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Cambodia, Laos and Myanmar Country Risk Report Q4 2016

  • September 2016
  • -
  • Business Monitor International
  • -
  • 39 pages

Cambodia We see a growing threat that the recent crackdown by the government on the opposition and civil society will spark a return of potentially-violent street protests. Additionally, while not our core view, further human rights violations could raise the prospect of US and EU sanctions. Cambodia's deteriorating political situation poses a growing threat to the country's garment industry, and we have downgraded out real GDP growth outlook for 2016 and 2017 due to such risks. We forecast real GDP growth in 2016 and 2017 to come in at 6.6% and 6.4% from 6.9% and 6.9% previously.Laos The new regime has seemingly adopted a more balanced foreign policy stance as compared with its predecessors who leaned more towards China, and we believe that this could lead to deeper economic ties between Laos and its ASEAN neighbours. However, this is highly unlikely to come at the expense of its economic relations with China. Vientiane is likely to remain neutral on regional issues particularly after its chairmanship of ASEAN ends, and play a supportive role to Beijing's regional economic plans.We believe that Laos' current account deficit will remain wide (averaging around 19% of GDP) over the next few years, owing to the country's reliance on imports, and a relatively modest export growth outlook. The recovery in global oil prices will also add to Laos' external woes as a net importer of oil. This poses downside risks to external stability given that Laos has a 'pegged' currency and foreign exchange reserves are low. That said, a fast-growing tourism sector and rising power exports should provide some support to Laos' external balance. Myanmar The National League for Democracy continues to consolidate its position as Myanmar's new government, having installed leader Aung San Suu Kyi in the powerful new role of 'state counsellor' in order to circumvent constitutional restrictions regarding the presidency. Nevertheless, the government faces an increasingly difficult uphill battle in accomplishing its wide-ranging goals around economic and political reforms in the country. Its first major test will be the upcoming 21st Century Panglong Conference held on August 31. The conference represents an attempt to move forward with the country's decades-long national reconciliation process, the heart of which is a national ceasefire agreement which has only been signed by eight out of 15 major ethnic rebel groups. Should the government find a way to accomplish even a limited peace (its lack of control over the military, as well as myriad other complications makes a universal peace accord unlikely), it would free up highly taxed government resources for the task of addressing economic reforms. That said, foreign direct investment continues to pour into the country and should be bolstered by an increase in confidence following the positive election outcome, and we believe that even incremental moves in the right direction will keep the economy on track for strong growth over the coming years. We forecast real GDP growth of 8.0% in FY2016/17. 11Business

