Five decades ago Ne Win set Burma on the way to socialism, with a development plan that sought to reduce foreign influence and put the military-controlled government at the centre of the economy. Under President U Thein Sein, an ambitious reform agenda is seeking to undo the legacy of isolation and set Myanmar on the way to capitalism by opening up the country to foreign trade and investment.

After decades of military rule and ethnic conflict, a civilian administration was sworn in on 30 March 2011, following elections held in November 2010. The new government immediately embarked on a range of political and economic reforms aimed at attaining national reconciliation, improved governance, and economic development. With a quarter of its citizens living below the poverty line, considerable weaknesses in transport infrastructure, and one of the lowest rates of access to modern telecommunications in the world, Myanmar faces a tremendous development challenge.

Reform achievements to date have been significant, but have largely addressed macro-economic issues and have not required additional budgetary spending. Expectations for real welfare improvements have built up, but little effort has been made to address poverty, fulfil the population's unmet needs for healthcare and education, or upgrade Myanmar's infrastructure to improve domestic competitiveness. Addressing these problems will require massive funds that can only be found through donor support, improved mobilization of internal revenue from those with a taxable surplus, reform of the loss-making state-owned economic enterprise sector, and mobilizing sub-national governments to implement reforms.

The purpose of this economic update is to provide an overview of major economic developments since the government of President U Thein Sein assumed office on 30 March 2011, and to survey trends and outline expectations for future economic development. In this chapter the authors analyze the reforms, their impact, and the needs and prospects for further economic change during the run-up to the 2015 election. Particular attention is paid to the obstacles that will be faced by reformers when they seek simultaneously to develop the economy, reduce the role of state-owned economic enterprises and improve the business climate; to transform the national budget from an instrument for mobilizing funds for the armed forces to a driver of economic development; and to activate sub-national governments.