Myanmar's growth is set to accelerate slightly to 6.75 percent in the fiscal year ending March 2014 led by gas production and investment, the International Monetary Fund said on Wednesday.
In an Article IV Consultation report, the IMF said Myanmar's economy grew nearly 6.5 percent in the fiscal year that ended on March 31. The government's reform program is "bearing fruit, with macroeconomic stability and high investor interest", the lender noted.
Inflation is likely to be contained at around 5.5 percent this fiscal and international reserves are expected to continue rising as foreign direct investment inflows outweigh a widening current account deficit, the report said.
"There are, however, risks to the outlook notably from the limited macroeconomic management capacity, which will be strained by the rapid, broad-based economic transition," the IMF warned.
"Myanmar has made great strides in liberalizing its foreign exchange regime," the IMF Mission Chief Matt Davies said.
"The formal [kyat] exchange rate is closely aligned with the informal market rates and volumes traded in the daily central bank auctions are increasing."
The IMF urged the Central Bank of Myanmar to continue boosting its international reserves so that it can serve as a solid buffer against external shocks. The lender also pointed out that equipping the central bank with monetary policy tools was important to ensure sustain economic growth.
Expressing hope that the new central bank law, which is expected in the middle of this year, would be able to tackle inflationary pressures from money growth, property prices and wage hikes, the IMF said the bank should build its capacity to conduct open market operations.
"A modern, well-regulated financial sector is needed to finance the private sector, reduce fiscal deficit monetization, and transmit the CBM's monetary policy," Davies said.
"The banking sector is growing and modernizing rapidly and therefore needs to be carefully managed and supervised. This will require updating regulations and building supervision capacity."
The country's budget deficit is forecast at around 5 percent this fiscal after considering higher health and education spending. Last fiscal year, the country recorded a deficit below the medium-term target of 5 percent of GDP, helped by significant increase in tax collections.
The lender urged authorities to strive to build-up fiscal buffers including by saving the proceeds of asset and license sales, and ensure sustained increases in tax revenues to boost expenditure and reduce dependence on natural resources. To achieve this, the tax base must be broadened and compliance improved, the report said.
Myanmar, which is recently free from military rule, is trying to liberalize its economy and attract foreign investment. This week, President Thein Sein is on a visit to the U.S. and have pitched for more investments from U.S. businesses.
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