encour-aged by the Government, is limited. Even with the increased emphasis beinggiven to the application of fertilizer for HYVs and improved local varieties,only about 20% of the total paddy acreage is fertilized. Thus, productivityincreases have been marginal. The increased use of fertilizer on the totalacreage as well as increased use per acre, accompanied by improvements inwater control and seed development, are essential to maximize paddy and otherfield crop production.
5.7 A number of actions, which will have to be implemented in an in-tensive and coordinated fashion, will be necessary to reverse this trend.Improvement of the planning and project preparation capability of the Ministryof Agriculture and Forests will be a major requirement if appropriate programs
are to Ue Uevelopeu. "Mt presenLt, ,tthLere is no unit with pr responsibilityfor identifying and preparing agricultural projects. There is also an urgentneed for comprehensive analyses of agricultural productLon possibillties b-yareas, regions and size of farms, and of domestic and export market prospectsfor farm products to strengthen tne basis for establishing targets for pro-duction and resource use over the intermediate term.
5.8 Among the broad issues that merit consideration are insufficientproduction incentives and uncertainty created by present land tenure policies.Adequate incentives will include the setting of procurement prices, especiallyfor paddy, at more attractive levels, since at the margin, farmers will facehigher costs of production, particularly in respect of fertilizer and labor.While some amount of input subsidization will be warranted to encourage theadoption of new technology, the main emphasis will have to be on bringingprocurement prices to a level which takes account of the increased marginalcosts entailed in production expansion.
5.9 The present land tenure system appears to have created uncertaintiesin the production process. Land cannot be sold or bought by individuals;instead, Village Land Committees assign use rights to individuals for as longas they wish to cultivate the plot. Although under the system, one's heirsare likely to be granted use rights to one's farm, this is not guaranteed bylaw. In these circumstances, farmers could be discouraged from undertakingcapital improvements and maintaining existing infrastructure. This is acomplex iss,,e whose implications for the future development of the sectormerit attention by the Government.
5,10 Tmnrnvements in the hbaic infrqqt-r,ct,1rp. incliidincg irricytionextension, marketing and credit are necessary. The potential exists fordAnhlin.g gross irrigated acreage by improving and extendin.g existing systemsand by constructing new irrigation facilities. Major current efforts includethe AnB financed Sedwag-i Project (197,000 --ace *chich 4n-,lves nflncr.stru n
of an earth filled dam and rehabilitation of the existing Mandalay canalsystem. The Lower Burma Paddyland Pro4ect (185,000 acres) financed by IDTAis the first of a series of projects to rehabilitate and/or reclaim aboutone millior. acres of paddyland 4in the middle and lower d--lta areas of the
country. It is relatively quick yielding and will protect existing farm landfrom flood inur.dation anr.d salt watler intrusior. an.d recla-im about 65,000 aacresof abandoned paddyland through construction of flood embankments, drains andb _. U .L I- C.*
J.11 J. "t present, th'e chief sources of water inL- irri8_aLed areas are_ cana-l
systems from stream diversions or pumping from reservoirs or tanks, but itmay also be possiDLe to aevelop aduitional water Dy pumping from wells. IneBank's Agricultural Sector Review report has proposed a phased program ofgroundwater exploration and development. Reconnaissance observations indicatethat up to 5 million acres may be suitable for such development. Considerationshould also be given to improvement of on-farm water management. Aitnoughfarmers seem well aware of the value of water in agricultural production,
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they are unfamiliar with methods of water application, conservation, landpreparation, and other modern techniques related to efficient irrigation.It is recommended that an on-farm water management proiect be initiated inconjunction with future groundwater development.
5.12 A sound extension program supported by pertinent research resultswill need to be develoned. The mission understands that the Ministry ofAgriculture is considering the separation of extension and research servicesfrom other funrtions of t-hp Agririltuiire Cornoration; along with a reex2mina-tion of the services required. At present, extension workers are inexperi-enced, irnadequately supervised, and lack necessary communication and transportequipment. The basic extension worker (village manager) must cover 3,400acres or in many cases more than 1,000 farms. In addition, he has numerousother duties, including some not related to his extension functions such asenf 4orcement of' procurement quotas. Withir- zlA- a -- -re.- ntl approve dU IDA=assist
irrigation project (para 5.10), extension services are to be strengtheneddiaU LeUtdlliL eU LU [eL1dU va I V e - i dV Il'dL L -C LU '- I -I ULL .LLaLe ULS onLexteni±Utl UULies.
5.13 The pr esen mdk-eting systemiW suffers from a iiumer OUL defects.Paddy which is sold to the Agricultural and Farm Produce Trade Corporationduring the harvesting season is, for lack oL adequate storage facilities,often piled in the open and milled several months later. Wastage in proces-sing may also be significant as reflected in the current yieid of rice frompaddy of around 58% compared to the usual international standard of 65%.Improving storage facilities, repairing and modernizing processing facilities,and improving transportation could increase the supply of rice in Burma by15% to 20%. The ADB is financing a mill modernization and associated storageproject for about 80 mills; however, there are many more mills as well asother improvements that merit consideration.
5.14 The long-term potential of the agricultural sector cannot be real-ized without the establishment of a more development-oriented credit system,especially for medium and long-term credit. Institutional lending in theagricultural sector has been limited and confined almost exclusively to sea-sonal credit. The variety of institutions involved in lending -- AgriculturalFinance Division of the Union of Burma Bank, Agriculture Corporation, TradingCorporations, Agricultural Mechanization Department, and cooperatives -- hasled to waste, defaults and lack of coordination. The MIyanma AgriculturalBank (MAB) was established in April 1976 to provide medium and long-termloans to farmers on a group basis. The NIAB lends to farmers through villageassociations (banks) which are staffed by unpaid, elected officials of theassociation. At present, the MAB lacks the basic organization and suitablytrained staff in adequate numbers to undertake servicing an agricultural creditportfolio. A nrogram of staff recruitment. matched bv sustained. hiTh-aualitvtraining programs at all levels will need to be developed. In the longer term,it may be desirahle to ronno1idAfp nll fnrm credit prograrms iundpr one agencyin order to provide more effective and coordinated credit services.
5.15 Given the financial constraints and the immediate need to accel-erate growth, the Cover-nment-'s strat-e, to- concentrate on intensive rat--rthan extensive development in the near term is appropriate. Burma will need
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to emphasize quick-yielding projects involving a minimal amount of investmentas opnosed to additional large-scale land reclamation and dam nronicts other
than those currently being implemented or appraised. A good example is theSZeeds Multiplication Priert- nprpared iindar the ITNnP TTUmbrella PP-rnioat (praor
7.9) which is designed to produce improved varieties of rice and cotton seed,as *ll as to prepare fo-r f-tre- projects in research a-nd exten.sioon. In -m-..areas presently under cultivation, production could be increased by small
increases-4 ir, U-s inputs4 an ybrnigadditional labor to the lar.d. Thi.LLLL.~O0C0 LU I,CCflL 4.LLUjJUUA 0 -AAf.L% U LU,.Lb a...I.JJ.A .L. J. L Ld LUI atLti .L-O&
would require support for programs designed to increase yields by overcomingshortages of vital inputs such as fertilizers, pesticides, farm ilplementsand equipment, draught power, and spare parts for repairing farm machinery,many of wwhlch will have to be imported.
5.i6 Because many of the services and inputs required to increase pro-duction are interrelated, the Five Year Development Program should includeintegrated agricultural development projects of up to 100,000 acres. Suchprojects could address directly the critical deficiencies currently encoun-tered by the farming community and demonstrate the benefits of a coordinatedapproach. An initial step is the Government's pilot project in TaikkyiTownship which in 1976/77 covered 506 farmers and 4,660 acres and which willeventually be expanded to cover 13,000 farmers and 160,000 acres. The proj-ect, although not providing all the required inputs, aims at increasing paddyoutput through provision of HYVs, fertilizer and other complementary inputs,including special extension services. The more than doubling of yields thatresulted in 1976/77 over 1975/76 is indicative of the potential that exists.
5.17 Several of the projects currently under consideration for the FiveYear Development Program are designed to be quick-yielding projects to promotemore intensive cultivation. Projects requiring further investigation as totheir scope, feasibility, and economic viability include the Fertilizer andInsecticide Project, Pump Irrigation and Agricultural Machinery Maintenance.Projects in the trade and industrial sectors such as the Warehouse and Siloand the Rice Mill projects, in conjunction with improved transport, shouldalleviate some of the present bottlenecks in processing and distribution.The Five Year Development Program also includes some K 829 million for devel-oping state and cooperative farms on existing fallow land. Given the emphasisof the Government on quick-yielding proiects in existing agricultural areas,the potentially serious drain of capital and skilled managerial and technicalmanpower that extensive new land settlement proiects entail warrant carefulstudy.
B. Livestock and Fisherv
5.18 The development of livestock and fishery resources will receivehigh nrioritv in the Five Year Development Program. An apnronriate strategy
for the livestock sub-sector would be to increase the quantity and quality ofdraiught cattle, Adomestic nroductii-ion of milk, 2nd csiinpl of moat- andA npot-ry
products. Inputs required to bring about these production increases are
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scarce. An IDA-financed project, effective March 1976, is addressing someof these deficiencies. The project is designed to develop more intensiveveterinary and livestock extension services, produce vaccine against the moreimportant animal diseases, improve some 20,000 acres of communal pasture land,establish ten livestock development centers and develop smallholder dairyproduction. A training component is included to increase the supply ofveterinary personnel. The Government recently has been pursuing the develop-ment of State dairy farms. It is necessary that the resources devoted tothis effort should be carefully determined in the light of the urgent needsto increase the supply of draught power and to assist existing smallholderdairy production. Future investments should emphasize efforts to increasethe supply of pig and poultry products and improve artificial insemination,vaccine production and marketing facilities.
