Myanmar 2026: A Fractured State, a Collapsing Kyat, and the Economics of Lost Territory

Operation 1027 and the territorial map #

The Three Brotherhood Alliance, comprising the MNDAA, the Ta'ang National Liberation Army (TNLA), and the Arakan Army (AA), launched Operation 1027 on 27 October 2023 across northern Shan State. Within ten weeks the alliance captured more than twenty towns and hundreds of outposts along the Chinese border, including the Kokang capital Laukkai, which fell in January 2024 with the surrender of more than two thousand junta troops (ACLED; Irrawaddy, January 2024). On 3 August 2024 the MNDAA took Lashio, headquarters of the Tatmadaw's Northeastern Command, the first regional command lost in the country's history (Reuters Yangon, 3 August 2024).

The Arakan Army has run the parallel campaign in Rakhine. By Q1 2025 the AA had taken Paletwa, Mrauk U, Minbya, Kyauktaw, Pauktaw, Ponnagyun, Rathedaung, Ramree, and Ann, the latter the headquarters of the Western Command (Frontier Myanmar, January 2025). The junta retains Sittwe, the Kyaukpyu special economic zone where the China-backed deep-sea port and gas pipeline terminal sit, and a thinning belt at Maungdaw. In Kachin the KIA has retaken Bhamo District and the rare-earth mining belt at Pangwa and Chipwi, and the BLA, formed April 2024 in the Bamar heartland, has joined PDF networks across Sagaing and Magway. The NUG claims civilian administration over more than 60 percent of the country's 330 townships, with the Tatmadaw retaining stable control of fewer than 90, mostly in the central plain (Special Advisory Council for Myanmar, December 2025).

The kyat, the contraction, and the sanctions overlay #

Real GDP contracted 18 percent in fiscal 2020 to 2021 (April to September period under the old fiscal calendar) and a further 12 percent through 2022 according to the World Bank Myanmar Economic Monitor, leaving 2025 output roughly 13 percent below the 2019 peak. The Asian Development Bank Myanmar Economic Outlook of April 2025 estimated growth at minus 1.0 percent for fiscal 2024 and a fragile plus 1.1 percent projection for fiscal 2025 conditional on stable agricultural output, a condition Cyclone Yagi in September 2024 already partly broke when floods damaged about 6.4 percent of paddy area (FAO and ADB joint assessment, October 2024). Inflation ran at 26.5 percent in fiscal 2024 (ADB), driven by import compression, the kyat's parallel-market collapse, and fuel pass-through.

The Central Bank of Myanmar reference rate sits at 2,100 kyat per dollar with a managed band that hit 3,500 in selected April 2025 export-surrender windows (CBM circulars; Frontier Myanmar, April 2025). The parallel market has cleared above 11,000 kyat per dollar through late 2025 and into 2026, a gap that has destroyed the value of any export proceeds the junta forces back through formal channels at the official rate. The CBM mandated 35 percent surrender of export earnings for non-garment shipments and 25 percent for garments by 2024, dragging exporters into a regime in which the implicit tax can exceed half of dollar receipts.

Sanctions architecture has hardened around the Myanma Oil and Gas Enterprise (MOGE) and Myanma Foreign Trade Bank. The United States Treasury OFAC designated MOGE in October 2023, the European Union followed in 2024, and the United Kingdom cut MOGE access through London correspondents. China and Thailand remain the residual conduits: more than 70 percent of Myanmar's recorded merchandise trade in 2025 ran through these two partners (UN Comtrade mirror data; Reuters Yangon).

Forced conscription and the demographic outflow #

On 10 February 2024 the SAC activated the People's Military Service Law, dormant since 2010, mandating two years of service for men aged 18 to 35 and women 18 to 27, extendable to five years under emergency. First call-ups began April 2024 with monthly draft batches targeting 5,000, scaling toward an announced annual goal of 60,000 (Irrawaddy, March 2024). Passport offices in Yangon and Mandalay reported queues the same week, and Thai immigration and Singapore work-permit channels saw visible step-changes in Myanmar arrivals.

The IOM Displacement Tracking Matrix Myanmar reports more than 3.5 million internally displaced persons as of late 2025, up from 330,000 just before the coup, the bulk added since Operation 1027 across Sagaing, Magway, Rakhine, and Shan. Cross-border outflows to Thailand exceeded 100,000 new asylum seekers and irregular migrants in 2024 alone (UNHCR Thailand). Bangladesh hosts more than one million Rohingya in Cox's Bazar from the 2017 expulsion, with new arrivals through 2024 and 2025 as the AA campaign in northern Rakhine displaced a further estimated 60,000 across the Naf River (UNHCR Bangladesh; ISCG Cox's Bazar). The labor market consequence is acute. The garment sector, manufacturing, construction, and the civil service all report skilled-worker drain, with private surveys placing the median departing migrant in the 22 to 32 age band, the same cohort the conscription law targets.

Garments, jade, gold: the export economy that survives #

Cut-make-pack (CMP) garment exports to the EU ran near 5 billion dollars in 2023 and held above 4 billion in 2024 despite the EU's Everything But Arms review, with Germany, Spain, and the Netherlands the largest buyers (Eurostat; MGMA). Brands continue sourcing on the premise that CMP ringfences wages from the junta, though Business and Human Rights Resource Centre tracking has flagged repeated wage theft and union suppression cases. The segment employs roughly 500,000 workers, mostly women, and provides the largest formal foreign exchange channel still operating.

