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Myanmar’s Poverty Trap: Inflation And Unemployment Collide – Analysis

By Windia Soe Myanmar’s efforts to reduce poverty (Sustainable Development Goal 1) face significant setbacks due to escalating inflation and unemployment driven by political instability, economic crises, and conflict-induced disruptions.  Key Takeaways: Inflation surged from 3.64% in 2021 to 30.2% by late 2023, fueled by currency depreciation, foreign currency shortages, and rising oil prices, pushing nearly half the population below the poverty line. The military coup and COVID-19 caused mass job losses, with unemployment peaking at 4.34% in 2021, forcing millions into informal, unstable jobs and prompting a mass emigration of skilled laborers. Political instability, military conscription, and declining investment have weakened Myanmar’s labor market, reducing job quality, wage levels, and overall productivity, compounding poverty.  Progress and Setbacks in Poverty Reduction Myanmar, one of the least developed countries, has significantly reduced poverty over the last decade. Myanmar began a political and economic transition in 2011 under a controversial elected government led by a retired military leader, which led to its first semi-democratic transition in 2015. The 2017 Myanmar Living Conditions Survey (MLCS) reports that the percentage of the population living below the national poverty line decreased significantly, dropping from 48.2% in 2005 to 24.8% in 2017. Between 2011 and 2019, the country achieved significant economic growth, averaging 6 percent annually, and notable reductions in poverty. This progress was driven by economic reforms, increased foreign direct investment, the lifting of sanctions, and growing optimism for stability.  However, Myanmar’s development journey is complex, with the positive trends observed in 2017 were soon disrupted by the COVID-19 pandemic and subsequent political instability in 2021. By the end of 2020, the poverty rate was projected to rise from 6 to 11 percent, driven by declining incomes and limited coping mechanisms among vulnerable households. The 2020 Household Vulnerability Survey revealed that 83.3% of households reported income losses, particularly those reliant on small-scale family businesses. In 2021, the economy contracted to 10%, with widespread job and income losses, inadequate government relief, and halted public investments. This contraction from the dual crisis shows no sign of recovery, pushing millions into poverty. Poverty has more than doubled, rising from 24.8% in 2017 to 49.7% in 2023; nearly half of the population was living below the poverty line, struggling to meet even their basic daily needs on just 1,590 Kyats a day (around $0.75). In 2023, the estimated average income per person in Myanmar was just 75,000 Kyats per month (about $35). In rural areas, incomes were even lower, 24% less than the national average, averaging around 75,000 Kyats. Inflation: A Major Driver of Poverty Amid ongoing crises, inflation has emerged as a pivotal factor driving the surge in poverty levels across Myanmar. After reaching a five-year low of 3.64% in 2021, inflation escalated dramatically, with consumer price inflation rising to 30.2% by the September quarter of 2023, according to Statista. This stark increase reflects deepening economic vulnerabilities exacerbated by external shocks and internal instability. The Asian Development Bank forecasted an average inflation rate of 8.5% in 2023, building on a 16% rate in 2022, underscoring the persistent inflationary pressure within the economy. Food price fluctuation, a critical component of household expenditures, has further strained vulnerable populations. The World Food Program reported a 27% increase in food prices between October 2023 and April 2024, with conflict-affected regions such as Kayah and Rakhine experiencing even sharper spikes of 40–50% and up to 200%, respectively. These disproportionate increases highlight the compounded effects of regional instability and supply chain disruptions. The rapid erosion of purchasing power has pushed an alarming number of families below the poverty line, emphasizing the urgency for targeted interventions to stabilize prices and protect the most affected communities. Several key factors contribute to this alarming rise in inflation, including; Local currency (Kyat) depreciation: As of August 2024, the kyat has fallen to an all-time low of about 7,500 kyats per US dollar in the black market, a sharp drop from approximately 5,000 kyats earlier in the same month. Increase in oil prices: Oil prices rose by 13% from December 2023 to April 2024, increasing 31% compared to last year. In response to escalating prices, the Central Bank of Myanmar implemented measures in early 2024 to provide fuel importers with access to subsidized exchange rates. However, persistent foreign currency shortages have hindered importers' ability to fully utilize these preferential rates fully, increasing local fuel prices. Foreign currency shortage: The country has experienced significant foreign currency shortages due to a sharp decline in trade activity, which fell sharply by 55–64% within two months of the military takeover, as port operations were hampered by clearance delays, logistical challenges due to political unrest, and the temporary suspension of shipping services. This decline limits the availability of foreign currency as exports decrease. Increase in the money supply by printing: Following the coup, Myanmar faced widespread civil disobedience movements that severely disrupted economic activities and caused cash shortages. In response to the cash shortage, the CBM increased the money supply by printing to address the cash shortages. As of March 2024, Myanmar's Money Supply M1 was reported at 23.245 billion USD, marking an increase from 21.523 billion USD in December 2023. Although these are significant factors contributing to inflation in Myanmar, they are not exhaustive. Other elements, such as supply chain disruptions, rising production costs, and broader economic instability, play critical roles in shaping inflationary trends.  