5.19 Burma's marine and fresh water fisheries resources are extensive.Up to now, public sector involvement has been limited, accounting for only2% of total production of 510,000 tons in 1976/77. Production has beenhampered by lack of equipment and infrastructure. Out of 82,000 fishing ves-sels, only 4,000 are mechanized. The number of coastal fishing vessels ownedby the People's Pearl and Fisheries Corporation has declined from 92 in 1973/74to the present 23. Most of their 17 trawlers are in various degrees of obso-lescence. As a result, the State sector has had to rely increasingly onvariniio types of sharing arrangp-ments with nrivate fishermpn to mpet itstargets.
5.20 The Government's strategy is to develop inland and coastal fisheryresources for domestic consm-ption and nffshnre fisheries fnr Pport. The
main emphasis is the rehabilitation/expansion of the fishery fleet andimprovement of fishi ng geaar andd 4nfrfatrucrtuire En fa14ities.o A" AT)-fjnmnrnA
Fisheries Development Prolect near Rangoon is designed to increase productionby 8, 300. tons per year main.ly for domestic cons-Mption. It includes import-
tion of trawlers, replacement of obsolete engines and provision of onshorefacilities, anA tec.hnical as si stance. BeLfo:e an.y uafu L rlar i.zvestments
are carried out, it would be desirable to conduct a precise survey of poten-tials, catch rates, andA composition. lke Adesign of programs in the 4nterme=L..a.L ,L~ .LI A d.~0, LU .WJO.L LLLL LI u U~.~ L A 1. A.~dU~ .1L L.LL iLL L.=LUI
diate term should accordingly take into account the roles of traditionaloperators or motoriLzatio. ofL their fleet, adequate equipmerit andu ircentives.
Strong consideration should also be given to the use of production-sharingarrangements witth foreign enterprises for large scale off-shore fishing oper-ations as a means of securing technical expertise as well as access to inter-national markets.
C. Forestry
5.21 Burma is estimated to have 75% of the world's remaining teakreserves in addition to extensive reserves of marketable hardwoods. Thesector is a promising earner of foreign exchange in the near term. Its annualallowable cut is estimated at 350,000 long tons (LT) of teak and about 2 mil-lion LT of marketable hardwoods. (Preliminary findings, however, from the
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Forestry Feasibility Study, currently underway, indicate that these estimatesof reserves and allowable cut may be excessive , nesIp1 i iral Asinc 1elnnin tof some of the more promising timber areas is hindered by insurgency.) Pro-duct4or. of teak anAd h,ardtwooAd was 280,000J. L.T anA 3' 70,000 LT respec"Lvel 4i1976/77, well below the levels achieved in the early seventies. The decline-in production 'as resulted from the lack of forest access roadus, ir.sufficient.11 JtUUL_.L± L II ua L UL U LI W LiI ±L LI' J. L LD L~~D LUU .Li _.LL.LLLLL
extraction and milling equipment including spares, poor maintenance, inade-quate supplies of diesel oil Lor powering equipment, auu restriLcte accessto forest areas where insurgency is a problem.
5.22 There is now a substantial backlog, perhaps as much as 900,000ripe girdled 1/ teak trees awaiting extraction. in addition, severai hundredthousand tons of teak and hardwood logs are stacked up near the river depots,mills, and at the port awaiting either transport or processing. Exports ofteak amounted to 77,000 LT in 1976/77 compared with 130,000 in 1968/69. Withthe recent surge in world prices for teak, however, export earnings haveincreased significantly and now account for 26% of total foreign exchangereceipts.
5.23 The Government's strategy is to concentrate on teak production forexport, which will involve clearing the backlog of ripe girdled trees over aperiod of about 10 years and harvesting the total annual allowable cut in theimmediate future, so that no additional backlog accumulates. Current ADBand IDA assisted forestry projects are designed to remove some of this back-log through provision of equipment and spares, rehabilitation of saw mills,and construction and upgrading of forest roads. The IDA project is alsofinancing the Forestry Feasibility Study as a first step towards preparationof a program for systematic development. The Five Year Development Programcontains a number of projects, similar to the existing ones, to develop otherpromising timber areas. The success of these projects will be dependent onthe Government mounting a program to strengthen the management of the StateTimber Corporation and to break existing bottlenecks in transport and thesupply of essential inputs.
D. Mining
.5.24 Produiition in the mininT sector improved over the low level reachedin 1973/74, but remained below the potential implied by known deposits and plantalroetso The Tnn4i fni-s-nr nppr-ii-tino for thi i.4a vi rat wtz t-h- inri- a,.c in
the production of petroleum products which had a weight of 55.4% in valueadded in the seetor.
5. 2 t5 .Crude oil production reacthLed.L 26,0 b.Uarrels a Aay 4i 19 76 t, com-pared to 19,400 in 1975/76. Burma exported a small quantity of petroleum
allowing logs to be floated down river and sold after milling withoutdry kiln treatment.
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products, although there appears to have been a cerious diesel nil shortage.
Increased production came from 22 additional wells mainly in the recentlydiscovered Lepanrdo reserves. Some wells ir. the Maann renserve ---re closed doAr.temporarily, due to transport difficulties. In order to overcome these.ransporjJ A4t Lifficu l. L ties, a program fr* thIe laying 5 of -14--- pieie from teajo
reserves to the refineries is in the course of implementation. A pipelineLrom Miaunn to V nhas bUCeen compLUpL-LetU Whi.L.e Lte £LLMULWur.-Gwema connection will
become operational this year. Work on a pipeline from Gwema to Syriam financedDy a consortlilUm UL organiZeed Y -Cs Asia WiLL U be LsLaeU UUrLing Llltb yer L U
completed by 1979. In keeping with the high priority accorded to the devel-opment of petroleum resources, tne Government intends to increase onshoreexploration activities. Four foreign oil companies who were given off-shoreexploration rights have, however, discontinued exploration activities afterfailing to discover commercially viable deposits. The Five Year DevelopmentProgram contains two important oil/gas exploration projects to be iocated inthe Chindwin and Pyalo areas. Annual production is targeted to reach 17.0million barrels by 1981/82. However, this estimate includes exploitation ofprobable reserves whose attainment would depend upon the extent of explorationactivity to be undertaken.
5.26 Minor production increases were recorded for other major minerals,tin, tungsten, lead, copper and silver. Exports of these products were wellbelow production increases, largely due to transport difficulties as well assmuggling. In addition, shortages of skilled manpower, spare parts and tech-nical problems of converting low concentrate ores to marketable quality con-tinued to slow down production. The Government's strategy for these productsis to continue exploration activities and to modernize existing mines. Exist-ing constraints will need to be overcome speedily if plan targets are to berealized.
5.27 In the Five Year Development Program, the Government has included anumber of projects aimed at modernizing existing mines; the Bawdwin MinesExpansion project, the Bawsaing Mine Development project and an antimonymining and concentration proiect belong in this category. Proiects to exploitiron ore deposits in the Mandalay division, a baryte project near Kyankse andan industrial clav nroiect in the Shewdaung townshiD are aimed at exrloitingknown deposits.
E. Tndustrv
Structure and Growth
5.28 Accounting for about 10% of GDP in 1976/77, the processing andmanufacturing sector cm-p ris e_ some_3,0-3,0 f acto-_ri-e_s_ -of uwh ich 60%consist of food and textiles and clothing enterprises. These subsectorstogether contribute some 7L0% of gross manufacturing- out-put. Other light4U
industries include enterprises producing wood and cork products, furniture,pharmaceuticals, simple chemicals and electrical home appliances.
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5.29 Prior to 1962. the industrial sector was made up almost completelyof labor-intensive, agro-industrial enterprises. Supported by external assist-ance. the canital intensity of the sector. however. changed in the mid-sixtieswith the establishment of a number of heavy industries whose physical assetsare substantil= - These are engaged in the aqpmhblv of aori cil tulrail niuipnment;
trucks and passenger cars; metal sheet fabrication; foundry work and refineryoperations. Th.e average capital/output ratino of this group is about four timeshigher than that of light industries. 1/ Investment costs per job range fromUS$1,-0 fo- hpba and US$y55,0006 for. cement 'and fert-ilizers, to abonut
US$110,000 for petro-chemicals.
5.30 Total employment in manufacturing amounts to about 900,000 people.vver 90% ofL thLe country's i Udubstria1 CeataU.L±LuL1LM are sma.Ll LtepL
employing less than 10 persons each. There are only about 500 factoriesemploying more than 100 persons each, contributing about 7% towards totalemployment. The bulk of the jobs in the sector is in food products, textiles,and wood and cork products. Private industrial establishments and cooperativesaccount for over 80% of employment in industry (see Table V-I). In 1976/77,state industries provided 142,000 jobs, of which less than i0% were in neavyindustry.
Table V-I: Employment in Manufacturing Industries(thousand of workers)
Cooperatives Percent of privateState and Private Growth employment to total
Year Industries Industries Total Rate industrial work force
1974/75 124 709 833 85.1%3.1%
1975/76 137 722 859 84.0%2.2%
1976/77 /a 142 736 878 83.8%
/a Provisional
Source: Ministry of Planning and Finance.
