Overview: Fiscal Sector In MyanmarOverview: Fiscal Sector In Myanmar Workshop for Staff of Ministry of National Planning and Economic Development Nay Pyi Taw, Myanmar June 2 – 3,

Overview: Fiscal SectorOverview: Fiscal SectorIn MyanmarIn Myanmaryy

Workshop for Staff of Ministry of National Planning and Economic

Development Nay Pyi Taw, Myanmar

June 2 – 3, 2014

Jan Gottschalk

TAOLAMTAOLAM

IMF-TAOLAM training activities are supported by funding of the Government of Japan

OutlineOutline

I. Fiscal Sector Overview

II. Fiscal Policy Considerations

III. Myanmar’s Budget in International Comparison

IV. Debt Sustainability

2This training material is the property of the International Monetary Fund (IMF) and is intended for the use in IMF courses. Any reuse requires the permission of the IMF.

Fiscal Sector OverviewFiscal Sector Overview

What is the fiscal sector about? It is about the budget!• Revenues and grants• Revenues and grants

– Tax revenues– Non-tax revenues 35

T t l Proj.

Fiscal Revenue and Expenditure(In percent of GDP)

– Grants• Expenditures

– Current expenditure 20

25

30Total revenueExpenditureTax revenueOverall balance

j

p– Capital expenditure– Net lending

• Financing 0

5

10

15

Financing– Foreign (net)– DomesticBank (net)

-10

-5

0

05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14

3

Bank (net)Non-bank (net)


Revenue and grants

Revenues:

– Tax revenues:

• Turnover tax/VAT, excise taxes, income taxes, social

security/pension taxes, foreign trade taxes, other tax revenues

N– Non-tax revenues:

• operating surpluses of public enterprises; administrative fees;

property income; natural resource revenueproperty income; natural resource revenue

Grants: Transfers from other governments or international

i tit ti

4

institutions.


Expenditures

diCurrent expenditures

• wages and salaries; goods and services; transfers; interests payments; other.payments; other.

Capital expenditures

• acquisition of fixed assets (government investment: land, buildings and physical capital equipment to be used for more than one year)than one year).

5


l d

Financing

Total revenues and grants –Total expenditures =

OVERALL BALANCE

If overall balance < 0 (deficit) resources < spending need to finance the spending in excess of resources

OVERALL BALANCE

Domestic borrowing- Central bank (monetization)( )

- Bank financing- Non-bank financing

Foreign borrowing

6


Coverage—General Government

Central GovernmentBudgetary activities of central

SubnationalGovernmentBudgetary activities of central

authority

Extra budgetary funds / autonomous agencies relevant

GovernmentBudgetary & extra budgetary

activities outside central government (regional, state, and

consolidation of accounts

consolidation of accounts

to central government policies, or under its control.

local governments)

General GovernmentGeneral Government

7


Coverage—The Public Sector

Non-financial Public Corporations

General Governmentconsolidated withconsolidated with

Non financial Public Corporations

Non financial companies of public property

Non-financial Public Sector

Financial Public Corporations

Financial companies of public property (Central

consolidated withconsolidated with

Financial companies of public property (Central Bank)

Consolidated Public Sector

8

OutlineOutline





9

Fiscal Policy ConsiderationsFiscal Policy Considerations

Fiscal policy objectives

Fiscal policy serves to reach country’s economic and

i l bj tisocial objectives

Typical macro-related objectives:

• Promote economic growth and high employment

• Macroeconomic stability

10

y


Medium term orientation

Most fiscal policy objectives can be reached only over th di tthe medium term

• Role of planning in general

• Role of investment planning in particular; matters for bothin particular; matters for both

Capital budget and

R t b d t

11

Recurrent budget


Fiscal policy constraints

Fiscal spending is essential for meeting

bj ti b tmany objectives, but also subject to constraints:constraints:

• Spending constraints

• Revenue constraints

• Financing constraints

12


Spending constraintsAb ti it t i tAbsorptive capacity constraints:

How much can be spend effectively?

Depends on• Capacity of government ministries to plan and execute expenditures

• Capacity of economy to generate supply response

13


Spending constraints—limited supply responseF l li d ti dit ftFor example, scaling up education expenditures often requires hiring more teachers …

… but training of teachers takes a l i !long time!

14


Spending constraints—real sector impactFi l di l b li it d b iFiscal spending can also be limited by macroeconomic constraints:

D i i fi lDoes increase in fiscal spending lead to overheating ofoverheating of economy?

Example: large civilExample: large civil service wage increases can be inflationary

15


Spending constraints—external sector impactFi l di t i k f t l tFiscal spending can create risks for external sector:

• Increase in fiscal spending i ican raise imports …

• … but if there is a shortage gof foreign exchange, exchange rate is undermined

• Increase in inflation due to fiscal spending reduces

16

p gexternal competitiveness


Revenue constraintsI th l dit d t bIn the long run, expenditures and revenues must be broadly matched

H h ( h ld) b i d?How much revenues can (or should) be raised?

