While Myanmar’s tiny stock exchange formally reopened to foreign investors as a new companies law went into effect several months ago, they continue to keep their distance amid slowing growth and currency depreciation, and potential removal by the European Union of duty-free entry to garment exports over the Rohingya refugee crisis.

Government leader Aung San Suu Kyi refused to accept criticism at the APEC (Asia-Pacific Economic Cooperation) summit last month over expulsions and human-rights violations against the Muslim minority in Rakhine state, as Bangladesh tried to start a repatriation program for a few thousand of the 750,000 there.

Suu Kyi has replaced economic officials but refused to acknowledge a “gathering storm” described in a World Bank report this month of policy lapses and delays reflected in sliding tourism and foreign direct investment (FDI), as the country ranks in the bottom 20 of its “Doing Business” publication.

The International Monetary Fund’s latest Article IV visit piled on with a call for a “second reform wave” to achieve frontier-market status, as it cited fiscal risks from large recently agreed China-funded infrastructure projects and hesitant restructuring of the state-run banking system.

The World Bank predicts that growth in gross domestic product will slow by half a point to 6.2% in the 2018-19 fiscal year ending in March. Industrial-sector decline was tracked in purchasing manager index (PMI) readings below 50 last quarter, with business sentiment faltering according to a separate survey.

The midyear pace of approved manufacturing FDI was half the previous US$1.5 billion, and services output fell slightly with tourism fallout over the Rohingya issue. Arrivals are up less than 1% compared with 7% in 2017, with double-digit drops from Europe and North America. The government removed visa requirements for Asian neighbors in a bid to bridge the gap, but their spending and stays continue to lag behind visitors from wealthier countries.

Garment exports are a “bright spot,” the World Bank says, accounting for 3% of GDP and almost 750,000 mostly women-held jobs, but EU and US preferences are under review for possible resumption of trade sanctions.

Agriculture as the main employer is flat after flood-related crop damage and Indian import curbs, and private consumption will “moderate,” with inflation driven by rising food and fuel prices and currency depreciation expected to reach 9%.

Officials poured money into energy and transport projects in an attempt to stoke demand, also boosting the budget deficit to 4% of output.

The trade deficit was a five-year low of $300 million in the second quarter, with formal jade exports to China doubling despite an international campaign to boycott so-called “genocide gems” controlled by the Myanmar military.

Reduced imports of capital goods should shrink last year’s 2.5%-of-GDP current-account gap, and FDI flows have traditionally offset it but were only $1.7 billion from April-September versus $4 billion in the preceding period.

Oil and gas exploration and production remain shunned pending law and tax changes, and companies from Singapore, China and Thailand are in sequence the leading sources. They represent 70% of the total, with “limited diversification” through other regions, and China’s 15% slice is likely to increase with the bilateral economic corridor under the Belt and Road Initiative, the World Bank report comments.

Kyat depreciation against the US dollar roughly mirrors regional trends, with an August spike when the Myanmar central bank removed a daily fluctuation band and the exchange rate settling around 1,550 since October. Thin formal foreign-exchange trading may exacerbate volatility, and officials recently authorized dollar swaps to aid liquidity. The swings have little influence on Chinese border trade denominated in renminbi, and competitive export gains are elusive as imported input costs rise.

The central bank continued interventions at $15 million from April-September, as first-quarter credit growth was barely in double digits after the previous 25% clip with tighter bank regulation demanded by international donors. Two-thirds of loans go to trade, construction, services and agriculture customers, with a “large state-enterprise bias.”

Profitability as measured by return on assets is in steady decline as interest-rate controls remain in place. The lack of market determination applies also to Treasury bill and bond issuance to finance the deficit, where auction participation is “below potential.”

The first credit bureau for banks and non-bank lenders to pool information better and manage risk is under formation and may improve small-business access, but medium-term progress depends as much on image and portfolio rehabilitation as an urgent broader leadership signal, the review concludes.