VZCZCXRO3924
OO RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGO #0377/01 1700706
ZNR UUUUU ZZH
O 190706Z JUN 09
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9135
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
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UNCLAS SECTION 01 OF 04 RANGOON 000377 
 
SIPDIS 
 
STATE FOR EAP/MLS, INR/EAP, 
PACOM FOR FPA 
TREASURY FOR OASIA, OFAC 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN PREL PGOV PINR BM
SUBJECT: BURMA: FY09-10 BUDGET SHORT ON DETAILS BUT CLEARLY 
DEMONSTRATES THE REGIME'S PRIORITIES 
 
RANGOON 00000377  001.4 OF 004 
 
 
Summary 
------- 
 
¶1. (SBU)  The Burmese Government published its FY09-10 budget 
in late May, along with FY08-09 supplementary expenditure 
figures.  As in the past, the GOB's budget publication 
provides only general guidelines, with little explanation of 
spending.  The largest proportion of public funds will go to 
State-owned Enterprises (SOEs), the Ministry of Defense, and 
the "Government" (covering public works, including Nay Pyi 
Taw construction).  GOB spending on health and education 
remains the same as last year, totaling less than two percent 
of the budget, or less than one percent of GDP.  The GOB 
predicts a budget deficit of 624 billion kyat for FY09-10 
(USD 624 million at current market exchange rates).  If past 
budgets are any indication, the FY09-10 budget deficit should 
be higher than targeted, despite limited GOB efforts to 
improve revenue collection.  End Summary. 
 
SOEs Dominate the Budget, Military Spending Up 
--------------------------------------------- - 
 
¶2.  (SBU)  The Burmese Government published its consolidated 
public sector budget in the Burma Gazette, a publication with 
limited distribution and readership, in late May, more than 
one month 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 FY09-10 budget provides general 
guidelines and funding amounts, leaving out any explanation 
of how each agency will spend its allotted money.  Multiple 
exchange rates are used but not identified.  Despite the lack 
of specific information, the budget gives an indication of 
GOB priorities. 
 
¶3.  (SBU)  According to the budget, the GOB's spending for 
FY09-10 is expected to total 5.534 trillion kyat (USD 5.5 
billion at current market rates), up 13 percent from 
FY08-09's 4.887 trillion kyat budget (before the 
supplemental).  The GOB's spending priorities remain the same 
as last year.  SOEs receive 62 percent of the budget, with 
most operating at a deficit.  The Ministry of Defense and the 
"Government," which includes spending on public projects such 
as the construction of Nay Pyi Taw, receive approximately 10 
and 7 percent of the budget respectively, with Defense 
receiving a 58 percent increase over last year's amount and 
"Government" receiving 27 percent more.  GOB spending on 
health and education remain stagnant, at less than four 
percent of the total budget, or less than one percent of GDP. 
 
--------------------------------------------- ------- 
                 FY09-10 Expenditures 
                    In Billion Kyat 
--------------------------------------------- ------- 
Recipient       FY08-09 FY08-09  FY09-10 % of  % of 
                        w/supp.          Total  GDP* 
--------------------------------------------- ------- 
Total           4887    5597     5534   100.00  18.7 
 
SOEs            3211    3396     3211    62.66  10.9 
Government       361     642      360     6.52   1.2 
Defense Min.     354     364      561    10.14   1.2 
Finance Min.     182     235      235     4.26   1.1 
Education Min.   167     176      167     0.92   0.8 
Agriculture Min. 137     203      131     2.38   0.6 
 
RANGOON 00000377  002.7 OF 004 
 
 
Electric Min.    101     141      101     1.92   0.4 
Construction      88     111      119     2.16   0.3 
Home Affairs      52      54       58     1.06   0.2 
Health            44      47       50     0.09   0.2 
--------------------------------------------- ------- 
Note:  FY09-10 GDP is estimated at 29.5 trillion kyat. 
 
¶4.  (SBU)  The GOB projects revenues will total 4.910 
trillion kyat (USD 4.9 billion) a 10 percent increase from 
last year's figures.  The majority of anticipated revenues 
will be generated by SOEs, including those working in the 
extractive industries.  A much smaller amount will come from 
taxes.  Together, those two categories are expected to 
account for 98 percent of total income, and are to increase 
by four and 26 percent respectively over last year's returns. 
 The GOB also predicts that the Ministry of Defense will 
increase its revenues by 58 percent, the Ministry of 
Agriculture will bring in 9 percent higher revenues, and the 
Ministry of Finance will earn 316 percent more compared to 
last year, though all from a low base. 
 
