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Cablegate: Burma's Budget, for What It's Worth

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

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