• Incentive effects ( ) potential adverse impact on growth (real sector)

• How much redistribution?

• Tax administration constraints

17


Financing constraintsG t b t fi dit b tGovernment can borrow to finance expenditures, but …

• How much? debt sustainability considerations

• Borrow domestically?y impact on monetary sector

• Borrow externally?Borrow externally? impact on external sector

18


Fiscal policy options for addressing these constraints

Choice of overall balance – one of the most central fiscal policy choices!

• Size of overall balance matters for debt sustainability large fiscal deficits cannot be sustained for long

• Change in overall balance impacts aggregate demand impact on real and external sectors

• Overall balance determines financing needs

19



Tools for choosing overall balance:

• Medium-term fiscal framework (MTFF) provides medium-term perspective

facilitates debt sustainability analysis

• Macroeconomic framework allows analysis of fiscal impact on other sectors

20



Expenditure policies—selected examples:

• Composition of current and capital expenditures capital expenditures create demand for recurrent spending items such as maintenance

• Wage policies adequate and competitive compensation, but … bill d b ff d bl wage bill needs to be affordable

• Prioritization of expenditures

21



Revenue policies—selected examples:

• Composition of income and consumption taxesmatters for incentive and redistribution effects of tax system

• Tax administration Large taxpayer office (LTO)

• Nurturing culture of taxpayer compliance

22

OutlineOutline





23

Myanmar’s Budget in International ComparisonMyanmar’s Budget in International Comparison

Revenue-to-GDP ratios in 2012/13

At first glance, revenue 25

Revenue

revenue collection in Myanmar is 15

20

ycomparable to Thailand and 5

10

other low-income countries (LICs)

0

Myanmar Thailand LICs average

24


Tax Revenue-to-GDP ratios in 2012/13

But tax revenue collection, which

l d SEE

30

Tax Revenue

excludes SEE receipts, is very low 15

20

25

low

5

10

15

Large revenue potential from tax

0

Myanmar Thailand Lao PDR Vietnam

potential from tax reform!

25


Expenditures-to-GDP ratios in 2012/13 (excl. SEEs)

30

Expenditure

Expenditures in Myanmar are l d 15

20

25

low compared to other LICs …

5

10

15

0

5

Myanmar LICs average

26


Expenditures-to-GDP ratios in 2012/13 (excl. SEEs)

… and in 35

Expenditure

regional comparison

20

25

30

35

Case for higher (tax) revenues 10

15

20

( )and higher expenditures?

0

5

Myanmar Thailand Lao PDR Vietnam

27


Expenditure developments in Myanmar (in % of GDP)

Expenditure l l i / 14 0

16.0Expenditure

level in 2012/13 represents already large

10.0

12.0

14.0

Capital expenditureC talready large

increase compared to 4.0

6.0

8.0 Current expenditureExpenditure

pprevious years!

0.0

2.0

20

0

20

1

20

1

20

1

28

09

/10

10

/11

11

/12

12

/13


Overall Balance-to-GDP ratios in 2012/13 (excl. SEEs)

Myanmar’s Myanmar ThailandLICs

average Lao PDR Vietnam

Overall balance

yoverall deficit is internationally -1

0

Myanmar Thailand average Lao PDR Vietnam

comparable

-4

-3

-2

-6

-5

-4

29

-7


Financing developments in Myanmar (in % of GDP)

CBM financing6

Financing Developments

CBM financing used to be significant but 4

5External

CBMnow external financing is

il bl2

3CBM

Commercial banks

available as well.

0

1Other

30

0

2009/10 2010/11 2011/12 2012/13

OutlineOutline





31

Debt SustainabilityDebt Sustainability

• IMF debt sustainability analysisanalysis:– It’s complicated …– IMF sees Myanmar at

‘l i k f d b‘low risk of debt distress’

• Rule of thumb:– Keep debt-to-GDP ratio

stable (or even better, have it decline over time)time)

– GDP measures repayment capability of economyeconomy

32

Debt SustainabilityDebt Sustainability

Debt dynamics

Debt dynamics depend on size of fiscal d fi it !deficits!

In terms of Debt ratios:

Nominal GDP growth matters!g

OutlookOutlook

Next, we will explore in more detail …

• … the external sector, which helps with analyzing exports, imports, foreign reserves andanalyzing exports, imports, foreign reserves and external competitiveness.

34

Documents

Overview: Fiscal Sector In MyanmarOverview: Fiscal Sector In Myanmar Workshop for Staff of Ministry of National Planning and Economic Development Nay Pyi Taw, Myanmar June 2 – 3,