The visit of Myanmar’s president to India has drawn keen interest from Whitehall, as the UK signals its support for the country’s fragile democratic transition. For investors, the real story is not the diplomatic niceties but the hard numbers: capital flight, inflation, and the yield on Myanmar’s nascent sovereign bonds.
Myanmar, once a pariah state, has seen a modest influx of foreign direct investment since its political opening. Yet the underlying economic fundamentals remain shaky. Inflation is running at nearly 9%, eroding the purchasing power of the kyat. The central bank has struggled to maintain stability, intervening in the forex market to prevent a disorderly depreciation. Capital flight remains a concern, with wealthy elites parking assets in Singapore and Thailand.
The UK’s support, while politically welcome, is unlikely to move the needle on these structural issues. The City remains sceptical of any emerging market that lacks a credible fiscal framework. Myanmar’s debt-to-GDP ratio, though low by developed standards, is climbing as the government finances infrastructure projects. The real test will come when the central bank tries to issue longer-dated gilts. If the yield curve steepens, it will signal a lack of confidence in the country’s monetary policy.
For the British government, the calculation is straightforward: strategic interests in the Indo-Pacific require a stable Myanmar. But the Treasury will be wary of committing taxpayer money to a region where crony capitalism still holds sway. The word from Whitehall is that any assistance will be tied to strict conditionality: anti-corruption reforms, transparency in state-owned enterprises, and a clear path to fiscal consolidation.
Market participants are watching the same variables. The kyat’s offshore forward rate trades at a discount, indicating expectations of further depreciation. Foreign investors are demanding a premium for holding Myanmar’s sovereign debt, if they can get it at all. The country’s credit default swap spread, though not widely traded, is indicative of elevated risk.
Meanwhile, India is playing its own game. Delhi’s relationship with Myanmar is driven by energy security and counter-insurgency cooperation. The Teesta River dispute and China’s growing influence in the region add further layers of complexity. For London, the key takeaway is that Myanmar’s economic transformation is a long-term bet with high volatility.
In the end, the bottom line is clear. Democratic transitions are expensive. They require fiscal discipline, institutional credibility, and a break from the past. Until Myanmar delivers on those fronts, the market will remain sceptical. And Whitehall, for all its diplomatic backing, will keep one hand on the purse strings.
