Cambodia's political scene has taken a turn
for the worse over recent months. The crackdown by the government on protesting
garment workers poses a risk to the sector's otherwise positive medium term
outlook. Meanwhile, it also raises the stakes in the ongoing impasse between
the ruling Cambodia People's Party (CPP) and the opposition Cambodia National
Rescue Party (CNRP), with the opposition CNRP becoming increasingly emboldened
by their growing support base, and Hun Sen's CPP facing a tough task in
maintaining the country's stable business environment. On the economic front,
while the tourism industry continues to show promise, the construction sector
is likely to suffer over the coming quarters as the nation's credit boom winds
down. The current lending boom is resembling that which came to a rapid end
amid the global financial crisis, and we believe that the country's hot real
estate sector could be in for a rude awakening.
Laos
-
Despite acknowledging that urgent fiscal
reforms are needed, Vientiane has done little to alter its excessive spending
patterns with the fiscal deficit widening substantially to 5.8% of GDP in
FY2012/13 from 1.3% in the previous year. Public expenditures swelled as a
result of a surge in the public sector wage bill owing to a rapid expansion in
the civil servant headcount and substantial raises in civil service wages.
Revenues, meanwhile, were hurt by a fall in mining income as commodity prices
were subdued and gold production fell. We believe that fiscal reforms are
likely to dominate Laos' political scene as the government continues to
struggle to arrest a deteriorating fiscal position. While we have highlighted
that Vientiane has not been able to alter its profligate spending patterns,
some quarters of the government appear resolute to curb public spending. We
also highlight that concerns towards the human rights situation in Laos are on
the rise and further repressive acts by the government runs the risk of
reversing the solid economic progress that has been made over the years. Unless
Vientiane starts to make significant headway, it is unlikely to reverse a
continued deterioration in its fiscal position.
Myanmar-
Myanmar faces a key test of its nascent
reform drive as suggestions for the amendment of its highly flawed constitution
are set to be announced. Of particular interest will be the military (Tatmadaw)'s
suggestions, which will be the culmination of a review process undertaken
earlier in 2013. One of the key questions that may be answered is whether or
not the military will agree to a smaller presence in the country's parliament,
where it currently holds a mandated 25% of seats. Additionally, the
constitutional review may provide the answer as to whether or not venerable
opposition leader Aung San Suu Kyi will be allowed to run for president in the
upcoming 2015 general election, which would be a major step towards the
legitimisation of the elections as a free and fair process. While Myanmar's
economic growth potential remains enormous, the country's entire development
story will likely hinge upon the government's ability to maintain reform momentum
through 2015's elections and beyond.
Several critically important countries are
facing tests in 2014 that could determine their political and economic
evolution for years to come. Iran perhaps offers the greatest opportunity for
positive change, while the biggest systemic risk among 'pivotal' states is the
Korean Peninsula.
As Cambodia's political deadlock continues,
both the ruling Cambodia People's Party (CPP) and the opposition Cambodia
National Rescue Party (CNRP) have tough choices to make, which could determine
whether the country reverts back to a one party state or democracy is
strengthened as reforms are undertaken.
Cambodia's long-term political outlook
largely depends on the ruling Cambodian People's Party (CPP)'s ability to
address widespread corruption and income inequality, which have been fuelling
public dissent against the government in recent years.
Cambodia's credit boom continues to roll on,
and now exceeds the one that preceded the economic slump in 2009 by many
measures. Inflation pressures are rising, which could force the National Bank
of Cambodia (NBC) to tighten liquidity to cool the credit boom.
Despite the heightened levels of social
unrest in Cambodia's major cities following the disputed election result in
July 2013, tourism inflows have continued apace, growing at 18.0% in 2013. We
expect to see double digit increases in the country's crucial tourism industry
in 2014 largely on the back of improved transport linkages.
Fiscal reforms are likely to dominate Laos'
political scene as the government continues to struggle to arrest a
deteriorating fiscal position. While we have highlighted that Vientiane has not
been able to alter its profligate spending patterns, some quarters of the
government appear resolute to curb public spending.
Laos' long-term political outlook will depend
heavily on how well the country balances the need to spur economic growth to
achieve its millennium development goals and the need to address widespread
corruption and dissent against the government.
Despite acknowledging that urgent fiscal
reforms are needed, Vientiane has done little to alter its excessive spending
patterns with the fiscal deficit widening substantially to 5.8% of GDP in
FY2012/13 from 1.3% in the previous year. Public expenditures swelled as a
result of a surge in the public sector wage bill owing to a rapid expansion in
the civil servant headcount and substantial raises in civil service wages.
While the Lao government is reviewing a ban
on new mining conce ssions that had been due to last until 2015, our sombre
outlook on frontier mining continues to suggest that the country's mining
sector is set to suffer from falling investment over the coming years. In
contrast to gold, we expect copper mining to prove more resilient as PanAust Ltd
forges ahead with the expansion of its Phu Kham mine to 90ktpa by 2018.
Myanmar's Joint Constitutional Review
Committee has received over 28,247 recommendations for amendments to the
country's constitution, which was created by the former military junta and is
riddled with extensive weaknesses. While we stress yet again that a genuine
effort to amend the constitution would be a huge step in the right direction in
terms of Myanmar's political maturation, we note that incipient signs of
potential inaction or stalling have emerged. Should the amendment process fail
to yield any substantive results, we see downside risks for not only Myanmar's
political risk outlook, but also its already challenging business environment.
Myanmar remains one of very few Asian states
to have withstood the tide of democratisation since the 1980s. Although Myanmar
held its first elections in 20 years in November 2010, these were widely
considered a sham, with the military-backed Union Solidarity and Development
Party winning most of the seats.
Myanmar's banking sector has made
considerable progress over the past two years, with the provision of credit
card and ATM services beginning to chip away at the economy's formerly
cash-only nature. However, both structural and policy-related headwinds
continue to weigh heavily on the sector's development potential, which in turn
could limit the country's broader economic growth outlook.
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