The Effect of Fiscal Policy on Economic Growth in Myanmar

Abstract

This study examines the effect of fiscal policy on economic growth in Myanmar. The impact of fiscal deficit on nominal gross domestic product is analyzed using the ordinary least squares (OLS) method with annual data from 1979 to 2016. The results reveal a statistically significant relationship between the country's fiscal deficit and economic growth. Analysis shows the existence of a multiplier effect of deficit spending on economic growth, which confirms Keynesian assumptions. Myanmar actually needs to provide more public spending to invest in infrastructure development and public services delivery due to lack of private investment in infrastructure projects. Therefore, over the medium term, fiscal policy should maintain moderate expansionary measures. However, the critical question regarding public spending is determining in which areas to spend. Public spending should therefore be preferentially directed toward productive areas for long-term growth, such as infrastructure development, health and education, and poverty reduction programs. In addition, policymakers should always bear in mind that excessive deficit levels and chronic deficits can become unsustainable, adversely affecting macroeconomic stability.