Myanmar

The so-called transition to a civilian government does not end the civil war

The military coup led by the Tatmadaw (Myanmar’s army) in February 2021 resulted in the ousting and arrest of Aung San Suu Kyi, the leader of the National League for Democracy (NLD), the party that came to power democratically in 2016. Min Aung Hlaing, the former commander-in-chief of the armed forces and the coup’s instigator, has ruled the country ever since. Initially heading the State Administration Council (SAC), he was subsequently elected President of the Republic in April 2026 by three electoral colleges composed of newly-elected members of parliament. The 2025-2026 legislative elections—the first since the coup—were marked by deadly violence perpetrated by the military and a ban on opposition parties from running, including Aung San Suu Kyi’s party. Nobel Peace Prize laureate (1991), she had served as State Counselor since 2016 and, ipso facto, as head of government. She is now reportedly under house arrest after being detained and convicted on more than 15 charges by the junta. The new bicameral parliament is composed almost exclusively of supporters of Min Aung Hlaing, with a quarter of the seats reserved for the military and 80% of the remaining seats won by the pro-military party, the PUSD. This so-called transition to civilian rule, aimed at establishing the junta’s legitimacy on the international stage, will not end the ongoing civil war, as the government will continue to seek to regain control of the entire country. Upon becoming president, Min Aung Hlaing appointed his ally Ye Win Oo to lead the military in order to maintain his grip on military affairs.

Since the coup, war has been waged between the Tatmadaw and several allied ethnic armed groups aligned with the National Unity Government (NUG)—formed by former civilian government officials—and operating near the Thai border. Given the lack of coordination among the various resistance groups, the army has regained ground. The opposition is also weakened by a lack of resources, economic and security pressures from China, and the government-imposed conscription of men aged 18 to 35 and women aged 18 to 27. The government receives funding from Russia and China, enabling it to deploy a large air strike force. It also collects tax revenue from hydrocarbons and the central plains, where most of the country’s industry and agriculture are located, as well as from the economic hub, Yangon, and the capital, Naypyidaw. Civilians are severely affected by the conflict; bombings and forced conscription are causing large-scale population displacements, both internally (3.8 million Myanmar citizens as of June 2026) and abroad (300,000 people since the coup). Furthermore, since 2017, the military’s persecution of the Rohingya, an ethnic group living in the western state of Rakhine, has forced 1 million of them to flee to Bangladesh. Humanitarian aid has plummeted following the Trump administration’s elimination of USAID funding in early 2025. The junta is tightening restrictions on the remaining aid despite the fact that 16 million people need it, according to the World Bank. Recently, the conflict in the Middle East has exacerbated the humanitarian crisis and food insecurity affecting a quarter of the population through rising prices for energy, raw materials and food, and through disruptions to supply chains, particularly for fertilisers, which are essential for rice cultivation.

Throughout the year, Min Aung Hlaing is expected to continue his quest for international legitimacy, which began with his trips to India and China in June 2026. Both countries are among the few that have recognised the electoral process, as they are interested in Myanmar’s mineral resources. Resolving the conflict would allow Beijing to continue implementing the China-Myanmar Economic Corridor, which has been slowed or even suspended by the fighting. China is investing in infrastructure for hydrocarbons, roads and railways, such as the Kyaukphyu-Muse railway connecting its border to the ocean, or the New Yangon City economic zone. Like Russia, China supplies weapons to the Tatmadaw. It will continue to support the government by providing oil and fertiliser. ASEAN countries have so far been reluctant to get involved in the conflict, adhering to the principle of non-interference in the domestic affairs of member states. However, the protocol established in 2021, which allows Myanmar to participate only in non-political meetings, remains in effect. While some member countries are in favour of a rapprochement, others are taking an unyielding stance. All are calling for the implementation of the Five-Point Consensus adopted in 2021, which among other things stipulates an end to violence, dialogue toward a peaceful solution and the dispatch of an envoy to visit all parties. Any progress requires consensus. Western countries (the US, the European Union, the UK, Canada and Australia) are not expected to lift their targeted sanctions against military leaders—including asset freezes and against visa denials—or against the main state-owned enterprise, the Myanma Oil and Gas Enterprise (MOGE).

