VZCZCXRO1402
RR RUEHCHI RUEHDT RUEHHM RUEHNH RUEHTRO
DE RUEHGO #0604/01 2130724
ZNR UUUUU ZZH
R 310724Z JUL 08 ZDK
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC 7981
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHGG/UN SECURITY COUNCIL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1960
RUEHBY/AMEMBASSY CANBERRA 1394
RUEHKA/AMEMBASSY DHAKA 4943
RUEHNE/AMEMBASSY NEW DELHI 4916
RUEHUL/AMEMBASSY SEOUL 8478
RUEHKO/AMEMBASSY TOKYO 6045
RUEHCN/AMCONSUL CHENGDU 1537
RUEHCHI/AMCONSUL CHIANG MAI 1732
RUEHCI/AMCONSUL KOLKATA 0388
RUEATRS/DEPT OF TREASURY WASHDC
RHHMUNA/CDR USPACOM HONOLULU HI
RUEHGV/USMISSION GENEVA 3937
RHEHNSC/NSC WASHDC
RUCNDT/USMISSION USUN NEW YORK 1899
RUEKJCS/SECDEF WASHDC
RUEHBS/USEU BRUSSELS
RUEKJCS/JOINT STAFF WASHDC

UNCLAS SECTION 01 OF 04 RANGOON 000604 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, EEB/TPP/ABT/ATP - JANET SPECK 
BANGKOK FOR USDA/FAS, ECON OFFICE, USAID 
DEPT PLEASE PASS TO USAID - CHERYL JENNINGS 
PACOM FOR FPA 
TREASURY FOR OASIA:SCHUN 
 
E.O. 12958:N/A 
TAGS: EFIN EAGR EAID ETRD ECON PGOV PREL BM
SUBJECT: BURMA: GOVERNMENT BUDGET FUNDS SOES, MILITARY 
 
REF: A) RANGOON 118   B) 07 RANGOON 549 
 
RANGOON 00000604  001.2 OF 004 
 
 
¶1. (SBU) Summary.  The Burmese Government published its FY08-09 
budget in late April, along with the FY07-08 supplementary 
expenditures figures.  Once again, the GOB's budget data sheet 
provided only general guidelines, with little explanation of 
spending.  The largest proportion of public funds as usual will go 
to State-owned Enterprises (SOEs) and the Ministry of Defense. 
Public spending on health and education remains the same as last 
year, totaling less than five percent of the total budget or 1.4 
percent of GDP.  Based on the figures, the GOB predicts a budget 
deficit of 415 billion kyat for FY08-09 ($377 million), a 25 percent 
reduction from the projected FY07-08 budget deficit.  However, 
adding in the budget supplemental, the FY07-08 budget deficit 
totaled more than 1.7 trillion kyat ($1.4 billion).  If past budgets 
are any indication, the FY08-09 budget deficit should be higher than 
targeted, despite limited GOB efforts to improve revenue collection. 
 End Summary. 
 
¶2.  (SBU)  The Burmese Government published its consolidated public 
sector budget in the Burma Gazette, a publication with limited 
distribution and readership, in late April after the Cabinet passed 
the State Budget Law for the new fiscal year.  Burma's fiscal year 
runs from April 1-March 31.  The official FY08-09 budget provides 
general guidelines and funding amounts, leaving out any explanation 
of how each agency will spend its money. Multiple exchange rates are 
used but not identified.  Despite the lack of specific information, 
the budget gives an indication of GOB priorities. 
 
Increasing Costs Despite Increasing Revenues 
-------------------------------------------- 
 
¶3.  (SBU) According to the FY08-09 budget, the GOB's spending for 
FY08-09 is expected to total 4.887 trillion kyat ($4.1 billion at 
current market rates), up 30 percent from FY07-08's 3.736 trillion 
kyat budget (before the supplemental).  The GOB's spending 
priorities remain the same as last year.  State Owned Enterprises 
(SOEs) received more than 65 percent of the budget, with most 
operating at a deficit.  "Government," which includes spending on 
government-related projects such as the construction of Nay Pyi Taw, 
and the Ministry of Defense received more than seven percent of the 
budget each, with "Government" receiving a 20 percent increase over 
last year's amount.  GOB spending on health and education remained 
stagnant, at less than five percent of the total budget, or 1.4 
percent of GDP. 
 