5.31 Among the highest paid industrial workers are those in the metalproducts industry (about US$42 per month), rubber products (US$33) andcigarettes and printing (US$27). The rest receive on the average less thanUS$26 a month which is low by local standards.
5.32 Industrial outnut erew sienificantlv faster over the first threeyears of the Second Four Year Plan than in the previous decade. Value addedat constant prices rezistered an average rate of increase of 7.7 nper annlim
1/ For details see lIanufacturing Industries in Burma, A Sector Study,World BRank, fnrth-cm.ing.
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during 1974/75 to 1976/77 1/ compared with 3.1% per year between 1962 and 1972.This improvement in performance was made possible by the increased availabilityof agricultural inputs and imported raw materials and from the implementationof the commercial guidelines for SEEs.
Scope of Industrial Policies and Implementation of the Commercial Guidelines
5.33 The provisions of the Commercial Guidelines for decentralizing man-agement resnonsibilitvy linking State corporations to the banking system fortheir working capital and investment needs, and creating a bonus system formanagement workt rs will hb hplnfuil in bringing about further imnrovements inperformance (para 3.9-3.16). Implementation of these provisions is generallyon srhedulep anA for rortain measires, the timetabhlp has hben arelerlted-
5.34 Pre-set operating ratios (rhenus to t xpenditures) provide the
standard against which the efficiency of state corporations, including theprovision of bonus payments to manage-oment and the *.o rk f o rce, i s deteFrmined.However, though the use of criteria to measure performance is a welcomeimprovement, thle operati4ng ratio suffers from the- fact Uthat m _any ofI the var-iables that influence it (e.g., raw material and ex-factory prices, wages,interest rates t-axes) a- -beyonA the control of unit and sector corporationmanagement. Moreover, the system of bonus payments as explained in para 3.15does not L ajippldy fL ULy tL £iUi v iL d u unLLit -Lw L.LI.ChC UL L ontribute tLUo the imp rovd U v
performance of the corporation, thereby dulling the incentive of such unitsto perfo.-IiU well. IT,us, in uue course, a system oL performance criterLia UasedU
on endogenous variables within the immediate control of individual units (e.g.,voluUie UoL pLrUUUiLLUo daU saLes, ladUoUL pLruuctU*LvLty, unitL L costs, etL.)J si'Lou'uUu
form the basis for a more meaningful incentive system. Likewise, modificationto the current bonus formula entailing the establishment of production normsand quality standards could be helpful in identfying on a more objective basisthe more efficient among the work force. 2/
Industrial Strategies
5.35 The Burmese strategy for industrial development has been to promoteagro-based industries and industrial self-reliance through import substitu-tion. On this basis, and especially with respect to the latter criterion,a number of industries have been established which have not always been inline with Burma's comparative advantages. Notable cases in this connection
1/ Figures for 1975/76 and 1976/77 are provisional. Real growth forthe previous 5 years 1969/1970 to 1974/75 was .5% per annum.
2/ Based on performance in 1975/76, the first year of the bonus scheme,Kyat 6,340,432 (from a total of Kyat 8,453,908) was distributed asa general bonus to workers at 4 out of 11 state industrial corporationswhich met both the operating ratios and production targets.
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are a number of heavy industries= While full-raparit-v nnpration was achievedby a number of these industries (e.g., electrical appliances), utilizationratios have in recr..t years been low for other heavy industries, especiallytransport equipment and agricultural machinery. This pattern is supportedby production data; rea… value addeA over the period 197711=7* 6, declined by
40% in the case of transport equipment and by 45% for manufacturing machineryand equipment (Appendix Table 8.1). Large shortfalls from p-rution targetswere thus experienced by these industries as capacity was built up to levelsfar greater than that w1hic co1 1be e cono mc IUrL L a_ Whl sJ. L.=oC *.&IZu LALaL WllAA;l1 LUU.LU LJl t:CUULULUJ:di JY tiUyPOLL:U. WIL.l_lk tUL L.L
cient data and information are unavailable to arrive at a conclusive judge-ment on thfe viability of individuai heavy industries, tne issue for Burma,as for many other developing countries, is the efficiency with which theseindustries can be operated compared to other activities in the industrialas well as primary sectors, and the scale on which they should be promotedgiven the large effective demand required it efficient production is to beundertaken.
5.36 A review of industrial strategy is needed given the character ofthe country's resource endowments and the fiscal and balance of paymentsimplications of capital-intensive industrial development. Within such areview, greater consideration should be given to the light industries group,including light engineering industries, in addition to agro-based enterprises.These industries are labor-intensive, produce the bulk of industrial output,utilize local raw material and show steady progress in the utilization ofexisting capacity. They demonstrate comparative advantage and significantpotential for export development. Inadequate attention has so far beenaccorded to developing the country's potential for manufactured exports.Such exports as have occurred appear to have resulted only as spillovers fromdomestic production.
5.37 Burma has a rich and well-balanced natural resource base and themanufacturing sector has good Dotential for further develonpment nrovidpdr mnn-agerial efficiency is improved and research and development are promoted.Prima facie. the industries with good and immediate Dotential for exnortappear to include: marine products and frozen shrimp in particular; processedwood Droducts (nlvwood chinbonard and fwirntiirP! light engineering pnroducrts-;and handicrafts.
5.38 With respect to import substitution, domestic production of manu-fartiired cnnsulmer goosc lhns not ire-asedA fast- e.ough to offset drasticdeclines of imported consumer goods. As a result, shortages persist andcontribute to the maintenance of active black markets in Rangoon and othertowns. Import substitution should concentrate on products already domestic-
all produced, - sice +-he exterr,al finan.ing requlrements of a -t-ategy w__ic
requires heavy imports of raw materials and intermediate goods in addition tocapital equipment wouLU not lue easily satisfied. 'LL thls respect, industries
with ample potential both for import substitution and later exports include:textiles and garULenits, leatbler products, and plastics.
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F. Transport
5.39 The share of the transport sector in GDP has declined to a low ofabout 5%, with the total volume of freight traffic estimated to have grownby an average of only 3.0% per annum between 1970/71 and 1975/76 as a resultof widespread deterioration in the capacity of the transportation system.The resulting constraints on economic growth were pervasive. Transportbottlenecks not only impeded the movement of a number of essential agricul-tural, mineral and industrial products such as paddy, sugarcane, teak,fertilizer, cement, salt and oil, but in the process reduced incentives forexpanding production for domestic use and exports and exacerbated inflationarytrends.
5.40 The highway network remains in a serious state of disrepair and themotor vehicle fleet is generally old. Out of a total fleet of 30,000 trucksand buses in operating condition, some 60% are privately owned, of which 50%are more than 30 years old and 75% more than 10 years old. The maior partof the fleet in the public sector is owned and operated by the Road TransportCorporation (RTC). As of October 1976, nearly one-half of the RTC fleet wasout of service due mainly to the lack of spares. While most of the railroadtrack of 2,000 miles is in fair to good condition, only about 60% of the fleetof main-line diesels of the state-owned Burma Railways Corporation, about 50%of its main-line steam locomotives and about 75% of its rolling stock andpassenger vehicles were available for service during 1976/77 for lack of spareparts and skilled mechanics- With resnect to inland water transnort where the
private sector handles 90% of the total tonnage carried and similar to thesituation with private road transport, shortages of mantrinlc and spare partshave significantly raised the cost of providing transport services. In airtransportation naxv- -- 1 ( .,4 nAc 0rn of nr nr niizl -it', lahi 1 n tcnn-
repair facilities are old.
5.41 Burma's single major ocean port at Rangoon is efficiently admin-istered4 and4 with the recently negotiated port projet4 aaiypolm r
tOLtV~ aIu J.LLL LLIL t L -Lt LCILJ O t.C JLJ - Ject.L, c.apJact. y pro' lem are
not expected in the near future. But the capacity of the fleet of Burma'sr Ve-JSLda DLL 'ppLn CorpoULtULdLiUInL WlIchL I g LUetLIItL wi LLI UlIIL LUL VU VU-b , L.aie s ZS
90% of the country's foreign trade has been insufficient, while the privatecoastal fleet comprising vesseis which are relatively small in size sufferfrom lack of spares and replacements. Recently, the Government has beentrying to overcome the shortage of ocean going vesseis by ailowing morechartering of foreign vessels.
5.42 Pricing and traffic allocation policies have served to restrict theeconomic use of even this limited capacity. By keeping public transporttariffs low and allocating a maximum portion of Government-controlled freighttraffic to public sector corporations which account for less than 10% of allfreight traffic, short-haul trips are often made on longer-haul modes ofpublic transport, like the railroad and the inland water transport system.
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In restricting public transport corporations from exploiting their comparativeadvantages, the financial performance of these enterprises has been adverselyaffected while lack of access of private operators to essential spares andmaterial has raised transport costs and thus put additional inflationarypressure on prices.
