Myanmar’s external debt is to be cut significantly after an agreement with Paris Club official creditors –Myanmar’s largest creditor institution- was reached on 25 January. The deal provides for a minimum 50% debt cancellation, totalling about USD 6 billion, with all Paris Club creditors through bilateral agreements to be signed in the coming six months. The other 50% will be rescheduled over fifteen years with a seven-year grace period. Moreover, Myanmar is going to clear old arrears of nearly USD 1 billion with the World Bank and Asian Development Bank thanks to a bridge loan from Japan.

Impact on country risk

The debt relief agreement is a clear indirect support to President Thein Sein’s political openness and transition process. It will accelerate Myanmar’s economic integration, contribute to re-engaging it with the international (financial) community and ease future foreign financing inflows (e.g. aid). Myanmar’s external debt sustainability will strongly improve, thereby reducing political risk as well. The government has committed itself to use the money saved for much-needed infrastructure development and essential social sectors, and will benefit from IMF technical assistance after having recently approved a one-year staff-monitored programme. Although challenges ahead are huge, namely implementing economic reforms and delivering sustainable political results while ceasefires with most ethnic groups are fragile, the latest agreement is an extra step towards Myanmar’s economic rehabilitation and normalization of its international relations.

Analyst: Raphaël Cecchi, r.cecchi@credendogroup.com