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Natural Gas Export Revenue, Fiscal Balance and Inflation in Myanmar

Discussion Papers

No.225

March 2010

ABSTRACT

While natural gas exports have brought a large amount of foreign currency revenue to the Government of Myanmar, their contribution to reducing monetization of the fiscal deficit and disinflation has been obscure. The immediate reason is that under the country’s dual exchange rate system, the revenue is converted at the grossly overvalued official rate which undervalues it in terms of the local currency by 1/200.

However, devaluation would only improve the fiscal balance and not reduce the excess money supply since the central bank cannot sterilize the impact of the foreign reserve increase. As a policy reform to utilize the revenue for disinflation, this study proposes deregulation of the strict controls on foreign exchange.

Keywords: Myanmar, Disinflation, Natural Resource Exports, Dual Exchange Rates
JEL classification: O53, E31, Q33, F31

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