5.43 Some initial steps have been taken to alleviate problems and easetransportation bottlenecks. Movement of an increased number of commoditieshas been decontrolled. Some activities of the Transport Corporation have beendelegated to the producer and trade corporations concerned including thePetrochemical and Natural Gas Industries Corporation and the Farm ProduceCorporation. Such state producing units may now arrange for the transporta-tion of their produce and inputs using their own facilities and, if necessary,in conjunction with transport cooperatives and the private sector. Enlargedallocations of foreign exchange have been allowed for the import of spares andequipment for the state and cooperative sectors as well as the private sector.Further, with IDA assistance, expansion of transport capacity and the improvedutilization of this capacity can be expected from the implementation ofGovernment's road improvement and exDansion nroarams: and the rehabilitationof existing facilities and equipment in the rail and inland water transportsyvtems These measurps_ however, wfll nnt hp sufficient unlpq erromnInipd
by signficant improvement in managerial and operational efficiency.
5.44 The transport sector accounted for about 15% of all public develop-ment expenditures during 1974/75-1976/77 hile transport equipment made up3-4% of imports during 1974/75-1975/76. Expanded shares are warranted forthis sc-t-r Adurirn th nr.ext f4uv -.ears proviAdA that theq nt- 1 4 of opea----
tions improves and resources are channeled into appropriate projects. Withinthese allocat4ons, the rehabilitat4or., of ex-ist-ing capacity, an' Ile estab-L.~~ t~LL iLauJ.L4± LL L.LJL AJ. AL~ L..LLL ..aJ L. L..L , U L~lL L
lishment of adequate maintenance facilities merit priority. Some extension ofte existing roaud network is also necessary. Mrj Jor PrOJ ects inLclude LLth
rehabilitation and widening of existing roads, part of which is proposed forIDA assistance, large-scale procurement of locomotives and rolling stock forthe railways; the extension of the oil pipeline from Gwema to Syriam withexternal capital fJrom a consortiL--M UfL pLrVdLat LLLLC.LLaL.LULIdJ Ubanks Uganized by
Chase Asia; and port improvement works at Rangoon. A program focusing onrehabilitation and the extension of pipelines would be sound but the heavyemphasis given to the purchase of new locomotives and rolling stock for therailways cannot be economically and financially justified given the volume oftraffic foreseen for the next ten years and the rates of utilization ofexisting stock.
5.45 In view of the role played by the private sector, greater access ofprivate operators to fuel, spares, and equipment is also important. Togetherwith all these efforts, rationalization of transport pricing policy is anotherrequirement to enable the railways to exploit its comparative advantage forlong-haul freight and to support the efficient development of trucking andinland water transport.
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G. Telecommunications
5.46 The inadequacy of the present telecommunications network has alsohindered growth of output of the productive sectors and the efficient use ofthe limited available transport capacity. Little investment in telecommuni-cations has been undertaken in the past, with the result that long distanceservices, as well as services in the main cities and towns, are inadequateand of poor quality. Little has been done to provide facilities in the ruralareas. The realization of the development obiectives in the productive andservice sectors requires coordination of effort-and input which can be facil-itated through provision of adequate telecommunications services. These willassist in production, marketing and commodity distribution. A recent IDAfinanced telecommunications nroiect is designed to eliminate a number ofdeficiencies in existing services. Further development of the sector willhnowpvpr hp rpniiir ci in arrdor t-n mppt thp pxcnprt-p arnwt-h in t-hp Prnnnmv nndextend facilities into other areas.
H. PnFwr
5 4 7 R-rmn ic snAn.oedA th l4v arge e--ploitable hydroel ectr4c resourcesless than 4% of which have been utilized. Further harnessing of the country'shyd-olectric potential should constitute the basi 4 epand-ing g zti
capacity, given the scarcity and value of alternative energy resources avail-able (gas andA oil)t1 N. 1,hs i0s accepted Xoverm Lent policy. U.owever planningfor future generation has not been adequate and stop-gap measures will haveto be azdopteA before th-e next hydroelectric pro'ect can bue commissioned.L~J LJ~ JjL~. U~~ I ~ I� - LA ~ L L1J U .1. L. .1. ~ J LL ~ I U IWI~ ULU
A UNDP financed study was recently commissioned to make recommendations fora stop-gap Udeve'lopment program to meet the short and medeium term load growth(1976/77-1985/86) and, at the same time, to identify the most suitable andleast cost hydroelectric de-velopment to meet the long term needs of thepower sector. The study which is scheduled for completion by mid-1978 alsoincludes a feasibility study of the hydroelectric project so identified.
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VI. PLANNING AND ADMINISTRATION
6-1 All attempnt to hring the economy on to a higher growth npth willfail unless the Government succeeds in instituting a management system thatrnn anq-ti ti niiQlu imrnl amont Qno,r;i fi r tic,ina Iornmont nronarqmQ Tn rerejnt vanrsr-______ -r r-------~--- --r ---- o-- --- -- _ the Government has been able to acquire significantly increased aid fromvarious quart-rs, particularly from membrs -f th-e Burma AidA Gro-. -u-
disbursements under these aid commitments have remained at a very low level.
6.2 The problem pervades all segments of the public sector. It ismair.ly due to centralization, of Udecision-making of mattter ld be WILULI UUiU UC
delegated to lower levels of authority under properly designed guidelines.Streamlining of the planning and administrative apparatus and decentralizationof decision-making are urgently needed.
Planning Process
6.3 The planning apparatus is elaborate. It encompasses all economicministries and departments at all regional levels, all Boards and Corpora-tions, and the principal organs of the Government and the Burma SocialistProgram Party (BSPP). The system is structured so that responsibility forsetting targets and guidelines lies in the Party while the task of formulatingthe technical details, as well as their implementation, falls upon the Minis-tries and local organs.
6.4 Within the Government, the primary unit for economic management isthe Economic Coordination Committee (ECC), a subcommittee of the Council ofMinisters (Cabinet). The ECC is chaired by the Prime Minister, and its mem-bership consists of the nine ministers, whose portfolios involve economicmatters, and the Deputy Minister of Planning and Finance, who serves asSecretary. A 29-man Council of State, with U Ne Win as Chairman, operatesas a supervisory body over the Cabinet as well as the main vehicLe forchanneling directions from the Party to the Ministries.
6.5 The 1974 constitutional reforms formalized the role of the Partyin economic planning and led to the establishment of extensive machineryto carry out this function. The rationale is to ensure mass participationvia Party organs in the development process. At the apex is the PartyCongress headed by the Central Committee which acts on the former's behalfwhen it is not in session. Below the Party Congress are various party unitsand Workers' and Peasants' Asiayone (Councils), whose organizations stretchdown to regional, township, and basic levels (village tracts, factories andoffices). The basic targets and objectives of the Party are set out in theTwenty Year Plan initiated in 1972. These long-term goals are to be realizedthrough a sucession of four year plans, of which drafting on the Third FourYear (1978!79-81!82) is rurrently under way.
6.6 The raQcnpntfiv rnloc of Pnrtx :rnn Conuprn mnt orcrnc can hb rl:pqrlv
seen in the process being followed for the formulation of the Third Four Year
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Plan (FYP). These entail the development of the Guidelines for the FYP inrespect of the plan's objectives, overall and sectoral growth targets, sectorpriorities and allocations of investment by the Planning and Finance Committeeof the Party assisted by technical staff; consideration of the draft Guide-lines by Party units at all levels of the organizational hierarchy beforeapproval by the Party Congress; and transmission of the approved Guidelinesby the Central Committee, through the Council of State and Cabinet, to theMinistry of Planning and Finance (MPF).
6.7 The MPF is currently developing the Four Year Plan based on theParty's Guidelines. The process involves estimation of external and domes-tic resource availability, the initial formulation of sectoral investmentprograms, and the allocation of available resources to the programs accord-ing to the priorities specified. The task of individual Ministries is thedpt-ailtd snpcifiration of the sectoral targets and investment allocations
channeled to them. Within each Ministry, individual agencies formulate theiroWn Snprifii-r prograTm.c in onnsullta,qtinn with nprtv annd nPnnlnP'sR rpnres.enta-
tives down to basic levels. The principal focus of these discussions is thesetting of production tareto, wlhero pnnronrinat by regior.sic ,rA hby fctor-ie,c
for all major agricultural products and for all commodities produced by theBoards and Corporations.
fl. LiQfl 1- _ _ A Uirr anA Cab.net, th. LrS A rata oU Ai;UC U LD
will be considered by the State/Divisional People's Councils for any counterproposalCs thLey may h-ave. 1he taskL of reconciling dif4 flerences i8s LIthe respor.=
sibility of the Planning Department. The principal tool in this regard iscommoLdity balancing for major items including 4food, industrial inputs ar.dcommuuLy Ua.di1U L U£-L LUIJUL L.L_LCJL LLIL4.ULLU.LL16 tLiU%J L.LL1UUMLL.LJL. .Li1jUL.0, lU
energy requirements. It is a most difficult task given the limited database, the need to take account of inter-industry linkagebs Ud time phasings,and most important of all, the existence of a large private agriculture sectorsusceptible to the vagaries of weather.
6.9 The planning cycle is a lengthy one. Work on the Guidelines forthe Third Four Year Plan by the Party was initiated in April 1976. Technicalwork by the Ministries began in April 1977 with the entire document scheduledfor completion by January 1978 for the March 1978 Pyithu Hluttaw session.Once set, the FYP determines the framework for the Annual Plan and the Budget.Final approval of these documents rests with the Council of State and theAffairs Committee of the Pyithu Hluttaw, after which they are submitted tothe Pyithu Hluttaw.