The Middle East conflict is exacerbating economic problems

The economic outlook remains bleak as the civil war triggered by the 2021 military coup continues. However, after two years of contraction, post-earthquake reconstruction is expected to provide a slight boost to economic activity in 2026. In March 2025, an earthquake of magnitude 7.7 to 7.9 struck the central part of the country, near Mandalay, the nation’s second-largest city, killing more than 5,000 people. However, reconstruction efforts are being slowed by import restrictions and rampant inflation, pressures that are further exacerbated by the conflict in the Middle East. Myanmar relies directly on Gulf countries for its fertiliser imports and indirectly for refined petroleum products. Although it produces crude oil, the country must import nearly 97% of its petroleum product needs, primarily from Singapore. On that score, its refining capacity is extremely limited and the civil war is already causing shortages, which are exacerbated by Western sanctions against the MOGE. The government has announced rationing measures, while continuing to use fuel for military purposes, thereby depleting resources for the rest of the economy.

In 2026, natural gas exports to China and Thailand will not benefit from higher prices, as most contracts are long-term. In addition, in the absence of significant investment, volumes will decline further as the main fields are depleted. Daily power outages compound fuel and fertiliser shortages, disrupting all sectors, which are already affected by the civil war. Agriculture, in particular—which accounts for just under a quarter of GDP but nearly half of employment—is suffering from the fighting, earthquake-related destruction, and a lack of input due to reduced imports. Tourism will not recover as long as the civil war continues. The retail sector will continue to be hampered by low household purchasing power. It is being destabilised by supply chain disruptions, the cost of inputs and stock shortages which are affecting the manufacturing industry. Despite a recovery in 2025 driven by Asian customers, the apparel sector remains affected by the loss of European clients and a shrinking workforce. The mining sector is expected to be a rare source of growth for the country due to strong global demand. Rare earth mining sites are located in the eastern part of the country, near the border with China, where the minerals are later refined. These unregulated sites will remain targets for various armed groups seeking to take control of the resources.

The conflict in the Middle East has exacerbated the economic hardships caused by the civil war. Private investment, both domestic and foreign, will remain at a virtual standstill as long as the war continues. Public spending will be curtailed as meager revenues will be directed toward the war effort. Household demand will be subdued owing to low employment and population displacement. Furthermore, the real incomes of Myanmar’s citizens will continue to be eroded by high inflation. Inflation is being fuelled by the expansion of the money supply used to finance the budget deficit, as well as by domestic destruction and supply disruptions. It is exacerbated by kyat depreciation and the rising cost of imports due to restrictions, while foreign exchange reserves are low and foreign currency inflows are limited. The closure of the Strait of Hormuz only exacerbates these pressures. To curb inflation, the government has imposed price caps on essential commodities (rice, cooking oil and petroleum products) as well as restrictions on commercial transactions and foreign exchange. However, these measures are aggravating the shortages.

Both conflicts are putting additional strain on public and external accounts

In 2026, the current account balance is set to deteriorate, weighed down by the trade deficit. Petroleum products are the largest import category, even as crude oil is the leading export. The conflict in the Middle East is therefore driving up the cost of imports, as is reconstruction. The country depends on imports of capital goods and consumer goods, and on inputs such as iron, synthetic fibres and fertilisers. Non-oil exports are hampered by disruptions at land borders, depleting gas reserves, restrictions on manufacturing output and weak demand from the West. The continuation of import restrictions, particularly on automobiles and luxury goods, will limit the widening of the deficit. Insecurity and high kerosene prices are hurting tourism. US humanitarian aid has ceased since 2025. Expatriate remittances could be affected by Thailand’s weak growth. The country will therefore depend on China to reduce the deficit through reconstruction aid and to finance it, particularly through foreign direct investment (FDI). Faced with pressures on the external accounts, the government is expected to maintain controls on capital flows and the levy on expatriate remittances, which represent the primary source of foreign capital inflows. This allows it to limit the depletion of reserves, which are already extremely low but essential for financing the deficit.

The budget deficit has widened significantly over the past two fiscal years due to declining revenues. These revenues have been reduced by the war and the resulting economic stagnation. In addition, customs duties have contracted owing to the loss of control over major border cities and to the decline in gas exports and the drop in gas prices. The military’s resources, derived primarily from state-owned energy companies, are being undermined by Western sanctions, leading to a reallocation of funds at the expense of the civilian sector. These trends will continue in fiscal year 2026-2027: revenue will remain limited, while spending will be directed toward defence and reconstruction, and the oil bill will rise, which will further widen the deficit. Monetary financing of the deficit will continue, as multilateral grants and loans have plummeted since the coup. China will remain the country’s main donor.

Last updated:June 2026