The earthquake in central Myanmar poses serious risks to its fragile economy, with damages disrupting agriculture, trade and infrastructure.

The  devastating earthquake that struck central  Myanmar on 28 March caused widespread destruction in the Mandalay and Sagaing regions, as well as Naypyidaw Union Territory. By mid-April, the death toll had exceeded 3600, with more than 5000 injuries reported.

The earthquake destroyed 1850 buildings in Sagaing and Mandalay and damaged an additional 2250. However, these figures may not fully capture the true impact, as casualties and damage outside areas controlled by the State Administration Council (SAC) are under-reported due to restrictions.

The urgent humanitarian situation following the earthquake presents challenges that are likely to persist despite responses from several countries, including neighbouring ones. Beyond the humanitarian crisis, the earthquake threatens to compound Myanmar’s economic malaise. Unless the SAC rethinks its economic approach, the earthquake’s aftermath may lead to increased poverty and inflation, as well as decreased exports and productive capacity, with impacts that could endure for years.

The direct effects of the earthquake are significant. Beyond the tragic loss of life, the economic fallout of the destruction to property, capital and infrastructure is devastating. Mandalay, upper Myanmar’s economic hub, is at the centre of the region’s supply chain. Its industrial zones and logistical parks are home to thousands of businesses, many of which have sustained considerable damage.

The extensive destruction of infrastructure, including roads, bridges, telecommunications and electricity, affect areas under SAC control and under non-state authorities. A historical bridge connecting Sagaing and Mandalay was destroyed and another damaged, limiting traffic to small trucks and blocking access to the river port near Mandalay.

Such destruction leads to disruptions that affect not just earthquake relief, but also important supply chains, especially in agriculture. Myanmar’s “Dry Zone” in the centre of the country is the leading growing area for pulses, oilseeds, and cereals — such as sesame, pigeon peas and chickpeas — many of which are planted in May. Disruptions in logistics, that reduce farmers’ access to inputs or increase costs, could negatively affect planting and harvest cycles, jeopardising farmers’ incomes in an already vulnerable region.

Destruction and loss of life in the capital, Naypyidaw, may lead to delays and service disruptions. Government buildings and staff accommodation were reportedly severely affected, with numerous civil servants injured or killed. This could delay services such as food safety certifications for the export of agricultural goods. The SAC’s centralised economic control may exacerbate effects, particularly concerning functions like trade licensing.

The damage and disruption will have major macroeconomic and socioeconomic consequences, including increased poverty and reduced incomes. Exports might decline, putting pressure on Myanmar’s already limited foreign currency reserves and weakening the exchange rate, although incoming foreign assistance might mitigate this somewhat.

This increases the risk that the SAC, which relies heavily on the multiple exchange rate system to access foreign currency, will tighten restrictions or seek it elsewhere. This could worsen already challenging business conditions and increase poverty. Demand for imports to assist earthquake recovery will increase, though the SAC’s strict import licensing may limit inflows. Domestic insurers also face difficulties as many retained considerable risk, partly due to challenges in obtaining reinsurance because of sanctions, currency limitations and the exit of some international insurers.

Despite the socioeconomic challenges, the burden of rebuilding is likely to fall predominantly on the people of Myanmar. Insurance payouts will be limited due to low insurance penetration rates in earthquake-affected areas, and the SAC has limited means to finance reconstruction costs.

Even before the earthquake, the  World Bank reported elevated fiscal pressures due to a deficit of 5.4% of GDP. Fewer businesses are paying taxes, down from about 40% before the 2021 coup to 21% in 2024. Tax revenues are low and barely growing, up just 9% to 9.4 trillion kyats (US$4.4 billion) last year from 8.6 trillion kyats in 2021. This is despite inflation, which has tripled prices over the same time. This revenue shortfall is likely to worsen in earthquake-affected areas, at least temporarily.

The SAC faces similar challenges in securing loans. Most borrowing since the coup has been from domestic sources, mainly through the regime’s central bank. Myanmar’s banks, businesses and people are unlikely to buy bonds to finance reconstruction for various reasons. For example, interest rates are hovering between 7.5% to 8%, far less than inflation, which is running at 30% to 35%, effectively penalising bondholders. Given these circumstances, the SAC has few domestic options to fund rebuilding efforts. They may resort to printing money, but this could stoke inflation and exacerbate existing challenges.

International assistance is expected to fall short given the scale of the problem. Although international aid is still arriving, it is limited, particularly when compared to the €7 billion (US$7.9 billion) raised for the  2023 Turkey-Syria earthquake. International lending to the SAC may be minimal, since donors and international financial institutions, that have refrained from interacting with the regime since the coup, may hesitate to offer loans. There are fears that the SAC’s multiple exchange rate system will reduce the benefits of foreign assistance and help the regime. Before the earthquake, foreign assistance providers often lost about 10% of their incoming funds due to this system.

There are significant worries that aid is not reaching areas controlled by non-state authorities. A critical concern is the potential for the SAC to misuse funds intended for earthquake recovery.

A more fundamental question is whether the SAC’s changes to the economic system discourage reinvestment. With alterations such as trade licensing, price controls and multiple exchange rates, Myanmar’s economic system no longer rewards productive investment as it did five years ago. This could discourage reinvestment, especially for marginal businesses that managed with existing capital, but would struggle under new capital expenses. All these factors threaten to leave a lasting scar from the earthquake: a central Myanmar with diminished economic capacity and intractable, serious poverty.

Republished from the South China Morning Post, 11 May 2025