Although there are no elections scheduled until 2020, the next year will be a testing time for Myanmar’s de facto civilian leader, Aung San Suu Kyi, and her government colleagues, who are coming under growing international pressure to curb a military crackdown on Rohingya Muslims in Rakhine State that has created a regional refugee crisis and provoked allegations of ethnic cleansing. However, Suu Kyi is extremely reluctant to criticize the generals, who retain the power to bring an abrupt end to Myanmar’s experiment with “guided democracy” if the civilian leadership gives them a reason to do so.

Cognizant of Suu Kyi’s dilemma, western governments have been somewhat restrained in their calls for action on the part of the NLD administration, but the deepening humanitarian crisis is causing serious problems in neighboring Bangladesh, where some 800,000 Rohingya are currently living in refugee camps. The government is Washington is seeking support in the Congress for sanctions that target military figures, a strategy that risks stoking anti-western sentiment among the military brass, with negative consequences for the foreign companies that rushed into Myanmar as the EU and the US began lifting sanctions in 2012.

Official data indicates that the government approved $4.4 billion of FDI during the first half of the fiscal year that began on April 1, 2017, $600 million of which involved investment in the expansion of existing operations. Not surprisingly, little investment has flowed into areas troubled by long-running ethnic insurgencies, which, in addition to Rakhine State, include the states of Kachin, Kayah, and Shan, and the continued underdevelopment in those regions is among the grievances that perpetuates conflict.

The scope for a program of state-led rural development is constrained by a fiscal deficit that is moving toward the 5% of GDP limit that will trigger automatic spending cuts. Various demands on the public purse include additional financing for the large state-owned enterprises, and increased outlays for security and electricity infrastructure. The external debt burden currently amounts to less than 15% of GDP, but with strong domestic demand forecast to widen the current account deficit to 7% of GDP, and foreign-exchange reserves providing less than three months’ worth of import cover, the risk of financing difficulties is not inconsequential.