Unemployment’s Contribution to Poverty The labor market in Myanmar has been severely affected by the military coup in February 2021. These disruptions have led to significant unemployment and underemployment, which in turn contribute to rising poverty levels across the country. In 2021, an estimated 18.9 million people were employed, reflecting a loss of 1.6 million jobs (8%) compared to 2020 due to the military takeover and COVID-19. Industries such as construction, garments, and tourism were hit hardest, with employment dropping by 31%, 27%, and 30%, respectively, compared to the previous year. Since 2019, the combined impacts of the pandemic and political crisis have resulted in 3.2 million people (14% of the workforce) losing employment.  Despite a reported decline in official unemployment rates—from 3% in 2022 to 2.8% in 2023—these figures fail to reflect the true challenges in the labor market. Many workers have been pushed into informal, low-paying, and unstable jobs, while reports of labor rights violations further underscore the precarious conditions faced by workers across the country. Current Labor Market Situation As of December 2024, Myanmar's population is approximately 54.6 million, with a working-age population between 15 and 64 years at 68.4%. Of 22 million employed in the country, approximately 48.8 percent work in agriculture, 16.9 percent in industry, and 34.2 percent in service industry. The working-age population is projected to rise, reaching 39.2 million by 2030. However, employment gains have not kept pace with population growth, leading to a decline in the employment-to-population ratio, which dropped to 54.5% in 2022- a decline of 8.2 % from 2017. The decline is particularly severe in conflict-prone regions, where instability eroded economic activity and labor opportunities. A significant recent development affecting the labor market is the enforcement of a military conscription law in February 2024, which mandates military service for men aged 18 to 35 and women aged 18 to 27, with evasion punishable by up to five years’ imprisonment. This has triggered widespread fear and migration, especially from urban areas to rural regions and neighboring countries such as Thailand. Labor shortages have become critical, as many employees have resigned to evade conscription. The mass exodus of young people has intensified the labor crisis, further straining an already fragile economy and contributing to the rise of child labor. In response, the garment and construction industries have been forced to increase wages to retain employees, but these efforts have not been enough to attract skilled laborers. Trends in Unemployment From 2004 to 2020, unemployment in Myanmar remained low, typically below 1.5%. However, unemployment spiked sharply to 4.34% in 2021, the highest in nearly two decades. This jump is attributable to mass layoffs in the public and formal private sectors after the coup. Additionally, international sanctions—including targeted measures by the EU and other countries—and Myanmar’s FATF blacklisting in 2022 deterred foreign investment, prompting the withdrawal of numerous Western companies and exacerbating the economic downturn. The garment sector shed an estimated 300,000 jobs after the closure of over 200 factories. Unemployment rates slightly decreased to 2.83–2.84% in 2022 and 2023, but the recovery remains fragile due to ongoing political instability and sanctions. The trends suggest that Myanmar may face challenges in stabilizing its labor market without substantial governance and economic policy changes. Economic Consequences of Unemployment The sharp rise in unemployment since the 2021 coup has worsened poverty and weakened the labor market. Key consequences include: Declining Job Quality: The share of wage employment decreased from 36.8% in 2017 to just 28.9% in 2022, indicating that many workers have shifted toward self-employment or informal jobs with lower returns. Impact on Women: Women have been disproportionately affected; their unemployment rate increased fivefold from just 2% in 2017 to approximately 10.2% in 2022, reflecting severe job losses across both public and private sectors. Real Wage Decline: Real wages have declined by approximately 15% between 2017 and 2022, forcing over 70% of households into asset liquidation or borrowing as coping mechanisms due to wage losses. Reduced Labor Productivity: Labor productivity has also suffered significantly; estimates show an 8% drop in productivity during 2021, followed by a further 2% loss early in 2022. This indicates that skilled workers are increasingly channeled into low-value sectors like agriculture. Brain Drain: Since the coup, 1.6 million people have lost their jobs, including many from high-skill sectors. The emigration of skilled workers—especially those aged 18–25 years—has further weakened Myanmar's labor market. These trends underline Myanmar’s economy’s deep structural challenges, with long-term implications for growth, poverty alleviation, and social stability. The interconnectedness of unemployment and poverty creates a vicious cycle, further undermining the well-being of vulnerable populations in Myanmar. Conclusion The relationship between inflation and unemployment is complex. High unemployment keeps wages low, while low unemployment can drive wages up, leading to inflation. In Myanmar, inflation and unemployment are rising, creating unique challenges that deepen poverty. Studies by the University of Ibadan show that rising inflation, unemployment shocks, and population growth strongly affect poverty in the short term. But, long-term strategies focusing on sustainable economic growth, stable governance, and investment in human capital are essential to breaking the cycle of poverty and achieving the SDG of eradicating poverty by 2030. However, the success of long-term strategies is deeply tied to political stability, which unfortunately appears increasingly uncertain and fragile in Myanmar. About the author: Windia Soe is a Junior Research Fellow at the Sustainability Lab of the Shwetaungthagathu Reform Initiative Centre (SRIc). With over seven years of experience, she focuses on health and social behavior change, working with international and local NGOs. Source: This article was published at The Sabai Times