--------------------------------------------- ------- 
              FY08-09 Expenditures 
                In Billion Kyat 
--------------------------------------------- ------- 
Recipient       FY07-08 FY07-08  FY08-09 % of  % of 
                        w/supp.          Total  GDP 
--------------------------------------------- ------- 
Total           3990     4938    4887   100.00  30.0 
 
SOEs            2299     2834    3211    65.7   19.8 
Government       201      762     361     7.4    2.2 
Defense Min.     352      356     354     7.2    2.2 
Finance Min.     121      135     182     3.7    1.1 
Education Min.   169      171     167     3.4    1.0 
Agriculture Min. 119      137     126     2.6    0.8 
Electric Min.     72      107     101     2.1    0.7 
Construction     101      103      88     1.8    0.5 
Home Affairs      47       48      52     1.1    0.3 
Health            44       45      44     0.9    0.3 
--------------------------------------------- ------- 
 
RANGOON 00000604  002.2 OF 004 
 
 
 
¶4.  (SBU) The GOB projects revenues will total 4.472 trillion kyat 
($3.7 billion), a 41 percent increase from last year's figures. 
According to projections, the majority of revenues will be generated 
by SOEs, including oil and gas companies.  Revenues contributions 
from SOEs and taxes are expected to account for 98 percent of total 
revenues, and should increase by 34, 70, and 40 percent respectively 
over last year's returns.  The GOB also predicts that the Ministry 
of Defense will increase its revenues by 50 percent, the Ministry of 
Agriculture will bring in 22 percent higher revenues, and the 
Ministry of Finance will earn 40 percent more compared to last 
year. 
 
--------------------------------------------- ------- 
                   FY08-09 Revenues 
                    In Billion Kyat 
--------------------------------------------- ------- 
Source           FY06-07  FY07-08  FY08-09 % of est. 
                                             GDP 
--------------------------------------------- ------- 
Total            2827     3178      4472     27.5 
 
SOEs             1830     2086      2795     17.2 
Cont. from SOEs   N/A      501       853      5.3 
Taxes             425      530       740      4.6 
Defense Min.        8       18        27      0.2 
Agriculture Min.    9        9        11      0.1 
Finance Min.        3        5         7      0.1 
Construction Min.   3        6         7      0.1 
Health              4        5         6      0.1 
--------------------------------------------- ------- 
 
¶5.  (SBU) During IMF Article IV consultations in September 2007, GOB 
officials pledged to reduce the budget deficit by increasing tax 
revenues and eliminating corruption.  The GOB's FY08-09 projected 
deficit of 415 billion kyat ($345 million) shows a 25 percent 
decrease from the FY07-08 budgeted deficit (before adding the budget 
supplemental).  Since FY03-04, however, the Burmese Government has 
steadily increased its budget deficit, from 131 billion kyat in 
FY03-04 to 557 billion kyat in FY07-08. 
 
--------------------------------------------- ------- 
              FY08-09 Budget Deficit 
                In Billion Kyat 
--------------------------------------------- ------- 
          FY06-07   FY07-08    FY08-09   % GDP 
--------------------------------------------- ------- 
Total          -235      -558       -415      2.6 
--------------------------------------------- ------- 
 
Supplemental Appropriations Break the Bank 
------------------------------------------ 
 
¶6.  (SBU) Government revenue increased 12 percent in FY07-08, due 
primarily to high natural gas prices, increased gem and jade sales, 
and increased exports of timber, agriculture, and marine products. 
The FY07-08 supplementary appropriation added an additional 1.2 
trillion kyat (approximately $1 billion at current rates) to the 
budget, raising expenditures by more than 30 percent over projected 
totals.  The GOB has yet to release revised figures for FY07-08 
revenues, so based on available data, the FY07-08 budget deficit 
grew from 558 billion kyat ($465 million) to 1.760 trillion kyat 
($1.4 billion) after adding supplemental budget appropriations. 
 