6.10 The Four Year Plan sets the annual investment ceilings for eachdepartment and corporation. The inclusion of additional projects not includedin the Four Year Plan requires specific approval for revisions of the ceilingamount which may be required and/or reductions in the pace of implementationof other projects. Where changes in these ceilings have been made in thepast, they have involved a time-consuming process. This has contributed toinflexibility in the composition of the investment program.
6.11 Moreover, proiects in the Four Year Plan require further processingby a number of agencies and committees before actual budgetary allocations
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are grantIed-. They mu-st 'first be examir.L e d bD y- aD Plr..i. eview Committee com-
prised of the Directors General of five departments before consideration bythe Economic CoordLinatiou ComukLittee lor fLnal approval by the Cabinet. The
Planning Department's primary role is to ensure that the project is consistentwith the oDjectives and priorities of the FYP. Tne Budget Department considersthe investment and operational requirements of the project in terms of itstotal cost, as well as foreign exchange requirements, against available re-sources, the ceiling set for the originating agency's budget and the priorityof the project.
6.12 Major responsibility for project appraisal rests with the ProjectAppraisal and Progress Reporting Department (PAPRD). Every project has topass through seven basic stages, each comprising a detailed set of proceduresand criteria which have to be satisfied. With the growing volume of work ofincreasing complexity, the present staff establishment has proved insufficientin size and experience. Given the need to develop greater expertise in proj-ect preparation, including the use of benefit-cost techniques as well asgreater familiarity with the requirements and procedures of multilateral andbilateral donors, limited analysis along with long delays in processing haveresulted.
Suggested Modifications
6.13 While the introduction of the Commercial Guidelines has broughtabout a number of significant improvements in the planning and administra-tive process, several other issues merit consideration.
6.14 (a) The need for greater integration of the planning process. Itis important that the micro foundations of target determination be an integralnart of tha nlanning nrocess so that nlanR are fuillv integrated with rpeossrcp
availability and the type of programs and measures needed to achieve targets.AR the Party and the tpchnicAl miniqtripe hnve diffprpnt roles in nlan for-
mulation (para 6.6), the need to finalize plans as an essentially iterativeprocess cannot be over-emphasized. The rnnrdinqt-in whirh i9q hping inititePd
for this purpose in the preparation of the next Four Year Plan is to bewelc r omed.- Tnogt-her wit-h the effort to rationalize the overall planning
process, it is also important for the Government to ensure that the require-LA.. for e et plar.ni.gLLnb a.d 4-1mplemnat-io at the projectL- level are not
neglected. There appears to have been excessive concern with target settingin thle pas'. The result has beer. -la, the attentior, an' energies of thepast. L L L.LL LL1~L LLI ~L LVI LLLI A. iu L1ILLLLLP
Government have been diverted away from more vital activities at the projectl evel.
6.1i (b) The need Lo bLrengien UmOnt.LLUrg oi perprmeance, projeCL
implementation and coordination. Preoccupation with target determinationhas left far too little time for coordination and treatment of bottlenecks,in particular. The terms of reference of the PAPRD specify that, in additionto its work on project appraisal, it is to report regularly to the ECC onprogress in project implementation and to prepare quarterly reports on theproduction performance of SEEs, comparing actual achievements with plannedtargets, including their financial, raw material, production and manpower
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nositions. In nractice. there has been as vet no monitoring of the Derfor-mance of SEEs by the Department. Furthermore, the attention devoted to prob-lems affprtina nro-iprt imnlpment-2tin has hben minimal. While the status of
transport projects and the performance of the Construction Corporation havehben mnnitored, cvrnyage of nther :agncies as wpll as the entire Agriciil turalsector has been superficial and sporadic.
6.16 The PAPRD merely coordinates the reports prepared by the agenciesthemselves which are often unduly optimistic in ass4ming that targets andtimetables can be met through more intensive efforts in the forthcomingperiod. T.rhus, thLe G'Overm.ent hLas h. aU no accurate up=to=udate assesamentsof the current state of progress. A consequence is that major problemshave not always been brought to the attention of the highest authoritiesin timely fashion while the resulting lack of coordination has inevitablyled to instances of misundertandings among agencies and ministries overpolicies and programs.
6.17 Greater attention to coordinating implementation and monitoringperformance could have alleviated many of the problems faced in 1976/77.These include the recent shortages of diesel for powering irrigation pumpsand forestry extraction equipment, because of transport bottienecks and thecurtailment of imports. Transport bottlenecks in turn were a recurringproblem which could have been alleviated through improved coordination andplanning. And although the Government recently decided that SEEs wouldbe permitted to increase prices automatically and immediately, withoutprior approval, for all products except rice to compensate for increasedcosts, implementation has not been uniform.
6.18 (c) The need for rationalizing the process for determiningagriculture procurement prices. Individual procuring agencies within theMinistries of Trade, Industry I, and Agriculture, initiate proposals forrevisions from time to time. These proposals are presented to the ECC forapproval which in turn delegates to the Planning Department, in collaborationwith other agencies, responsibility for the technical analysis. In the caseof paddy prices, the initiation of the review process as well as the changesto be effected must further be approved by Party authorities.
6.19 A major factor determining changes in procurement prices appearsto be the performance of individual agencies in fulfilling their procurementtargets with large shortfalls prompting a review of the price situation.As such, price increases have in practice only been announced prior to theharvest season. While this has had positive effects in facilitating theprocurement objectives of the Government, it should be considered in thisconnection whether announcement nrior to the planting season would not alsohave the additional benefit of inducing production decisions in the desiredmanner
6C 9 The nroecnt arrnngempntc are nnt rnnti,rive to a qvqtematic review
of prices. There is no provision for overall technical reviews on a regularba-sis of the price situation and the inter-re1 ations hetween nrices. Thuis.price decisons are reactive rather than pre-emptive in taking account ofchanges in domestic and external market conditions.
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6.21 T"'"ere are a'lso defi cienciles ir. tbe technical -- I, suppoting Aeci-Li t. I.J..LL .L aLL. L L L . 131. WM1-~Li1.
sions on individual commodities. While the Agricultural Corporation preparesfarmu budUgeLs to bue used £Lor ania.LytiLcadL purposes in establishin.g procurementprices, these are based only on general assumptions with respect to yields andthe relationship between yields and uniLt costs -W'1IchLL dUo not appear to Ue Uorneout by field evidence. The collection of extensive quantitative evidence oncosts by crop and region and their dispersion around the average is necessaryif objectivity is to be introduced into the decision-making process.
6.22 Formation of a technical unit, within the Ministry of Planning orAgriculture, charged with monitoring procurement prices would be desirable.Its recommendations should be underpinned by systematic and frequent analysesof all crops based upon statistically acceptable sample surveys of farm pro-duction costs particularly in relation to the cost of desired improvementsin yields. Its recommendations should also take into consideration suchfactors as export price trends, relative prices among crops, and the effectsof current price levels on consumers.
6.23 (d) Manpower constraints. The shortage of experienced and trainedmanpower, particularly in light of the proposed acceleration in investmentactivity, merits urgent attention. It affects the Government's ability tofocus on important policy issues, to act on problems identified, and toimprove the efficiency of public sector enterprises.
6.24 The capacity of the planning apparatus is extremely strained, withthe result that technical staff work in key areas is only of a cursory nature.In the case of price determination, for example, the pricing section of thePlanning Department comprises a staff of only 15 who, assisted by otherpersonnel in the department, must review biannually the 40,000 commoditiesproduced or traded by the SEEs. Similar mannower limitations have affectedthe capacity of the materials balancing section of the Planning Department andthe Proiects Apnraisal and Proiect Renorting Department t-o rirrv out theirintended functions.
6.25 In other ministries, comparable situations exist. While theestah1ishment of planning inits in. iniviitiiidul Ministries iS arn importantrequirement, such units have either not yet been formed or are of such recentvintage, that the staffisinexperierced. For the regio.ns, planing officersare to be assigned to most of the 314 townships, but at present, only 115 ofthese pOs4fis he beeAnn f411ed Tna n-4ulr-l e- the average v Illag m-u-ger(basic extension worker) must cover 3,400 acres or over 1,000 farmers. Withthe Irrigation Department's current staff of erngineers, it would not befeasible to undertake any additional major irrigation projects, beyond thosealreaAdy negotiated or appraised, durin -h - 've Year Develpmen Prgrm. Iu&~L LL .L L U Li.ejJL-~u , t.LU.LI LLLC X.LV= ItCL VC_ULUPIUetLIL rLUgLduI. iLl
banking, the objectives behind the creation of the Myanma Agriculture Bank andM,yanata Economic Bank in April 1976, have not yet been realized because of theshortage of accountants and financial analysts. Given the magnitude of theproblem across all sectors, greater attention should be given to manpowerplanning and the urgent need for expanding programs for managerial and tech-nical training.
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6.26 (e) Inflexibility and rigid procedures. The Burmese administra-tive system is a centralized system. It incorporates detailed and, in manycases, rigid procedures. This has reduced initiative among managers, createddelays, and by limiting the autonomy of the Boards and Corporations hinderedtheir performance.
