Mixed outlook on Myanmar reforms Vital economic and political reforms launched by Myanmar's government last year have paved the way for faster-than-expected growth in 2012, but the speed and scope of change raise concerns about their sustainability, according to two reports issued on Wednesday. The Asian Development Bank on Wednesday upgraded its growth forecast for Myanmar to 6 per cent in the present financial year from an earlier forecast of 5.5 per cent, and to 6.3 per cent for the year to March 31 2014. Economic growth in 2011 reached an estimated 5.5 per cent, from an average 4.9 per cent over the previous four years, the ADB said in its annual Asian Development Outlook. The report cited increased investment in hydropower, natural gas and oil, as well as a 26 per cent annual leap in tourist arrivals in 2011, which it attributed to the country's rapid opening. The upgrade follows Myanmar's recent move to raise 2012 growth forecasts to 6.7 per cent from 5.4 per cent previously, and is likely to be followed by a similar upgrade by the International Monetary Fund. The IMF is finalising a sweeping reform plan for the country's banking and financial sectors. Central to that is Myanmar's push to unify its multiple exchange rates, and its April 1 managed float of the currency, the kyat. Craig Steffenson, ADB's Thailand country director who oversees Myanmar, called the currency reforms "the most important reforms to be undertaken there in a long time." Before April 1, a parallel exchange system under which the "official rate" of Kt6.4 a dollar was more than 120 times the blackmarket rate, caused huge distortions in the economy. The "managed float," as opposed to a free float, enables the central bank to intervene to keep rates close to the initial reference rate of Kt815-Kt820. The central bank is also attempting to establish a formal interbank market through daily foreign exchange auctions with participating banks. Mr Steffenson said the kyat was holding up "pretty well" and that the country's economic fundamentals were "looking pretty good." FDI approvals reached $20bn last year, according to the Myanmar government, although actual inflows were a fraction of the total approved. The ADB did not give a total but noted that $2.8bn of FDI in 2011 went to the oil and gas sector - far exceeding total FDI over the last five years alone. That sector together with power generation account for 90 per cent of FDI, according to UBS. The ADB, like other international financial institutions and governments, is preparing for a likely resumption of technical assistance. But western aid, as well as investment, can only proceed if the west lifts sanctions. If sanctions are lifted, you'll see money pouring in, just like business people are pouring in there now. In a separate report issued on Wednesday, the International Crisis Group warned that the Myanmar government's accelerating reforms, in its drive to convince the west to lift sanctions, could cause "unanticipated economic shocks." While welcoming the reforms, ICG warned of "serious challenges" including, first, the country's limited institutional and technical capacity to implement reform measures. Second is the risk that big policy changes in a context of unreliable data and weak economic institutions could be counter-productive. Third is the political challenge of consolidating peace in ethnic areas. While all but one of 12 key ethnic armed groups have signed preliminary ceasefires with the government, the agreements are fragile and a sustainable peace "will require a lot more work," ICG concluded. Judging by the lack of seats on flights into Yangon and lack of hotel rooms there, and the number of business people looking at opportunities, I would suggest these [growth and investment] numbers may be conservative. Foreign investment is still "insignificant" in sectors other than resources due to entry barriers, noted Mr Steffenson.