Myanmar cleared about $1 billion in overdue debt with the Asian Development Bank and World Bank using a bridge loan from Japan, opening the door for increased lending as the country seeks to overhaul its infrastructure.
The ADB announced a $512 million loan, its first to Myanmar in more than 30 years, while the World Bank separately said it would lend $440 million to the Southeast Asian nation. The funds will be used to pay back the Japan Bank for International Cooperation, which this month provided financing to Myanmar to clear arrears with the government-backed lenders.
“We need capital investment to do development and business,” Maung Maung Thein, Myanmar’s deputy finance minister, said by phone today. “This will help for financing development work.”
Myanmar is aiming to resolve $11 billion in overdue debt from decades of military rule that left the country among Asia’s poorest. President Thein Sein’s moves to modernize the country’s financial and physical infrastructure after years of neglect have lured private equity funds and companies such as General Electric Co. and Norway’s Telenor ASA.
Japan, Myanmar’s largest creditor, agreed last year to settle $6.6 billion in arrears. Myanmar’s finance ministry said today that Norway canceled $534 million in debt after a meeting with the 19-member Paris Club group of creditor nations, which includes the U.S., Australia, Canada, Japan, Russia and 14 European nations.
“More debt cancellation is coming on the way in the next six months,” the ministry said in a statement. Myanmar had about $3.5 billion in arrears with Paris Club members other than Japan, according to the International Monetary Fund.
“The authorities recognize that a successful arrears resolution is essential for Myanmar to re-engage with the international community and ensure debt sustainability,” the IMF said in a report this month. The IMF called on Myanmar to limit non-concessional external borrowing to financing energy and infrastructure projects, and cap it at $2 billion for 2013.
Thein Sein’s moves to dismantle a fixed exchange rate and modernize the banking system are starting to boost the economy, the IMF said. Gross domestic product may grow 6.3 percent in the fiscal year ending March 31, up from 5.5 percent a year earlier, and reach about 7 percent over the next five years if reforms continue, the IMF report said.
“We have on the part of the government a set of very serious reform-minded politicians and technocrats, and we also have on the positive side a momentum behind these reforms that will be extremely difficult to reverse,” Stephen Groff, an ADB vice president, said in an interview with Bloomberg Television today. “The challenges are intense and great and there are a lot of things the country is going to have to overcome.”
The ADB last year returned to the country for the first time since 1988, when military leaders suppressed demonstrators pushing for democracy. The World Bank opened an office for the first time.
ADB assessments of seven Myanmar sectors released last year found that a quarter of the population lives in poverty, agriculture accounts for 70 percent of employment and about three in four people don’t have access to electricity. Myanmar has about 18 vehicles for every 1,000 people, compared with 250 in Indonesia and 370 in Thailand, it said.
“As Myanmar could clear the debt, it would be recognized as a responsible nation,” the finance ministry said in a statement. Funds saved through debt relief would be invested in schools, hospitals and poverty reduction programs, it said.
Myanmar last week attracted at least four expressions of interest for telecommunications licenses, including from Telenor and Singapore Telecommunications Ltd., Southeast Asia’s biggest phone company. The government aims to boost telecom coverage to as much as 80 percent of the country by 2016 to improve upon a 9 percent penetration rate, one of the lowest in Asia.
The World Bank approved $80 million in aid for Myanmar last year and pledged to lend $165 million when overdue debts are cleared. The $80 million grant will go to local communities for roads, bridges, irrigation systems, schools, health clinics or rural markets, according to the bank.
“Myanmar has come a long way in its economic transformation, undertaking unprecedented reforms to improve people’s lives, especially the poor and vulnerable,” Annette Dixon, the World Bank’s Myanmar country director, said in a statement. “Much work remains to be done.”