Table Of Contents

Cambodia, Laos and Myanmar Country Risk Report Q4 2016
BMI Index.................................................................................................................................................... 6
BMI Risk Index - Cambodia...........................................................................................................................................................6
BMI Risk Index - Laos....................................................................................................................................................................7
BMI Risk Index - Myanmar.............................................................................................................................................................8
BMI Index League Tables...............................................................................................................................................................9
Executive Summary................................................................................................................................ 11
Chapter 1.1: Economic Outlook - Cambodia........................................................................................ 13
Cambodia Economic Growth Outlook.................................................................................................................... 13
Tourism Slowdown Could Knock Economy Off Course............................................................................................................13
Cambodia is undergoing a sharp slowdown in tourist arrival growth, which threatens to undermine the country's robust economic growth
rate. The ongoing deterioration in domestic political stability poses an additional risk, given the recent murder of prominent government
critic Kem Ley.
Cambodia Key Sector.............................................................................................................................................. 14
Growth Downgraded Amid Risks To Garment Sector...............................................................................................................14
Cambodia's deteriorating political situation poses a growing threat to the country's garment industry, and we have downgraded out real
GDP growth outlook for 2016 and 2017 due to such risks. We forecast real GDP growth in 2016 and 2017 to come in at 6.6% and 6.4
%from 6.9% and 6.9% previously.
Chapter 1.2: Political Outlook - Cambodia........................................................................................... 17
Cambodia Domestic Politics................................................................................................................................... 17
Political Tensions Rising..............................................................................................................................................................17
We see a growing threat that the recent crackdown by the government on the opposition and civil society will spark a return of
potentially-violent street protests. Additionally, while not our core view, further human rights violations could raise the prospect of US
and EU sanctions.
TABLE: POLITICAL OVERVIEW.............................................................................................................................................................................17
Cambodia Long-Term Political Outlook................................................................................................................. 18
Addressing Corruption, Inequality Will Be Key To Stability.....................................................................................................18
Cambodia's long-term political outlook largely depends on the ruling Cambodian People's Party (CPP)'s ability to address widespread
corruption and income inequality, which have been fuelling public dissent against the government in recent years. The recent rise in
support for the main opposition party shows that the CPP's grip on power is waning, which could lead to heightened political uncertainty
over coming years.
Chapter 2.1: Economic Outlook - Laos................................................................................................ 21
Laos Economic Growth Outlook............................................................................................................................. 21
External Imbalances To Remain Wide Over Coming Years......................................................................................................21
We believe that Laos' current account deficit will remain wide (averaging around 19% of GDP) over the next few years, owing to the
country's reliance on imports, and a relatively modest export growth outlook. The recovery in global oil prices will also add to Laos'
external woes as a net importer of oil. This poses downside risks to external stability given that Laos has a 'pegged' currency and
foreign exchange reserves are low. That said, a fast-growing tourism sector and rising power exports should provide some support to
Laos' external balance.
Laos Sector Outlook................................................................................................................................................ 22
Aggressive Hydropower Development Could Destabilise Region...........................................................................................22
Laos' relentless and unilateral approach in conducting hydropower developments on the Mekong river threatens to destabilise the region
environmentally, socially, economically, and politically. We maintain a positive view on the growth prospects of the Laotian hydropower
sector, but we believe that diplomatic pressure and public backlash pose downside risks to our growth outlook.
Chapter 2.2: Political Outlook - Laos.................................................................................................... 25
Laos Domestic Politics............................................................................................................................................ 25
Foreign Policy Shift To Have Economic Ramifications.............................................................................................................25
The new regime has seemingly adopted a more balanced foreign policy stance as compared with its predecessors who leaned more
towards China, and we believe that this could lead to deeper economic ties between Laos and its ASEAN neighbours. However, this
is highly unlikely to come at the expense of its economic relations with China. Vientiane is likely to remain neutral on regional issues
particularly after its chairmanship of ASEAN ends, and play a supportive role to Beijing's regional economic plans.
TABLE: POLITICAL OVERVIEW.............................................................................................................................................................................25
Laos Long-Term Political Outlook.......................................................................................................................... 26
Growing Dissent Against LPRP Poses Risk Of Upheaval.........................................................................................................26
Laos's long-term political outlook will depend heavily on how well the country balances the need to spur economic growth to achieve
its Millennium Development Goals and the need to address widespread corruption and dissent against the government. Heavy reliance
on foreign aid and development assistance also means that the country's policies will remain susceptible to the political and economic
interests of its much more powerful neighbours.
Chapter 3.1: Economic Outlook - Myanmar......................................................................................... 29
Myanmar Economic Growth Outlook..................................................................................................................... 29
NLD Reform Agenda Still Lacks Necessary Depth....................................................................................................................29
The NLD's highly anticipated economic plan, revealed in late July, fails to provide a sufficiently substantive framework for the badlyneeded
economic reforms in the country. In particular, we note that more depth and clarity will be needed in the areas of infrastructure
development and industrial reform.
Myanmar Sector Outlook......................................................................................................................................... 30
Maximum Retail Price Scheme Unlikely To Be Fully Implemented..........................................................................................30
Myanmar's plan to introduce a maximum retail price for pharmaceuticals will not be fully implemented. The country's Food and Drug
Administration lacks the regulatory capacity to enforce such a scheme as it struggles to address existing challenges such as the
widespread sale of counterfeit medicines. Moreover, patient demand for low value medicines that are yet to be registered point to
structural problems within the medical system. Furthermore, access to medicines at public facilities and affordability constraints will not
be adequately mitigated with the implementation of price controls.
Chapter 3.2: Political Outlook - Myanmar............................................................................................ 33
Myanmar Domestic Politics..................................................................................................................................... 33
China Relations On The Mend......................................................................................................................................................33
Foreign Minister Aung San Suu Kyi's successful state visit to China in August suggests that Myanmar will continue to seek cordial
relations with its large neighbour as part of its ongoing policy to strike a balance between the various powers, China, India, Japan, and
the US. However, warmer bilateral ties are unlikely to lead to the restarting of the Myitsone dam project as Myanmar places its national
interests first.
Chapter 4: BMI Global Macro Outlook................................................................................................... 35
Global Macro Outlook.............................................................................................................................................. 35
EMs Past The Worst, But Structural Problems Persist.............................................................................................................35
TABLE: GLOBAL ASSUMPTIONS..........................................................................................................................................................................35
TABLE: DEVELOPED STATES - REAL GDP GROWTH, %..................................................................................................................................36
TABLE: EMERGING MARKETS - REAL GDP GROWTH, %.................................................................................................................................37
TABLE: CAMBODIA - MACROECONOMIC DATA and FORECASTS.......................................................................................................................39
TABLE: LAOS - MACROECONOMIC DATA and FORECASTS................................................................................................................................39
TABLE: MYANMAR - MACROECONOMIC DATA and FORECASTS........................................................................................................................39

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