IMF Concludes 2014 Article IV Mission to Panama

Press Release No. 14/66
February 24, 2014

An International Monetary Fund (IMF) mission, headed by Luca Antonio Ricci, visited Panama City during February 11-21 to conduct the country’s annual Article IV consultation.1 At the end of the discussions, Mr. Ricci issued the following statement in Panama City:

“Panama’s economic performance remains buoyant. Growth averaged about 8.5 percent over the past decade, the highest in Latin America. Panama’s banking sector performance indicators are healthy; banks remain well-capitalized, liquid and profitable. The law issued in 2013 providing for the custody of bearer shares as well as the publication of the 2014 IMF’s Detailed Assessment Report on Anti-Money Laundering and Combating the Financing of Terrorism are positive steps towards improving the transparency of the corporate and financial sectors.

“Our baseline growth projections are favorable, with broadly balanced risks. Growth is moderating from the high levels of 2011-12 but remains strong—estimated at about 8 for 2013 and projected at above 7 percent in 2014—supported by robust public and private investments. Inflation is declining due to the deceleration of international food and fuel price inflation, but remains higher than in trading partners. The current account deficit remains large but continues to be financed mainly by buoyant Foreign Direct Investment (FDI) inflows.

“Near-term risks arise mainly from shifts in global trade and financial conditions, overheating pressures, and the risk of further significant delays in the Canal expansion. The normalization—and the surrounding uncertainty—of U.S. monetary policy may expose vulnerabilities, including through capital outflows. Other external risks relate to a protracted economic slowdown in trading partners and persistent payment difficulties in Venezuela. Strong domestic fundamentals and the ability to implement countercyclical fiscal policies would, however, mitigate the impact of external shocks. Near-term domestic risks arise mainly from the build-up of overheating pressures and a possible loss of competitiveness, as well as the risk of further significant delays in the Canal expansion.

“In this context, tighter fiscal policy in the near term would help build policy space in case of serious deterioration of the domestic or external environment. Given strong domestic demand and output above capacity, keeping the fiscal deficits below the revised Social and Fiscal Responsibility Law (SFRL) ceilings would also help contain domestic inflationary pressures and prevent them from becoming entrenched in wage dynamics.

“Ongoing efforts to upgrade financial sector supervision and transparency are welcome and should be accelerated. Transparency of the corporate and financial sectors needs to be improved further, in line with the FATF’s and Global Forum standards —a particularly important task given Panama’s role as a financial center. The authorities should continue to build up financial safety nets and to enhance their capacity for monitoring systemic risks, conducting macro-prudential policies, and supervising non-bank financial institutions. Credit growth, financial leverage, and external exposures should continue to be closely monitored, and gaps in data that are critical for conducting sound macroeconomic policy should be closed.

“Our discussions of medium-term issues focused on structural policies and institutional reforms to ensure a smooth transition towards strong and sustainable medium term growth when large public investment projects are completed. In order to maintain external sustainability and competitiveness, it is important to contain inflationary pressures and prevent further appreciation of the real exchange rate.

“In view of addressing the country’s social challenges more efficiently, we encourage the authorities to continue ensuring that social programs reach the intended targeted groups and effectively address social objectives. We welcome the effort to enhance the quality of public education and emphasize that measures to increase the availability of vocational training and stimulate female labor participation may raise labor productivity, which in turn would contribute to achieving sustainable and inclusive growth, further reducing poverty, and raising living standards.

“The mission would like to express its gratitude to the Panamanian authorities for their kind hospitality, excellent cooperation, and candid discussions.”


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. 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.



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