Myanmar

The junta loses ground

The military coup staged by the Tatmadaw (Myanmar Army) in February 2021 led to the ousting of Aung San Suu Kyi, the leader of the democratically-elected National League for Democracy (NLD). Since then, the country has been governed by the State Administration Council (SAC), with the Commander-in-Chief of the armed forces, Min Aung Hlaing, as Prime Minister and President. Nobel Peace Prize laureate Aung San Suu Kyi had been State Counsellor and, ipso facto, head of government since 2016. She is now living under house arrest after being detained and convicted on more than 15 charges by the junta. Since the coup, war has been waged between the Tatmadaw and several allied armed ethnic organisations, notably around the National Unity Government (NUG), formed by former civilian government officials. As at January 2025, the resistance groups controlled more than 40% of the territory, mainly in the border regions and the countryside. The junta is weakening and losing ground, and now holds only 30%, mainly the central plains where the majority of Burmese live, including the economic center, Yangon, and the capital, Naypyidaw. This is where most of the country's industry and agriculture is located. The rest of the country is gripped by fighting. Civilians have been hard hit by the conflict, with poverty affecting 48% of internally displaced people, who make up 6% of the total population, more than a third of whom are children. In four years of conflict, more than 6,000 civilians have been killed by the military. The army, lacking sufficient manpower, is bombing rebel-held areas. Since 2024, it has enforced compulsory conscription for men aged 18 to 35, fuelling popular discontent and driving many young people to flee the country. The junta is tightening restrictions on humanitarian aid, despite the fact that nearly 20 million Myanmar people need it, according to the UN.

In January 2025, the opposition movements in Northern Shan State, including the Myanmar National Democratic Alliance Army and the Ta'ang National Liberation Army, agreed a fragile ceasefire with the junta. By recognising the legitimacy of these groups, the junta can hope to divide the opposition forces. The talks took place under pressure from China on both sides, as the conflict disrupts trade and its Economic Corridor Project (CMEC). China is the leading trading partner and a major arms supplier. It is investing in road and rail infrastructure, such as the Kyaukphyu-Muse railway and the New Yangoon City economic zone. However, implementation of these projects has been slowed and even suspended as most of them have fallen under the control of forces opposed to the junta. It also owns the hydrocarbon pipelines, which it plans to protect with private security forces. Russia, Myanmar's biggest arms supplier, supports the Tatmadaw, and the two countries conducted their first joint naval exercise in the Andaman Sea in November 2023. While ASEAN countries are reluctant to get involved in the conflict, Western countries (the US, Europe, the UK, Canada and Australia) have imposed limited sanctions on members of the junta, including the freezing of their assets and a travel ban, and on the main state-owned company, Myanma Oil and Gas Enterprise (MOGE).

All sectors hit by the civil war

The economic outlook remains bleak as the civil war triggered by the military coup in 2021 is likely to continue. Activity will remain sluggish in 2025 as a result of the conflict, which is disrupting all economic sectors. First and foremost is agriculture, which accounts for just under a quarter of GDP and nearly half of employment. It is suffering from the expansion of the battlefields, caused by the advances of the rebel forces in the centre of the country, and from the lack of inputs due to the reduction in imports. In 2024-2025, cereal production fell by around 5% according to the FAO due to the destruction of crops by Typhoon Yagi; in 2025-2026, agricultural production should therefore improve despite the fighting. The service sector will continue to be affected by the conflict: tourism will not resume as long as the war lasts, and retail trade will continue to be penalised by households’ weak purchasing power. The sector has also been destabilised by disruptions to supply chains and inventory shortages, which are also affecting the manufacturing industry. The clothing sector will continue to struggle with the withdrawal of European contractors despite stronger growth in Japan and the EU, its main customers. Last, the energy sector will continue to experience difficulties and power cuts will continue. In the absence of substantial fresh investment, natural gas production will fall further as the main fields are depleted. This will have a negative impact on overall activity, since gas supplies 40% of the country's electricity, even though 76% of gas production is destined for China and Thailand. The conflict is causing fuel shortages (petrol and diesel), which are exacerbated by a lack of refining capacity, Western sanctions against the Myanmar Oil and Gas Enterprise (MOGE) and low levels of foreign investment.

Private investment – both domestic and foreign – will remain at a virtual standstill as long as the conflict continues. Government spending is held back by the progression of rebel forces, while scarce revenues are channelled into the war effort. Household demand will continue to be restricted by low employment and internal and external displacement, which affects 9% of the population. In addition, high inflation will continue to drag on the real incomes of the Myanmarese. Inflation is fuelled by the increase in the money supply used to finance the budget deficit, as well as by the destruction and disruption of supplies. Imported inflation is high: the kyat shed 40% of its value against the US dollar on parallel markets in the first eight months of 2024. The trend will continue owing to low foreign exchange reserves, while foreign currency inflows will remain limited. To control inflation, the army has introduced price caps on essential raw materials (rice, cooking oil, petroleum products), as well as restrictions on commercial transactions and foreign exchange. However, these measures have exacerbated shortages., however, inflationary pressures are expected to ease slightly by 2025-2026, given sluggish demand and moderating oil prices.

Deficits will not narrow with a war in place

Myanmar has a structural current account deficit which is adversely affected by the trade deficit. Petroleum products account for the largest share of imports (32% of the total in 2023), even though crude oil is the country's main source of exports. This is due to the country's inability to process oil owing to infrastructure shortcomings, particularly in refining. The country is also dependent on imports of capital and consumer goods, and inputs such as iron, synthetic fibers and fertilizers. Non-oil exports are being penalised by disruptions at the country's land borders, the depletion of gas reserves, restrictions on manufacturing production and weak external demand, all of which are caused by instability. Insecurity is also harming the balance of services (tourism). Since 2024, Chinese aid has reduced the deficit, and the recent rapprochement between the junta and rebel groups could revive bilateral trade. Moderating oil prices will also provide some small respite, while import restrictions – particularly on cars and luxury goods – should be maintained and prevent the deficit from worsening. Faced with tensions over the balance of payments, the junta is likely to maintain its control over capital movements and its levy on expatriate remittances. This will limit the depletion of reserves, which are already extremely low but essential to finance the deficit.

The large budget deficit increased slightly during the 2023-2024 and 2024-2025 fiscal years due to the reduction in revenues collected by the junta. Revenues have automatically shrunk due to the ongoing conflict and the sluggish economy. In addition, customs duties have fallen with the loss of control over major border towns, as well as the erosion of hydrocarbon exports on back of depleting gas reserves and moderating energy prices. Revenues are not expected to increase while spending remains focused on defence. The army's resources, which mainly come from state-owned energy companies, have been penalized by Western sanctions. Monetary financing of the deficit will continue and public debt is forecast to remain at 64% of GDP in 2025 and 2026. Some 40% of public debt is domestic, while 70% of its external debt is held by bilateral creditors (mainly China).

Last updated:February 2025