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Viewing cable 06RANGOON1017, BURMA'S BUDGET, FOR WHAT IT'S WORTH

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Reference ID Created Released Classification Origin
06RANGOON1017 2006-07-21 03:47 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Rangoon
VZCZCXRO7002
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGO #1017/01 2020347
ZNR UUUUU ZZH
R 210347Z JUL 06
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC 4848
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1018
RUEHBY/AMEMBASSY CANBERRA 9790
RUEHLO/AMEMBASSY LONDON 1710
RUEHNE/AMEMBASSY NEW DELHI 3438
RUEHUL/AMEMBASSY SEOUL 6887
RUEHKO/AMEMBASSY TOKYO 4503
RUEATRS/DEPT OF TREASURY WASHDC
RUEHGV/USMISSION GENEVA 2774
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUCNDT/USMISSION USUN NEW YORK 0416
RUEHBS/USEU BRUSSELS
UNCLAS SECTION 01 OF 03 RANGOON 001017 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS; PACOM FOR FPA; TREASURY FOR OASIA:SSEARLS 
 
E.O. 12958: N/A 
TAGS: EFIN PGOV BM
SUBJECT: BURMA'S BUDGET, FOR WHAT IT'S WORTH 
 
 
1. (SBU) Summary: The GOB published its 2006-07 budget, as 
well as 2005-06 supplemental expenditures in the minimally 
distributed Burma Gazette.  Although accurate amounts and 
totals are impossible to determine, categories with the 
largest expenditures in both years are clear: state-owned 
enterprises followed by "Government" (eg the Prime Minister's 
office) and the Ministry of Defense.  The Construction 
Ministry received a sizeable supplemental and continues at 
high levels in 2006-07, presumably related to the new 
capital.  Revenues from taxes and state-owned enterprises, 
which include natural gas sales, are slated to more than 
double.  The projected deficit for 2006-07 is 235 billion 
kyat (US$ 180 million at current market exchange rates), or 
2% of the government's estimated GDP.  However the new budget 
does not include figures for the large salary increases 
announced in April, so we expect the deficit will be larger. 
The figures that follow offer more of an outline of the GOB's 
intentions than likely reality, since numbers tend to be 
fantasy figures and the regime leaders have carte blanche to 
spend what they want.  End summary. 
 
2. (SBU) In April, the GOB published its 2006-07 budget as 
the "2006 State Budget Law" in the Burma Gazette, which is 
not available to the general public.  The Gazette also 
published the 2006 State Supplemental Appropriation Law, 
which describes supplemental expenditures, but not the 
2005-06 overall budget balance.  Prior to 2001-02, the GOB 
published the annual budget figures in a public newspaper. 
Burma's fiscal year runs from April 1 through March 31. 
 
3. (SBU) The official budget lists revenues and expenditures 
but does not include a summary, explanations, detailed 
breakout of categories or calculation of balance positions. 
State Economic Organizations (SOEs) are presented as a group, 
lumping the few profitable enterprises (in the areas of 
natural gas, gems and timber) with the loss makers.  Looking 
at 2005-06 spending and 2006-07 projected revenues and 
expenditures, the SOE sector as a whole causes major losses 
reaching 226 billion kyat (US$ 174 million at current market 
rates) or 96 percent of the total projected 2005-06 deficit. 
Officials apply a variety of exchange rates to international 
transactions, but do not notate which rates they applied to 
specific budget items.  In addition, inflated SOE earnings 
and unbudgeted spending by the leaders further cast doubt on 
the reliability of the budget figures.  Absent thorough 
independent reviews or reliable statistics collection, the 
numbers cited only provide broad outlines of GOB intentions, 
rather than reliable 
figures. 
 
4. (U) Selected line items: 
 
EXPENDITURES                                    %of 
in million kyat  2005-06   05-06 w/supp  2006-07  tot 
---------------  --------- ------------  -------  --- 
Total           1,574,160   2,418,497   3,062,774 100 
 
SOEs              925,386   1,408,635   2,056,172 67.0 
"Government"       15,332     218,395       192,499  6.3 
Defense Min.      150,862     170,345     191,157  6.2 
Construction Min.  86,955     117,900     111,430  3.6 
Finance Min.       85,038      85,257       105,763  3.5 
Agriculture Min.   65,766      92,565       105,109  3.4 
Transport Min.     40,799      97,136      42,663  1.4 
Education Min.     55,845      56,135      58,067  1.9 
Health Min.        20,849      21,004      24,182  0.8 
 
