2009 Index of Economic Freedom

Quick Facts

Population:

• 56.5 million

GDP (PPP):

• $55.3 billion
• 12.7% growth
• 13.1% 5-year compound annual growth
• $979 per capita

Unemployment:

• 10.2%

Inflation (CPI):

• 34.4%

FDI Inflow:

• $142.9 million

Burma’s economic freedom score is 37.7, making its economy the fourth worst in the 2009 Index. Its score is 1.8 points lower than last year as a result of worsened monetary stability and property rights. Burma is ranked 40th out of 41 countries in the Asia–Pacific region, and its overall score is much lower than the regional average.

Burma’s economy is severely hampered by repressive governance, with scores far below the world average on seven of the 10 economic freedoms. Its scores for fiscal freedom and government size, while seemingly positive, are properly interpreted as reflecting a complete lack of effective government in many critical areas. The ruling junta’s woeful response to the May 2008 cyclone—the country’s worst-ever humanitarian crisis—showed callous disregard for the welfare of the country’s people

The state interferes heavily in many aspects of economic activity. Investment freedom, financial freedom, property rights, and freedom from corruption are extraordinarily weak. Business freedom is very low, as it is almost impossible to conduct any formal private-sector activity without official approval. The almost complete lack of a judicial system forces domestic and foreign companies to negotiate directly with the government to resolve disputes. Inflation is out of control.

Background Back to the top

Burma has been ruled by a military junta since 1962. After the opposition National League for Democracy won a large majority in the 1990 legislative elections, the junta redoubled its efforts to crack down on dissent. The country is richly endowed with natural resources, yet the government's economic mismanagement has made Burma one of the world's poorest countries. Cyclone Nargis, which struck in May 2008, caused catastrophic damage and is estimated to have killed well over 100,000 people.

Business Freedom 20.0 Back to the top

The overall freedom to conduct entrepreneurial activity is seriously impeded by Burma's lack of legal and regulatory transparency. Inconsistent enforcement of existing laws and bureaucratic red tape complicate the launching of enterprises, and policy changes tend to be inconsistent and unpredictable.

Trade Freedom 72.2 Back to the top

Burma's weighted average tariff rate was 3.9 percent in 2006. Restrictive trade policies include import and export bans and restrictions, high import and export taxes, restrictive and non-transparent import and export permit and licensing rules, arbitrary policy changes, non-transparent and outdated regulations and standards, foreign exchange controls, customs corruption, and inefficient regulatory and customs bureaucracy. Twenty points were deducted from Burma's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 81.8 Back to the top

Burma has moderate tax rates. Both the top income tax rate and the top corporate tax rate are 30 percent. In the most recent year, overall tax revenue as a percentage of GDP was 4.9 percent. The huge informal economy is untaxed.

Government Size 98.5 Back to the top

Total government expenditures, including consumption and transfer payments, are low. In the most recent year, government spending equaled 7.0 percent of GDP. In Burma's case, this relatively high score reflects the government's near total inability to undertake any positive action. Despite state control of key sectors, authorities are relying primarily on international donors to rebuild the transportation, energy, and health infrastructures that were damaged by the May 2008 cyclone.

Monetary Freedom45.3 Back to the top

Inflation is out of control, averaging 30.1 percent between 2005 and 2007. Food prices surged in the wake of the May 2008 cyclone, which caused the loss of southern productive land and greatly reduced the main rice harvest. The state mismanages its involvement in most of the economy, including mining and power, and state-owned firms are prominent in transport, trade, and manufacturing. The government runs a public-sector spending deficit and uses price controls and subsidies to maintain below-market prices for such staples as gasoline, cooking oil, propane, and soap. Such products are strictly rationed, so retailers often sell on the black market for a higher price. Twenty points were deducted from Burma's monetary freedom score to adjust for extensive measures that distort domestic prices.

Investment Freedom10.0 Back to the top

Foreign investment is approved on a case-by-case basis, and certain sectors are reserved for domestic activity. Once permission is granted, the foreign investor needs a business license to trade, but no licenses have been issued since 2002. Some foreign investors have attempted to operate as local firms under the cover of Burmese partners, but some have faced legal action and difficulties in divesting. The government restricts foreign exchange accounts and current transfers and controls all capital transactions. Multiple exchange rates make conversion and repatriation of foreign exchange complex and prone to corruption. Foreign firms may not own land but may lease it from the government.

Financial Freedom10.0 Back to the top

Government controls force loans to government projects, and entrepreneurs' access to credit is highly constrained. Banking is dominated by five state-owned banks, but there are several private banks. Foreign banks may not operate branches or subsidiaries, but 13 banks have been given licenses for representative offices. Opaque regulatory and legal institutions add to a fairly hostile financial climate. The depositor crisis that the private banking sector faced in 2003 persists, and money laundering continues to grow.

Property Rights5.0 Back to the top

Private real property and intellectual property are not protected. Private and foreign companies are at a disadvantage in disputes with governmental and quasi-governmental organizations. Foreign investors who have had conflicts with the local government or whose businesses have been illegally expropriated have had little success in obtaining compensation.

Freedom From Corruption14.0 Back to the top

Corruption is perceived as rampant. Burma ranks 179th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Burma is a major source of opium, and most Burmese view corruption as necessary for survival. Investors complain of official corruption in taxation, investment permission, import and export licenses, and land and real estate lease approvals. As inflation increases and investment declines, endemic corruption appears to be worsening.

Labor Freedom20.0 Back to the top

Burma's formal labor market remains distorted by state intervention. Regulations regarding wage rates and maximum work hours are not uniformly observed. The government sets public-sector wages and influences wage-setting in the private sector. The state uses forced labor to construct military buildings and commercial enterprises.