--------------------------------------------- ------- 
                   FY09-10 Revenues 
                    In Billion Kyat 
--------------------------------------------- ------- 
Source           FY7-08  FY08-09  FY09-10  % of est. 
                                             GDP 
--------------------------------------------- ------- 
Total            3178      4472     4910     16.62 
 
SOEs             2086      2795     2912      9.87 
Cont. from SOEs   501       853      938      3.23 
Taxes             530       740      935      3.21 
Defense Min.       18        27       41      0.13 
Agriculture Min.    9        11       12      0.02 
Finance Min.        5         7       25      0.08 
Construction Min.   6         7        5      0.02 
Health              5         6        8      0.03 
--------------------------------------------- ------- 
Note:  FY09-10 GDP is estimated at 29.5 trillion kyat. 
 
¶5.  (SBU)  During IMF Article IV consultations in November 
2008, GOB officials pledged to reduce the budget deficit by 
increasing tax revenues and eliminating corruption.  However, 
the GOB's FY09-10 projected deficit of 629 billion kyat (USD 
629 million) represents a 50 percent increase from the 
FY08-09 budgeted deficit (before adding the budget 
supplemental).  Since FY03-04, the Burmese Government has 
steadily increased its budget deficit from 131 billion kyat 
in FY03-04 to 415 billion kyat in FY08-09. 
 
--------------------------------------------- ------- 
              FY09-10 Budget Deficit 
                In Billion Kyat 
--------------------------------------------- ------- 
          FY07-08    FY08-09    FY09-10   % GDP 
                                         for FY09-10 
--------------------------------------------- ------- 
Total      -558       -415       -624        2.1 
--------------------------------------------- ------- 
 
Supplemental Appropriations Break the Bank 
------------------------------------------ 
 
 
RANGOON 00000377  003.8 OF 004 
 
 
¶6.  (SBU)  The Burmese government usually releases a 
supplementary budget later in the fiscal year reflecting 
higher expenditures; its total annual deficits are thus 
greater than in the initial official budgets.  For example, 
the FY08-09 supplementary appropriation added an additional 
743.9 billion kyat (approximately USD 743 billion at current 
rates) to that year's budget, raising expenditures by more 
than 15 percent over projected totals. 
 
¶7.  (SBU)  As in previous years, "Government" received the 
largest allocation of additional funding (USD 282 million), 
approximately half of FY08-09's supplemental appropriation. 
Businessmen explained that money likely funded ongoing 
construction costs in Nay Pyi Taw, as well as other 
government infrastructure projects.  SOEs received the second 
largest amount - 185 billion kyat (USD 185 million), a 65 
percent budget increase.  The Ministry of Defense received an 
additional 9 billion kyat (USD 9 million) and the Ministry of 
Finance received 53 billion kyat (US 53 million).  In 
response to Cyclone Nargis, the GOB allocated an additional 
77 billion kyat (USD 77 million) to the Ministry of 
Agriculture while the Ministry of Social Welfare received 44 
billion kyat (USD 44 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.  According to IMF 
officials, the GOB replied that one of its goals is 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 2008, leading them to question 
the government's prediction of a 27 percent increase in tax 
revenues in FY09-10. 
 
¶9.  (SBU)  Over the past few years, authorities have 
attempted to increase revenues through stricter enforcement 
of income taxation and through an informal 2007 Customs 
valuation rate hike from 450 kyat/$1 to between 800 and 1200 
kyat/$1, depending on the product and its origin.  While GOB 
officials privately argue that this rate hike indicates an 
effort to reconcile the various exchange rates, it instead 
complicates Burma's already complex informal exchange rate 
system. 
 
¶10.  (SBU)  According to the FY09-10 budget data, most SOEs 
will operate at a loss.  Even with extractive industries 
presumably posting sizable profits, the net SOE loss is 
predicted to be roughly 484 billion kyat (USD 484 million) -- 
though this estimate could be too low.  State-Owned 
Enterprises registered a loss of 601 million kyat in FY08-09, 
substantially more than GOB initial estimates of 450 billion 
kyat.  According to budget publications, SOEs lost 800 
billion kyat in FY07-08, 436 billion kyat in FY06-07, and 549 
billion kyat in FY05-06. 
 
¶11.  (SBU)  Corruption at all levels remains a problem in 
Burma, which affects the GOB's ability to collect revenue. 
 
RANGOON 00000377  004.4 OF 004 
 
 
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 
------- 
 
¶12. (SBU)  While the published budget provides a general 
guideline of how the GOB will allocate its funds, the lack of 
details in the document -- and the general unreliability of 
GOB statistics -- make it impossible to obtain an accurate 
picture of Burma's fiscal situation.  This problem is 
compounded by the lack of spending discipline by senior 
leaders, who will likely continue allocating money for pet 
projects with little oversight or regard for planned 
appropriations.  Despite the GOB's stated intention to reduce 
the budget deficit, another increase is far more likely due 
to uncontrolled spending, SOE losses, and the lack of tax 
reform.  Burma's economic future remains troubled. 
 
 
DINGER