¶7.  (SBU) Like with previous years, "Government" received the 
largest allocation of additional money in FY07-08, 561 billion kyat 
 
RANGOON 00000604  003.2 OF 004 
 
 
($467 million) or an increase of 279 percent.  Businessmen explained 
that the majority of this money was used to cover ongoing 
construction costs in Nay Pyi Taw, as well as other government 
infrastructure projects.  SOEs received the second largest amount - 
534.8 billion kyat ($445 million), a 23 percent budget increase. 
The Ministry of Defense received an additional 4.3 billion kyat 
($3.5 million), the Ministry of Agriculture received 18 billion kyat 
($15 million), and the Ministry of Finance received 13.6 billion 
kyat ($11.3 million). 
 
Weak Revenue Generation 
----------------------- 
 
¶8.  (SBU) During last year's IMF Article IV consultations, IMF 
representatives highlighted the need for the Burmese Government to 
improve its tax administration and modify its widespread 
discretionary tax exemptions.  GOB officials stated that one of 
their goals was to reduce the budget deficit by addressing the main 
causes: weak revenue collection, losses from inefficient SOEs and 
SEEs, unrestrained government spending, and budget expenditures for 
non-productive uses, such as defense and construction.  However, 
business contacts reported that the GOB did little to modify its tax 
structure in 2007, leading them to question the government's 
prediction of a 40 percent increase in tax revenues in FY08-09. 
Over the past few years, authorities have attempted to increase 
revenues through stricter enforcement of income taxation and through 
an informal Customs valuation rate hike from 450 kyat/$1 to between 
800 and 1200 kyat/$1, depending on the product and its origin (Ref 
A).  While the GOB privately argues that this rate hike indicates an 
effort to reconcile the various exchange rates, it instead 
complicates Burma's already complex informal exchange rate system. 
 
 
¶9.  (SBU) According to the FY08-09 budget data, most SOEs will 
operate at a loss, predicted to be roughly 450 billion kyat ($375 
million).  State-Owned Enterprises registered a loss of 800 million 
kyat in FY07-08, substantially more than GOB estimates of 213 
billion kyat.  According to budget publications, SOEs lost 436 
billion in FY06-07 and 549 billion in FY05-06.  Business officials 
confided that the Myanmar Oil and Gas Enterprise (MOGE), which is 
responsible for coordinating oil and gas projects, exported more 
than $2.5 billion in natural gas in FY07-08; the GOB reportedly 
earned at least $1 billion from this sale. 
 
¶10.  (SBU) Corruption at all levels remains a problem in Burma, 
which affects the GOB's ability to collect revenue.  While the 
government cracked down on crooked Customs officials in 2006, the 
payment of bribes on the borders continues, according to business 
contacts.  Corruption is also rife in other GOB agencies, including 
the Internal Revenue Department, Immigration, and the Yangon Central 
Development Committee. 
 
Comment 
------- 
 
¶11. (SBU) While the published budget provides a general guideline of 
how the GOB will allocate its funds, senior leaders will likely 
continue spending money on pet projects with little oversight. 
Thus, it is impossible to obtain an accurate picture of Burma's 
fiscal situation.  Despite the GOB's intentions to reduce the budget 
deficit, its history, unfettered spending, and the lack of tax 
reform make a growing deficit more likely.  Burma's economic future 
remains bleak - priority spending for SOEs, military, and 
"Government" indicates that senior leaders are more concerned about 
their personal interests rather than developing infrastructure, 
education, or health programs that would benefit the Burmese people. 
 
RANGOON 00000604  004.2 OF 004 
 
 
 Unless the Than Shwe regime begins to apply fiscal prudence (an 
unlikely scenario), inflation will continue to skyrocket and 
standards of living will fall, leaving the Burmese people to suffer 
the consequences of the regime's economic mismanagement. 
 
VILLAROSA