Fitch Solutions has downgraded its growth forecast for Myanmar to 6.3 percent for the 2019 fiscal year from 6.6pc previously, citing risks stemming from the crisis in Rakhine.

However, the research firm believes growth, while slowing, will remain supported by the manufacturing and construction sectors, which are forecast to expand this year.

“Although Myanmar’s business environment remains the weakest in Southeast Asia, we note that gradual improvements are being made, and the government in general has been adopting the right industrial policies,” Fitch wrote in a January 23 report.

For instance, there is greater clarity now as to which products require export licensing after the Ministry of Commerce in February 2018 issued a negative list, while the Myanmar Company Law implemented in August 20 18 aims to enhance protection for minority shareholders and strengthen corporate governance.

Also Read: China’s Six Belt and Road Projects in Myanmar to Watch in 2019.

The Myanmar Investment Law and the Myanmar Special Economic Zone Law will also help protect investors against nationalisation and expropriation, and also g rants a wide range of favourable income tax exemptions.

“Myanmar’s geographical advantage is its location between two of the world’s largest economies, China and India, and offers a strategic transshipment point and access to the rest of Asia without requiring passage through the Malacca Straits. Therefore, for manufacturers looking to export to Africa and Europe, this would help lower shipping and logistics cost and also reduce exposure to geopolitical risks,” Fitch reckons.

The construction sector is also poised to see strong growth over the coming quarters, supported by China’s Belt and Road Initiative and the development of several major special economic zones, including Thilawa in Yangon, Dawei in Tanintharyi and Kyaukphyu in Rakhine. Collectively, the investments in these SEZs amount to more than one-fifth of Myanmar’s GDP, according to Fitch.

Still, renewed fighting in Rakhine this month will pose risks to growth. For example, the EU has threatened to revoke the country’s preferential trade access to the bloc under the Everything But Arms scheme.

In our view, this is a setback for the peace process and could fuel further concern that Myanmar authorities are backtracking on efforts to address the refugee crisis. “This could see the West step up economic sanctions against the fledgling economy,” Fitch said.