IMF Executive Board Concludes 2014 Article IV Consultation with Panama

Press Release No. 14/235
May 19, 2014

On May 9, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Panama.

Panama’s economic performance remains buoyant. Real GDP growth averaged about 8.5 percent over the past decade, the highest in Latin America, supported by an ambitious public investment program, and accompanied by strong reduction in unemployment, poverty, and income inequality. After exceeding 10 percent in 2011–12, growth slowed to 8.4 percent in 2013 reflecting mainly a decline in Colon Free Zone activity and in Canal traffic. Growth is expected to remain strong over the medium term, as the economy continues to enhance its regional and global logistics role for the movement of goods, capital, and people. Inflation is moderating, due to the deceleration of international food and oil prices, but remains resilient and higher than in major trading partners, owing in part to strong domestic demand. The authorities are in the process of revising national accounts statistics (the Staff Report is based on the 1996-base national account statistics, the data available at the time of the staff mission).

The 2013 fiscal deficit was 3 percent of GDP, below the ceiling allowed under the Social and Fiscal Responsibility Law (SFRL) despite strong public investment. The 2014 fiscal deficit is expected to remain within the SFRL ceiling (2.7 percent of GDP), taking into account the expected upward revision to GDP. Strong growth and fiscal discipline contributed to a declining path of public debt. Efforts have been made to smooth the amortization profile and develop the domestic capital market. The banking system is generally healthy, with sound performance indicators, and the authorities have moved proactively to contain risks related to exposures to Venezuela. The current account deficit remains elevated, reflecting high public and private investment as well as temporarily weak exports, but is financed mainly by buoyant foreign direct investment.

The baseline outlook is favorable, with moderate risks. Panama’s extensive external linkages bring strong economic and financial benefits, but also make the country sensitive to shifts in global economic and financial conditions. The normalization—and the surrounding uncertainty—of U.S. monetary policy may expose vulnerabilities, including through higher interest rates and capital outflows, while other external risks relate to a protracted economic slowdown in trading partners and persistent payment difficulties in Venezuela. Strong domestic demand contributes to the risk of overheating: resilient inflationary pressures may feed into wage dynamics, possibly reducing competitiveness. Additional significant delays in the Canal expansion would have an adverse impact on output and employment in the short term, and on exports and fiscal revenues in the medium term. However, strong fundamentals and the ability to implement countercyclical fiscal policies would help mitigate the impact of these shocks.

Executive Board Assessment2

Executive Directors commended Panama’s continued robust macroeconomic performance, underpinned by sustained policy reforms, strong public investment, and private demand. Directors noted that although the outlook for growth is healthy, there are some signs of domestic overheating and the current account deficit is elevated. Changes in global economic and financial conditions could also pose risks. Directors emphasized that continued commitment to strong macroeconomic and financial policies and structural reforms will be important to safeguard against external and domestic shocks, and to support strong and sustainable growth.

Directors welcomed the prudent fiscal policy stance. However, they underscored that fiscal policy could be tightened to rein in inflationary pressures, and provide a cushion against external shocks. Furthermore, targeting a fiscal deficit below the Social and Fiscal Responsibility Law (SFRL) ceiling would help reduce the risk of exceeding or revising the deficit ceilings, thereby strengthening the credibility of the SFRL framework and investors’ confidence. Directors encouraged the authorities to continue with fiscal reforms to strengthen capacity in budgeting and public financial management. Completing the implementation of the Single Treasury Account and establishing a Medium-Term Expenditure Framework will be important going forward.

Directors noted that Panama’s financial sector is generally healthy. Looking ahead, they advised close monitoring of external positions, credit growth, and the leverage and liquidity positions of banks. To safeguard financial stability, Directors encouraged swift implementation of the remaining 2011 Financial Sector Assessment Program recommendations. They called for further progress on a well-designed liquidity facility for banks to help absorb liquidity shocks, and for building capacity to monitor systemic risks and to conduct macroprudential policies. Priority should also be given to further enhancing supervision of banks and non-bank financial institutions.

Directors highlighted the importance of further enhancing corporate and financial transparency. They encouraged the authorities to step up their efforts to strengthen the anti-money laundering and combating the financing of terrorism (AML/CFT) regime, including implementation of the recommendations of the AML/CFT assessment report.

Directors agreed that continued structural reforms are necessary to maintain external stability and competitiveness, reduce poverty, address income inequality, and enhance human capital and productivity. They encouraged the authorities to further enhance the quality of public education, increase the availability of vocational training, upgrade skills, and stimulate female labor force participation. Consideration should also be given to measures to support reallocation of labor from construction to other economic sectors, once the large infrastructure projects, including the canal expansion, are completed.

Directors encouraged the authorities to resume efforts toward subscription to the Special Data Dissemination Standard (SDDS), which would help close gaps in data that are critical for conducting sound macroeconomic policy.

Panama: Selected Economic Indicators


        Est. Proj.  
  2009 2010 2011 2012 2013 2014


(Annual percent change)




Real economy








Nominal GDP

5.0 12.0 15.8 14.7 12.7 11.1  

Real GDP (1996 prices)

3.9 7.5 10.9 10.8 8.4 7.2  

Consumer price index (average)

2.4 3.5 5.9 5.7 4.0 3.8  

Consumer price index (end-of-year)

1.9 4.9 6.3 4.6 3.7 3.6  











Money and credit


Private sector credit

1.3 13.6 16.8 14.1 12.6 11.3  

Broad money

9.4 11.6 7.8 10.4 8.8 11.1  

Average deposit rate (1-year)

2.8 2.9 2.1 2.2 2.1  

Average lending rate (1-year)

7.5 7.5 6.9 7.2 7.2  




  (Percent of GDP)  



Saving and investment


Gross domestic investment

25.6 25.5 27.2 28.6 30.0 29.8  

Gross national saving

24.9 14.2 11.3 18.0 18.1 19.0  









Nonfinancial public sector 1/








Revenue and grants

30.3 29.5 29.0 28.9 28.0 27.8  


29.2 33.0 33.4 32.2 33.0 32.7  

Current, including interest

21.3 21.0 20.6 20.1 19.4 19.9  


7.9 12.0 12.8 12.1 13.6 12.8  

Overall balance

1.0 -3.5 -4.4 -3.3 -5.0 -4.8  

Overall balance, excluding ACP

-1.0 -1.8 -2.1 -1.5 -3.0 -3.0  









External sector
















Current account

-0.7 -11.4 -15.9 -10.6 -11.9 -10.8  

Foreign direct investment

5.2 8.9 9.4 8.8 10.8 9.1  

Real effective exchange rate (depreciation -)

1.9 -2.3 1.7 3.9 5.3  

External public debt 2/

42.0 39.7 37.7 32.9 32.3 32.4  









Memorandum items:








GDP (in millions of US$)

24,163 27,053 31,320 35,938 40,490 44,986  









Sources: Comptroller General; Superintendency of Banks; and IMF staff estimates.

1/ Includes Panama Canal Authority (ACP).

2/ Including external debts of ACP.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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