Jade exports run through Hpakant in Kachin, where KIO and KIA have steadily expanded control since 2023. Chinese customs records show steady jadeite imports from Myanmar in the 1 to 2 billion dollar range annually, mostly via Ruili and Tengchong. Rare-earth mining at Chipwi and Pangwa shifted under KIO levy regimes from late 2024 after the KIA captured the corridor; Chinese rare-earth oxide imports from Myanmar fell from 41,700 tonnes in 2023 to lower volumes through 2024 (Chinese General Administration of Customs, Global Witness).

Gold flows out of the central dry zone and Kachin alluvial deposits through Mae Sai-Tachileik onward to Bangkok and Singapore refining. Volumes are unverifiable, but Frontier Myanmar reporting and Thai customs anomalies indicate one of the larger informal channels for both junta-aligned cronies and the resistance. Wa State, governed de facto by the UWSA, anchors a separate narcotics economy, with the UNODC 2024 report estimating the regional methamphetamine market at 30 to 60 billion dollars annually, of which Shan and Wa production accounts for the dominant share.

Cox's Bazar, the Rohingya question, and ASEAN paralysis #

Bangladesh's Cox's Bazar district hosts roughly 1.05 million Rohingya as of early 2026, the largest single concentrated refugee population in the world, with more than half present since the August 2017 Tatmadaw clearance operations against villages in Maungdaw, Buthidaung, and Rathedaung (UNHCR Bangladesh; ISCG situation reports). The Joint Response Plan funding gap widened in 2024 and 2025 as donor attention shifted to Ukraine and Gaza, with appeals running below 50 percent funded through the second half of 2025. The Bhasan Char relocation, designed for 100,000, holds approximately 36,000 as of late 2025, and the Bangladesh interim government under Muhammad Yunus has restated repatriation to Rakhine as the only durable solution while acknowledging that the security conditions for return do not exist.

The Arakan Army's effective control of most of Rakhine creates a new diplomatic geometry. Bangladesh's interim foreign ministry has opened working-level engagement with the AA's Arakan People's Government on humanitarian access and border management, distinct from any formal recognition (Daily Star, December 2025; Frontier Myanmar). The complicating fact is that the AA has its own record of violence against Rohingya civilians, documented in 2024 and 2025 incidents, which makes a clean repatriation framework conditional on a political settlement that does not yet exist.

ASEAN's Five-Point Consensus, agreed in April 2021, has produced no measurable de-escalation after five years. Indonesia's 2023 chairship pursued quiet diplomacy with limited result, Laos in 2024 deferred substantively, and Malaysia's 2025 chairship under Anwar Ibrahim has signaled greater willingness to engage non-junta stakeholders including the NUG and ethnic resistance organizations. The junta has been excluded from leaders' summits since October 2021. Strategos reads ASEAN's role through 2026 as procedurally consequential for humanitarian channels and politically marginal for the territorial question, which is being decided on the ground.

The 2025 sham election and the 2026 outlook #

The SAC held a multi-phase election across December 2025 and early 2026 in the townships it controlled, with the USDP and military-aligned proxies contesting under a registration regime that excluded the NLD after its August 2023 forced dissolution. Voter rolls covered fewer than half of eligible voters by independent count, dozens of townships were excluded for security reasons, and PDF networks targeted polling logistics in central Myanmar. The EU, US, UK, Australia, Canada, and Japan declined to recognize the result, and ASEAN's response stopped at acknowledgment. The exercise served the SAC's domestic legitimation and permitted a cosmetic transfer to a nominally civilian government with the same principals.

The Belt and Road file is on hold in headline projects and active in the workarounds. The Kyaukpyu deep-sea port concession, signed with CITIC in 2018 and renegotiated to a 70-30 split in 2020, has not advanced to construction through 2025, with AA territorial control over the Rakhine hinterland the binding constraint. The Myitsone dam moratorium, in place since Thein Sein's September 2011 suspension, has continued under both the NLD and SAC, with KIA control over the dam site now the practical reality. China-Myanmar Economic Corridor connectivity has shifted toward smaller cross-border zones and the Muse-Mandalay rail feasibility studies, subject to the security situation Operation 1027 has redrawn.

Strategos's base case for 2026, at roughly 50 percent probability, is continued territorial stalemate in central Myanmar with steady erosion of the junta's economic base, real GDP printing zero to plus 1 percent against ADB's 1.1 percent projection, headline inflation in the 20 to 28 percent range, and the parallel-market kyat drifting toward 12,000 to 14,000. The downside case at 30 percent sees a Tatmadaw command crisis triggered by further field defeats, accelerating the kyat past 15,000 and forcing CBM to abandon the reference rate. The upside case at 20 percent is a negotiated framework brokered through a combination of Chinese pressure and ASEAN engagement that produces a federal pathway with the EAOs and the NUG, a multi-year reconstruction program backed by Japan, the EU, and World Bank trust funds, and a slow normalization of the kyat. The actionable variables for the next twelve months are the fate of Sittwe and Kyaukpyu, the conscription draft completion rate, the CMP order book at the EU buyers, and the trajectory of the Hpakant jade season.

Sources #

• Asian Development Bank Myanmar Economic Outlook April 2025
• World Bank Myanmar Economic Monitor
• ACLED Myanmar conflict data
• IOM Displacement Tracking Matrix Myanmar
• UNHCR Bangladesh Rohingya operational data
• Special Advisory Council for Myanmar
• Frontier Myanmar reporting
• The Irrawaddy
• Reuters Yangon coverage
• UNODC Synthetic Drugs in East and Southeast Asia 2024
• Global Witness Myanmar jade and rare earth tracking
• UN Comtrade and Eurostat trade in goods