6.27 The control exercised by the Cabinet and the Ministries over theday-to-day operations of the SEEs is considerable. Apart from major poli-cies, the system requires many other matters, some of a routine nature, tobe brought for decisions by the highest authorities. They range, for example,from changes in the composition of investment plans to the establishment ofstaff positions, hiring of consultants, and selection of staff for overseastraining. In addition, all bids for award of contracts for foreign procure-ment need to be reviewed and approved by the Cabinet. This system has led to
an execssive amount of paperwork and delay. Streamlining is an urgent neces-city whirh muict go fAr hpvnnd thp rprpnt dpcriAinn thAt foreign nrorlurement
bids amounting to less than K 10 million would no longer require Cabinet
6.28 Grea t er fl1exibilhJIity o f theon dnin i stra t ive sys f- Pmust i alsoQ inconer-porate adequate recognition of the need at all levels of the Government, andpart4 nicua .rly far mannrge no - -C! - -- ornr- on A 4-_ ,nA(Fa _C._mo .
targets as conditions change or new information becomes available. ThepreserI. system provides l -1tte opportunity to take 4ito a --- ..ount -.h-ang
because of the excessive amount of time devoted to target setting, and theconcern amUong pubUli C -nterprise managers a th once- a L-ogJJ-L is -prve d, it
should not be altered. Such rigidity prevents managers from responding in apositive adI fL exible L e [1iU LU io l t o c hanging circLumstances, whiJchis
if real autonomy is to exist.
6.29 Some progress has been made recently in improving budgetary andforeign exchange procedures as they apply to the SEEs. As from Aprii 1,1977, authority over their budgets will be directly vested in the Council ofMinisters. their budgets will now be presented to the Pyithu Hluttaw onlyfor information and not for approval. Whereas in the past, a mid-year Sup-plementary Budget (to be approved by the Pyithu Hlyttaw) was necessary tocover unforeseen expenditures, this will no longer be necessary. Insteadthe financing needs of SEEs will be handled directly by the Myanma EconomicBank.
6.30 The foreign exchange approval process has also been simplified.In the past, SEEs were required to seek approval ftom the Foreign ExchangeCommittee, which could take several months, each time foreign exchange wasrequired even though the allocation would already have been approved as partof the Consolidated Budget. If approval was not secured by the end of thefiscal year, the entire process, including budgetary approval, had to bereinitiated. As a consequence, actual imports usually fell far short ofplan targets.
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6.31 Effective April 1977, the requirement for approval by the ForeignExchange Committee was limited to a few transactions. Subject to quarterlylimitations, SEEs can now go directly to the Myanma Foreign Trade Bank forforeign exchange once the budget is approved. They are allowed to utilize upto 30% of their foreign exchange allocations by the end of the first quarterand up to 80% by the end of the second quarter. Forward sales of foreignexchange during March will also be permitted for use up to the end of Augustin the next fiscal year.
6.32 These moves to streamline budgetary procedures will increase theflexibility of SEEs in economic management. They are, however, far fromsufficient. Greater managerial efficiency will require progressive increasesin the measure of autonomy granted to SEEs including the authority to deter-mine prices, shape production targets, and to adjust the size and remunerationof their work force to suit changing conditions. Although at present, theauthority of the SEEs on these important matters is minimal, the Guidelinesintroduced in 1976 contain the scope for greater autonomy in these areas.
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VII. EXTERNAL ASSISTANCE
Volume and Sources
7.1 Burma has obtained an increasing volume of external technicaland capital assistance in recent years. Prior to 1972, external assistanceaveraged US$50 to US$60 million per annum, comprised, in the main, of grantsfrom Japan as war reparations. Since 1972, external grant aid averagedUS$25 million per annum, while loan commitments averaged close to US$100million (Appendix Table 3.6), the principal sources being Japan, the FederalRepublic of Germany, the World Bank and the Asian Development Bank. With thesigning of a large commodity loan in 1972, disbursements from the People'sRenublic of China also resumed. Recentlyv the OPEC Special Fund has emergedas a further source of assistance for Burma's development programs.
7.2 Burma has also made use of the International Monetary Fund'sresources on several occassions. Sincr 19Q7L STDR 9Q Tnillinn hnq hben pur-chased under the Compensatory Financing Facility and SDR 24 million under astandby arrangement agroee upnon in Novemhbr 1974= AR of Mnrrh 1Q77, net
drawings amounted to SDR 49.5 million. During April 1977, Burma negotiated adrawirg of SDR 35 m4 llior. unde a -us stnb a ,hi4h 4f fully u t.41 -;--A
would extend its use of Fund credit to the third credit tranche. In addition,B-u..a haMs r~ecceive_d SDR_ 20.8 millior. from thne Special Drawing Right's accountand is eligible for a loan of about SDR 10 million from the Trust Fund.
7.3 At the request of the Government of Burma, the Burma Aid Group wasfo rued in 197u andU held ,Lts frst meeting , in November ±9,u Ln Tokyo, testify-ing to the interest of the authorities in using external cooperation in thepromotion of the country's economic development. Tne meering, convenea underthe chairmanship of the World Bank, was attended by representatives from theGovernments of Australia, Canada, France, Federal Republic of Germany, Japan,United Kingdom, and the United States. The International Monetary Fund, AsianDevelopment Bank, and U-NDP also participated. A second meeting of the BurmaAid Group is scheduled for December 1977.
Priorities
7.4 The volume of aid disbursements during the first three years of theSecond Four Year Plan amounted to about 33% of total fixed investment. To-gether with technical assistance, they comprised, in the main, support for thereclamation and protection of paddyland in Lower Burma (IDA); irrigationworks (ADB and IDA); livestock and fisheries development (Japan, ADB andIDA); forestry extraction and transport equipment and sawmill rehabilitation(ADB and IDA); mineral exploration and production including petroleum (Can-ada, Germany, Japan, UNDP and IDA); development of the rice processing; jutemilling, ceramic and sheet glass industries (Germany, Japan and ADB); andrehabilitation and expansion of the country's rail, seaport, inland waterwaysand pipeline systems (Japan and IDA), and water supply and power networks(Japan and ADB). In addition, three general commodity loans were provided byJapan amounting to Yen 22 billion. Overall, the composition of the externalassistance provided reflected the priorities of the Second Four Year Plan.
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7.5 A general problem encountered in the administration of external aideffort was the limited absorptive capacity of the public sector. Aside frominexperience on the part of the Government agencies concerned with actual aidprocedures, a number of projects experienced various delays in implementationdue to slow procurement procedures, inadequate budgetary and foreign exchangeallocations and delays in the employment of consultants and local counterpartstaff. For example, IDA original estimates were that $85.0 million would bedisbursed in FY74-77, but only $48.1 million was actually disbursed. 1/
7.6. The Burmese authorities project aid disbursements to increase by81% to K 1;450 million in 1977/78. and similarlv sizeable inflows areenvisaged in the macro-economic targets for the next four years. While BurmanefdR Rionifirant exct-rnAl aid it if. howevApr- difficiult tn RPP how its
targets can be met until a significant streamlining of the planning andimnn pmpntatinn processes and procedures of the Government takes place.
7.7 The Government's program of projects for ternal assistance isin the course of preparation and will be presented to the second Aid GroupmeePti g D-4 __4 F.. ..A...1 A . , ^ _ _ - -- - -A - -4Ak 4 . 4S eas 1- mos ;_ AS_
UWvvL..tff-6
* *L * _V-L 7 WVJ_. UC w- X fLfl XV x pu VJ ->L.L0 fL t. _- C tA&C USMJO X aWUSC'-
iate constraints to growth, facilitate institution building and optimize the4--act of currenLt ecor,omic reforms. SetryLgIroiywol edt.LIIPdL i L ULIL~.ULUU± L o cLto ra'LLULd±y , LLL'L gh prioriy wouU±U nee'U to
be given to projects which contribute towards the intensified use of existingcultivated areas and the reclamation of abandoned land in agriculture, greaterutilization of existing forest resources, effective development of knownmineral deposits, and increased utilization oI exisEing capacity in agro-basedindustries possessing clear comparative advantage in the intermediate term.Alongside such directly productive projects, infrastructure investments,particularly in transportation, will be required to rehabilitate existingcapacity.
7.8 Project loans and technical assistance will be Justified for projectsin the above fields. Provided that the appropriate institutions are createdand the administrative system improved, a sizeable expansion of present supportfor the import of materials, spares and equipment aimed at the rehabilitationof exisiting productive capacity is also vitally needed. In real terms,imports of such items over the past few years have been about one-half of thelevels in the mid-sixties. Given the poor state of repair of much of theexisting capital equipment and the lack of imported inputs, a high pay-off isassured for an overall foreign aid program which includes substantial amountsfor the financing of such imports through sector credits. The most urgentclaimants for such credits are transport, agriculture, forestry and small-scaleindustry. Among specific priority items, the import of fertilizer will beimportant to support seeding programs to prepare the ground for effective useof the output of a new fertilizer plant which is planned.
7.9 Given the lack of adequately prepared projects for external financ-ing, a Program of Pre-Investment and Investment Assistance was mounted bythe UNDP in 1975 at the request of the Government, with the World Bank asthe Executing Agency. It is leading to a pipeline of important projects for:
1/ IDA's fiscal year begins July 1.
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urea fertilizer nrodurtion, seeds multiiplicftnion and distribution, integratedrural development, groundwater exploration and development, road improvement,power development and the rehabilitation of t'ae r-tural rubber 4ndustry.Already, a number of these projects are being evaluated for bilateral and IDAsupport.~rr
Terms and Conditions of Assistance
7.10 Long-term public capital extended to Burma to date has been on softterms (with rates of interest ranging from 0 - 3%; repayment periods from 25to 50 years, anrd grace periods of 7 - 10 years). Tnese terms are appropriateand should be continued. Local cost financing is important in agriculture,rural development and road construction, which have a very high proportion ofdomestic investment costs and for which associated current expenditures such asextension, credit and maintenance may be large. For these types of projects,donors may also wish to consider financing part of current expenditures duringthe establishment and the initial phase of operation of the project.