 
REVENUES 
in million kyat   2005-06    05-06 rev.   2006-07 
---------------   -------   -----------  --------- 
Total           1,337,218     unknown   2,827,455 
 
SOEs            1,078,910               2,355,215 
Taxes             214,879                 424,609 
 
RANGOON 00001017  002 OF 003 
 
 
Electric Power          3                      91 
 
 
DEFICIT 
in million kyat   2005-06   05-06 w/supp  2006-07 
---------------  ---------  ------------  -------- 
Total         -236,942   -1,081,279   -235,319 
 
 
2005-06 Highlights 
------------------ 
5. (SBU) Supplemental spending increased overall 2005-06 
expenditures to K.2,418 billion (about $1.86 billion at 
current market prices).  Most of the increases went to 
capital expenditures (which cover such things as 
construction, machinery, vehicles, and furnishings) as 
opposed to current expenditures (which cover salaries and 
office supplies).  SOEs received a 52% increase.  Other 
sizeable increases went to the "Government" and Transportion 
and Construction ministries, presumably related to the move 
of the capital.  Since the GOB built its new capital on a 
green field site, it had to build new buildings, roads, 
infrastructure, as well as transport materials and people to 
the relatively isolated location.  The supplemental capital 
expenditures in these three categories alone totaled 570 
billion kyat (US$ 438 million at current market rates), 
although we estimate that moving the capital cost $1 - $2 
billion, including foreign financing and construction 
services uncompensated by cash. 
 
6. (SBU) Initially the GOB deficit target in 2005-06 was 2% 
of GDP.  Absent figures for revised revenues, the total 
deficit could have surpassed 9% of GDP.  However, receipts 
from the higher global price of natural gas contributed 
significantly to government revenues, bringing in 
approximately $1 billion in 2005, according to industry 
sources.  The October 2005 reduction in fuel subsidies saved 
the GOB about K.123 billion ($95 million) during the last 
half of the fiscal year by our calculations.  In addition, 
GOB efforts to move more economic activities, including 
border trade and gem sales, into the formal sector may have 
contributed additional revenues.  A recent IMF/World Bank 
mission confirmed without specifics that the GOB increased 
its revenues over the course of the past year. 
 
2006-07 Highlights 
------------------ 
7. (SBU) Projected government revenues in the 2006-07 budget 
are K.2,827 billion ($2.18 billion at market exchange rates) 
and total expenditures are K.3,062 billion ($2.36 billion), 
with a deficit target of K.235 billion or 1.9% of GDP. 
However, this budget does not include the sizeable salary 
increases announced in April, which will likely total another 
450 billion (US$346 million).  Ministry of Construction 
expenditures will remain significantly elevated as will 
"Government," and the Finance Ministry gets a 24 percent 
increase.  According to retired Finance Ministry officials, 
the regime uses these funds for special projects.  The 
Defense, Health and Education Ministries all receive higher 
allocations, but the allocations to Health and Education 
remain paltry (0.8% and 1.9% respectively of the total 
budget).  On the other hand, the Transport Ministry drops 
back to its pre-supplemental level. 
 
8. (SBU) On the revenue side, the government plans to collect 
almost double the taxes it targeted the previous year, and 
more than double its SOE receipts (including from natural 
gas).  These two categories account for 95.3% of total 
revenues, but then the SOE deficit accounts for 96.2% of the 
total deficit.  Another notable, but smaller, contributor to 
government revenues, will be the electric power ministry, 
which is projected to increase its revenues by 3000 percent. 
 
9. (SBU) Comment:  All these numbers, including the GDP 
figure of 11,856 billion kyat at current prices (US$ 9.1 
 
RANGOON 00001017  003 OF 003 
 
 
billion at current market rates), must be taken with a grain 
of salt.  The GOB publishes only the figures it wants people 
to believe, and keeps the real ones closely held.  We can 
safely conclude that it will run a deficit, which the Central 
Bank will finance by printing money.  Money-losing SOEs are a 
major drain on the budget.  The GOB will try to save money by 
continuing its practice of delaying payments to contractors 
and suppliers, deferring loan payments, cutting diesel 
imports, and even reducing funds to military units in the 
field causing them to demand more from local communities. 
The revenues the regime gathers will be spent on the leaders 
and their new capital.  The Burmese people will bear the 
brunt of the costs in terms of higher inflation and declining 
public services.  End Comment. 
VILLAROSA