PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: PIDA28569 Public Disclosure Copy Project Name Myanmar Financial Sector Development Project (P154389) Region EAST ASIA AND PACIFIC Country Myanmar Lending Instrument Investment Project Financing Project ID P154389 Borrower(s) Ministry of Planning and Finance Implementing Agency Ministry of Planning and Finance, Central Bank of Myanmar Environmental Category C-Not Required Date PID Prepared/Updated 10-Oct-2016 Date PID Approved/Disclosed 10-Oct-2016 Estimated Date of Appraisal 09-Oct-2016 Completion Estimated Date of Board 20-Dec-2016 Approval Appraisal Review Decision Authorized for appraisal (from Decision Note) I. Project Context Public Disclosure Copy Country Context While resource-rich, Myanmar remains one of the poorest countries in Southeast Asia. Although significant reforms have been introduced in recent years, the economy remains centered on extractive industries and agriculture. With a population of 51.4 million, the country has a per capita gross domestic product (GDP) of US$1,233 (2014). In 2010, the rate of poverty was estimated to be between 25.6 percent and 37.5 percent, concentrated particularly in rural and conflict-affected areas. At least 70 percent of Myanmar➢❨ s poor live in rural areas, and agriculture plays a critical role for both inclusive growth and poverty reduction , contributing close to 29 percent of output in 2015-2016. After two years of strong growth and macroeconomic stability, Myanmar faced a more difficult economic environment in 2015-2016 when economic growth eased to 7 percent from 8.5 percent in the previous year. Short-term vulnerabilities increased including growing fiscal and current account deficits (5.2 and 7 percent of GDP respectively), rising inflation (11.7 percent annual average), and exchange rate pressure (30 percent depreciation). Beginning in 2011, Myanmar launched major political and economic reforms aimed at increasing openness, empowerment, and inclusion. Economic reforms have included the unification of exchange rates, removal of a host of import and export restrictions, new legislation that provides greater autonomy for the central bank, and increased transparency, including publishing the government budget. The past years have seen a dramatic increase in political and civil liberties. These reforms included the 2015 parliamentary elections which were recognized as the Page 1 of 5 country➢❨ s first free and fair national election in 25 years. At the same time, new tensions and challenges have emerged, including outbreaks of violence primarily focused on the country➢❨ s Muslim minorities. Despite such setbacks, the coming years offer opportunities to further deepen Public Disclosure Copy the reforms. Myanmar has also begun removing constraints on commerce, trade, and private enterprise that long held back the economy. However, major obstacles remain, including an underdeveloped financial sector, infrastructure gaps, and limited capacities to manage economic shocks. All of these areas will need to be addressed for Myanmar to meet its economic, social and poverty reduction goals. Sectoral and institutional Context Myanmar has a small and undeveloped financial system that does not effectively meet the demands of the country➢❨ s growing economy. Although financial institutions in Myanmar have grown rapidly over the past four years due to the large demand for credit and increasing confidence in the banking system, the financial system as a whole still contributes only in a modest manner to economic growth and prosperity. Large segments of the population in both urban and rural areas as well as private sector firms remain underserved. Myanmar has some of the lowest levels of penetration of financial services in the world with a ratio of credit to GDP of approximately 12 percent. The formal financial system consists of 23 small- scale, closely held private banks, four fully state-owned banks, and a small number of microfinance institutions (MFIs). There are 43 foreign bank representative offices, and nine foreign banks received licenses in 2015 to open as commercial banks. There is only one state-owned insurance company in Myanmar. Private insurance companies have been given conditional approval by the Myanmar Insurance Business Supervisory Board to start operating. The banking sector dominates the finance sector and accounts for most of the financial sector assets held outside the central bank. State-owned banks are dominant in the banking sector and limited competition prevails in the sector. As a result, access to formal financial services has been extremely limited and the economy Public Disclosure Copy is being largely run on a cash basis. As a result, a significant unmet demand for financing remains. II. Proposed Development Objectives To expand access to finance in Myanmar and, in the event of an Eligible Crisis or Emergency, to provide immediate and effective response to such Eligible Crisis or Emergency. III. Project Description Component Name Reform of State-owned Banks Comments (optional) The expected outcome of this component