7.11 By the end of March 1977, total external loans contracted withan original maturity of one year or more amounted to US$711 million, witha grant equivalent of about 60%. Out of the total amount of external loansgranted, US$321 million was disbursed. The debt service burden has graduallyincreased from a low of about US$10 million in the sixties to about US$30million in 1974/75 and an estimated US$40 million in 1976/77. Due to weakexport performance during this period, the debt service ratio increased some-what more rapidly to about 20% in 1976/77. While external public debt willrise further, Burma should have no problem in servicing this debt, if effectiveaction is taken to develop the country's export potential and borrowingcontinues on concessionary terms.
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STATISTICAL APPENDIX
iaule tNto.
I. POPULATION AND HUMAiN RESOUKCES
1.i Total Population1.2 Population Projections1.3 Percentage Distrlbution ot Employed Persons by Activity1.4 Total Number of Students and Teachers in Selected Areas1.5 Expenditure on Education1.6 Expenditure on Public Healtlh
II. NATIONAL ACCOUNTS
2.1 Shares of Gross Domestic Product by Industrial Origin2.2 Expenditure on Gross National Product (Constant Prices)2.3 Expenditure on Gross National Product (Current Prices)2.4 Ratios of Investment, Saving and Foreign Capital
to GNP2.5 Allocation of Public Capital Expenditures
III. THE EXTERNAL SECTOR
3.1 Balance of Payments3.2 Volume and Value of Major Exports by Commodity3.3 Comnosition of Imnnorts3.4 Pattern of Trade3.5 Unit Value and Quantum Ir.dices and Te-r-s of Trade3.6 Foreign Loans Contracted3.7 Foreign E-xchang Reserves
TV PTIUBLIC DEBT
4.1 External Debt Service4.2 External Public Debt 4utstanding including TTndsbursed
IT TITT12T Ti' vT).XA1I1e'rV. PUAJLIC £LiZ%1V.,JL,
J.1 CoUsolidated Pruublic Sector Budget5.2 Union Government Current Revenueff n I _ -e __^u_e_r_5-. Some Basic Ind'icators of Revenue5.4 Union Government Current Expenditure5.5 Union Government Capital Expenditure5.6 Budgets of the Boards and Corporations
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STATISTICAL APPENDIX (continued)
Table No.
VI. MONEY AND CREDIT
6.1 Monetary Survey6.2 Union of Burma Bank Rates of Interest
VII. AGRICULTURE
7.1 Value Added in Agriculture7.2 Production of Selected Crops7.3 Sown Area of Selected Crops7.4 Harvested Area under Selected Crops7.5 Selected Crop Yields7.6 Farm Prices of Cereal and Selected Crops7.7 Farm Prices of Pulses7.8 Controlled Farm Prices of Fiber Crops7.9 Government Procurement of Selected Agricultural Crops7.10 Comnarison of Exnort Unit Prires and GonvrnmPnt fomestir
Procurement Prices7.11 Rice ExportsR Prodiutinn; Donmptic Rptention and Government
Procurement7.12 Teak anri Hqrdwnnd Pradiirf-ictn
VTIIi INDTUSTRY MTNING AND ENERGfY
8.1 In-dustrial Value Added8.2 Gross Production of Processing and Manufacturing Sector
by Commodity8.3 Gross Production of Processing and Manufacturing Sector
by Ow-L.ersbi p8.4 Gross Output of State Industrial Enterprises; Percent of
.LUL. Lb JLLLU T~dL IUULLd -~L by) .2ub-se~ctorsTota'l Gross Output of SOtate InudustrJal SectorL bySu-etr8.5 Distribution of Factories by Employment Size8.6 Capac'ty Utilization Ratio in Industrial Sector8.7 Production and Export of Selected Minerals8.8 Production, Imports and Exports of Crude Oil
IX. PRICES
9.1 Consumer Price Index at Rangoon9.2 Wholesale Prices of Selected Agricultural Products9.3 Retail Prices of Selected Decontrolled Commodities at Rangoon9.4 Ratios between Free Market and Official Prices
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STATISTICAL APPENDIX (continued)
X. TRANSPORT
10.1 'Iran.sportation. N11etwork-10.2 Total Transport Work Undertaken by State-owned Transport
Ag encies10.3 Freight Traffic Allocation to Various Modes of Transportation
a! Technical schools include students in the degree lievel engineering classes, other technica:L institutes includediploma level engineering classes, technical high schools, technical institutes, vocationaL and industrialschools, agricultural high schools and agricultural institutes all of which were started ini 1964 under theeducational reform.
b / lTLis excluides the degree level engineering students.
c/ Includies part-time staff.
d/ Includes teachers from weaving schools.
e/ E'xcludes e!ngineerirLg students as the RangDon ]nstitute of Technology remained closed dLuring the year.
El Includes students enrolled in University 'Correspondence Courses.
Source: Ministry Df Education
TaLble 1.5 EXPENDITURE ON EDUCATION(mi:llions of Kyats)
ai Converted from source data in Kyat alt annual average exchange rate,.b/ Provisional.c/ Contains, s:Lnce June 1L972, imports oii certain defense stores which were previously recorded under Service.cd/ Six-monith interim periLod October 1973 - March 1L974.
Source: Union of Burma Ba; C -' < > Ji
_- = r . ,t!~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-z W | . I, o;~~~~~~~~~~
Table :3.2: VOLUME ANI) VALUE OF MAOR EXPORTS BY COMMODITY
Total 218.6 120.3 1.20.1. 126.2 142.5 7t3.4 152.3 181.9
Total at 1970 prices 201.7 120.3 129. 7 142.3 126.2 4p. 0 60.6 51.4
Note, Years specified are fiscal years.
a/ Six raonths interim period October 1973 - March, 1974. Provisional.b/ New fiscal year ending Narch. Provisional.c/ Measured in cubic tons.d/ Includes adjustment to exchange record basis.
Source: Central Statistical Organization, Rangoon: Selected Monthly Economic Indicators.
T'able 3.3: COMPDSITION OF IMPORTS(Percentage Shares)
a/ Quantum Indices:- Ratio of value index to unit value index.b/ Terms of Trade: Raltio of export unit value index to import unit value index.c; Purchasing Power of Exports: Value index of exports deflaited by import unit value index.
d/ Six-month interim period October 1973 - March 1974.
A. D. B. - - - - 19.1 16.:3 31.4 71.0I.D.A. - - - 33.0 - 41.0 28.5 56.0
Total 50.1 21.7 76.5 93.7 23.3 :lO0.( 112.4 253.7
Note: Years specified are fiscal years. Data for earlier years unavailable.
a/ With an original maturity of five years or more.b/ Converted at enad of fiscal year exchange rates.c/ The German Loian was converted at 2.3685 EM to US$1 and the Japanese :Loan at
Y 301.80 to us$1.d/ The German Loan was converted at 2.3685 DM to US$1 and the Japanese Loan at
Y 278.L6 to US$1.e/ Six-month interim period October 1973 - March 1974.
a/ With the unificat:ion of the (state controlled) banking system in February 1970, the Union of Burna Baenk acquired theforeign exchange assets and liabilitie-s of all banks in the country.b/ Includes minor amounts of Union government fEoreign exchalnge holdings.c/ Interbank-borrowing through 1969 are estimated on the basis of monetary survey data.
Source: Union of Burmka Bank and IMF: Internationaal Financial Statistics.
Table 4.1: EXTERNAL DE]3T SERVICEi(US$ Mil:Lion)
Calendar Years 1965 1970 1971 1972 1973 1974 19'752/ 1976Y'
TOTAL EXTEIRNAL PUBLIC DEBT 320,853 389,831 710,P684
NOTES: (1) ONLY DEBTS WITH AN ORIGINAL OR EXTENDED MATURITY OF OVER ONE YEAR ARE INCLUDE'D IN THIS TABLE.,(2) DEBT OUTSTANDING INCLUCIES PRINI;IPAL IN ARREARS BUT EXCLUDES INTEREST IN AIRREAIRS.
Notes: For 1965-1973, fiscal years endinig September 30; for 1974, October 1973-March 1974, for 1975-1977, fiscal years eniding March 31. This table is ain up-clating of similartaibles on the Consolidated Public Sector Budget included in earLier Bank Economic Reports on Burma. The data canlot be readily reconciled with those in the followingtaibles, mainly because in this taible the amounts for Special Accounts have been included on a gross basis.
a/ Including Special Accounts (except Foreign Loans Account) and Representative Bodies.b/ Proceeds of the sale of State assets.c/ Other than E'eople's Savings, which are included in Special Accounts.d/ Inclucling foreign grants.
Source: Ministry of Planning and Finance, Budget Department
Note: For 1965-73, Eiscal years ending Septeimber 30; for 1975-77, fiscal years ending March 31.Six-month fiscal year Octc,ber 1973 - March 1974 excluded.
a/ Excludes Special Accounts.Sources: Reports to the ]?yithu Hluttaw; Ministry of Planning and Finance, Budget ])epartment.
Table 5.4: UNION GDVERNMENT CURRENT EXPENDITURE(million Kyats)
Total 1,375 1,-311 1,505 1,832 1,030 2,122 2,369 2,883
Note: For 1965-1973, fiscal years ending September 30; for 1974, october 1973 - March 1974;for 1975-1977, fiscal years ending March 31.
a/ Including Chin affairs and, from 1974, Phithu Hluttaw, Council of State, Council of People's Justices, CounciLlof People's Attorneys, Council of People's Inspectors and Peop:Le's Councils.
b/ Excluding Special Accounts and interest on internal and external debt.
Source: Ministry of Planning and Finance, ]3udget Department
Table 5.5: UNION GOVERNIMNT CAPITAL EX1?ENDITURF(million Kyztts)
Note: For 1965 - 1973, fiscal years ending September 30; for 1974, October 1973 - March 1974;f'or 1975 - 1977, fiscal years ending March 31.
a! Pyithu HLuttaw, Council of State, Council of Ministers, Council of People's Justices, Councilof People's Attorneys, Council of People's Inspectors and People's Counicils.b/ :ncluding pa:yenit of arrears to Construction Corporation.c/ Including KlL million expenditure of' States.dl/ Including K1:3 million expenditure of States.
Source: Ministry of Planning and Finance, Budget Departrment.
Table 5.6: BUIDET OF THE BOARDS IAND CORPORATIONS(Million Kyats)
19,771965 1970 1971 1972 1973 1974 1975 1976 Rev. Est.
Note: For 1965 - 1973, fiscal years ending September 30; for 1974, October 1973 - March 1974; for 1975 - 1.977,fiscal years ending March 31.
a/ Dur:Lng fiscal year 1976, the Myarmia Oil Corporation was reorganized. The refinery branch was transferredto the jPetrochemical 'Industry Corporation and the marketing; branch to the Petroleum Products Sup:ply Corporation.These changes aff-ect ithe comparability of data for the industrial and the construction, mineral and power sectors.b/ IncLuding payment of arrears to construction (Kyats 26 million).
Source: Ministrv of P:Lanning and Finance. Budget I)enartment.
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Table 6.1: MONETARY SURVEY(Million Kyats)
1970 1971 1972 1973 1974 1975 1976 1977Sept. Spnt Spnt. Spnt March March March Marcha/
Loans to Government Enterprises:d/Working capital allocation - -Seasonal loans in excess of allocation - 3.0( 5.0-/)Other loans in excess of allocation - 6.0(10.0-/)
Loans to Cooperatives: fShort term 4.0 6.0-/Medium term (3 years) 5.0 7 .O
Loans to village banks 3=0 3oc/Loans to private sector secured by Government
gcrarantee 4.0 7 -ih/Other forms of security 5.0 n.a.
Small personal loans (securAd up to 5 months) 24.0 24.0
a/ In Rangoon. Rates are one half of one per cent per annum higher than in thedistricts.b/ Came into effect on January 1, 1973 prior to which it was 2 per cent per annum.c/ Held mainly by religious trusts and funds.d/ Prior to April 1, 1975 government enterprises received their financial require-ments through the budget.e/ Penalty rates applied in case of late repayment.f/ Effective from May 8, 1975.g/ Village banks relend funds to members (farmers) at 9 per cent per annum.ht/ Individual loans for the purpose of house repairs.
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Table 7.1: VALUE ADDED IN AGRICULTURE(Million Kyats at 1969/70 constant prices)
LivestockYear Agriculture & Fishery Forestry Total
1965 2627 582 244 3453
1970 2713 736 29R 3707
1971 29RQ7 804 282 3983
1972 2954 824 277 4055
1973 2765 71575
1 07')0 7A In') )0
1975 296 L'.J.31 794A 272 40 29Aa
1A -7 ...I of, I -+- _
1977 d/ 3O2 86 22 443
GLrowth Rates (Annual percentage)
1965-1977 1.9 3.3 1.2 2.1
1975 -2.0 -1.2 15.3 -0.8
1976 5.4 5.0 -3.3 4.7
1977 5.3 3.6 7.2 5.1
Note: Years specified are fiscal years.
a/ Provisional
Source: Report to the Pyithu Hluttaw, 1977-78.
Table. 7.2: PRODUCTION OF SELECTED CROPS('000 Tons)
Note: Years specified are fiscal years.* Government monopoly control of marketing.N.P. = No Government purchases.
a/ Effective from November 1972.b/ Effective from February 1973.c/ Effective from March l973._/ Effective from November 1973.e/ Effective from January 1974.ft Effective from July 1974.t Effective from September 1974.
h/ Effective from December 1976.i/ Effective from September 1'976.
Source: Agricultural, and Farm Produace Trade Corporation
a/ Effective from March 19731b/ Effetctive from Februairy 1.973. N.P. no government purchasec/ Effective from January 1974.d/ Effective from December 1976.
* GovernLment monopoly control of marketing and administered lprices.
Source: Agricultural anel Farm Produce Traide Corporation.
Table 7.8: CONTROLLED FARM ERICES OF FIBER CROPS(Kyats per Ton)
Note: Years specified are fiscal years. Data for earlier years unavailable.
a/ Includes rice products.b/ Ngasein ordinaLry.c/ Average for graded qualities.d/ First Grain.e/ Avearage of four varieties (Matpe, Htawpute, Bocate, Pesigone) weighted by respective procurement volume.r/ Price revised twice during year; average of prices used.
Source: M:Lnistry of Planning and Finance.
Table 7.11: RICE EXPORTS, PRODUCTION, DOMESTIC RETENTION AND GOVERNMENT PROCUREMENJT
Exportsa/ Rice a as % of Paddy Sown Area c/ Domoestic Rice Per Capita Govt. Paddy Share of Free implicit TaxRice Exports Productiotn Productioni Production Under Paddy Yields Retention - Retention Procurement Production Govt.Price Ma?rket PNice Procured Paddy('000 tons) ('000 tons) ('OOC tons) ('000 acres) (lbs.per acre) ('000 tons) (lbs.) ('000 tons) (7) (Kyatts per (Ryats per M()
Average %Growth p.a.1965-1977) -6.0 0.3 - 0.1 C 0.1 1.5 0.7 - 1.8
Note: Years specilfied are fiscal years.
a/ Irncludes rice products.b/ Estimated from paddy production figures, using a conversion rate of 59%.c/ Cailculated from paddy production and sown area figures.d/ Production mintus exports; inlcludes consunption, waste, seed and stock.
Sources: (i) Report to the Pyithu Hluttaw, various years and the Planninlg Department.(ii) Central Statistical Organization.
(iii) H. V. Richter, "The Union of Burma," in R. T. Shand (ed.), Agriculture Development in Asia,, (Berkeley: University of California Press), 1969.
Iable: 7.12: TEAK AND HARDWOOD PRODUCTION(iRound tonis)
T E A K_ H A_RWO D]Log Production Processing (ii) as % Log J?roduction Processing (iv)as %
. .(Logs )X (ii) of (i) Govzt (:ii i) IV) of (iii)'
Food, Beverages and Tobacco 61.6 59.3 65.7 64.9 62.7 57.6
Clothing and wearing Apparel 13.2 11.6 8.6 7.9 10.2 11.3
Construction Materials 6.8 7.5 6.6 6.6 6.0 6.0
Personal Goods 2.6 2.8 2.2 2.6 2.8 2.9
Household Goods 0.1 0.3 0.3 0.4 0 3 0.4
Printing and Publishing 0.5 1.2 1.0 1.0 1.4 1.5
Industrial Raw Materials 6.1 4.9 4.0 4.2 4.8 5.0
Minerals 5.8 6.6 6.2 7.5 6.7 8.0
Agricultural Equipment ** 0.3 0.5 0.2 0.3 0.7
industri-al+ I,ii4 * * * 0.. 1 0.2
Transport Vehicles. 0.4 2.2 1.5 1.3 1.2 1.7
Electrical Goods 0.2 0.4 0=6 0.5 0.5 0.8
Miscellaneous 2.3 2.6 2.6 2.8 3.1 3.9
TOTAL 100.0 100.0 100.0 100.0 100.0 100.0
* Insignificant, less than half of one percent.
** Production not yet started.Note: Data for earlier. years unavailable.Source: Report to Pyithu Hluttaw on Financial, Economic & Social Conditions, 1977/78.
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Table 8-5: DTSTRIRUTTON OF FACTORIES RY PT.nOYVMNT ST7Z
Average b/ All Items 204 205 230 197 252 265 2'93 273 333 296 303 257
Neo: Data forl u19i5-_navaiL_ -abl__e. - - - - _
a/ A ratio of 1)0 indicat.es equality of free market and official prices.b/ Arithmetic mean of items for which information is available.c/ Partly estimated.
* Given data ref'ers to the month iimmediate'Ly preceding specified mont'h.
State/ Stete/Dinisionel Peple'sRgeional Patty Cinisionel Council StateD' nso nal I
Committee AeenetsE a n Econon,tc Plan Pann f eOff ice tmplementaeton Committee
Tonshp Township P ple's CouncilTaonsh.L People's mm To-hi Peopwns To-hip Party Unit u Accot np M-_ Township Planning _ T.wnshipWorker Co-nri Peasant Concill Offie Economic Plan Isplecnenta' Olticer
Worker C'>~~~~iI Peopl. es' Pesnt Trac Wa rkohops n Economic Plan Impemn taP nWrig in n n n n n n n Trcs Wrshk.r I ~~~~~Coamil W.rds Oferce Groupsctar Village Trans., Pesterintg.,,,hopWorkshops and Otipee