is to improve the overall competitiveness of the banking sector by restructuring state-owned banks. In doing so, the reforms are also intended to reduce the fiscal risks associated with these loss-making institutions, reduce vulnerabilities, and improve delivery of financial services. This component focuses on restructuring of state-owned banks initiated to create financially sustainable institutions with sound risk management and corporate governance practices and clear developmental mandates. The component will also support the MOPAF to develop a high-level policy framework, increasing the transparency of state ownership of the financial sector and establishing policy goals of any continued state ownership through the TA aspect. Page 2 of 5 Component Name Upgrading the Financial Sector Legal, Regulatory and Supervisory Framework Public Disclosure Copy Comments (optional) The expected outcome of this component is to (a) strengthen the legal and regulatory framework for the financial sector and (b) upgrade human resource capacity and supervisory capacity at the CBM and FRD. The overall weak supervisory capacity at these two institutions are considered critical constraints to achieving the PDO. To date, human resource development and capacity building at these two critical institutions has been very limited and short term. The institutions need to achieve longer-term upgrading to achieve their goals in the medium term Component Name Modernizing the CBM and Financial Infrastructure Comments (optional) The objective of this component is to support the modernization of the CBM and the financial infrastructure. The World Bank Group is providing support to the CBM to restructure/modernize the CBM and develop the payment system through a parallel TA program. Thus, this project will focus on developing an institutional development plan for the CBM and financing the critical IT investments that are required by the CBM to modernize its payment system. Component Name Project Coordination and Monitoring Comments (optional) The project will finance operational costs of the PIU (including consultant services, salaries, training, utilities, basic IT acquisition, and so on) related to the establishment and operation of two PCUs. This will include staff at the CBM and MOPAF. The objective of this component is to provide implementation support to the project. The unit will be responsible for the following: overall project management, coordination across implementing agencies, M&E of outcomes and results, procurement and implementation support, and financial management. Public Disclosure Copy Component Name Contingent Emergency Response Comments (optional) A component with a provisional allocation of US$0 is included under this project that will allow for rapid reallocation of credit proceeds in the event of an eligible crisis or emergency under streamlined procurement and disbursement procedures in accordance with the Immediate Response Mechanism Manual that has been adopted by the Government. In the event of an emergency, financial support could be mobilized by reallocation of funds from the other components or application for additional financing. In the case of such reallocation, the other component activities will be reviewed and revised as necessary. The amount is zero USD. (0.01 is noted for the portal only). IV. Financing (in USD Million) Total Project Cost: 100.00 Total Bank Financing: 100.00 Financing Gap: 0.00 For Loans/Credits/Others Amount BORROWER/RECIPIENT 0.00 International Development Association (IDA) 100.00 Page 3 of 5 Total 100.00 Public Disclosure Copy V. Implementation The two main implementing agencies will be the Ministry of Planning and Finance and the Central Bank of Myanmar. Two Project Coordinating Units will be set up to ensure coordination, project management and reporting, financial management, procurement and monitoring of outcomes. VI. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 ✖ Natural Habitats OP/BP 4.04 ✖ Forests OP/BP 4.36 ✖ Pest Management OP 4.09 ✖ Physical Cultural Resources OP/BP 4.11 ✖ Indigenous Peoples OP/BP 4.10 ✖ Involuntary Resettlement OP/BP 4.12 ✖ Safety of Dams OP/BP 4.37 ✖ Projects on International Waterways OP/BP 7.50 ✖ Projects in Disputed Areas OP/BP 7.60 ✖ Comments (optional) VII. Contact point World Bank Contact: Alexandra L. Drees-Gross Public Disclosure Copy Title: Practice Manager Tel: 1-202-458-06 Email: agross@worldbank.org Borrower/Client/Recipient Name: Ministry of Planning and Finance Contact: U Maung Maung Win Title: Deputy Minister Tel: 95-67-410-450 Email: maungmaungwin58@gmail.com Implementing Agencies Name: Ministry of Planning and Finance Contact: Maung Maung Win Title: Deputy Minister of Ministry of Plannning and Finance Tel: (95-67) 410-450 Email: maungmaungwin58@gmail.com Name: Central Bank of Myanmar Contact: U Kyaw Kyaw Maung Title: Governor Tel: 95-67-418-227 Email: shwe.g31j13 Page 4 of 5 VIII. For more information contact: The World Bank 1818 H Street, NW Public Disclosure Copy Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects Public Disclosure Copy Page 5 of 5