IMF Executive Board Concludes 2021 Article IV Consultation with Panama

IMF News, June 16, 2021

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Published: June 16, 2021

Economic performance in 2020

Real GDP growth contracted by an unprecedented 17.9 percent in 2020.
Total unemployment rate (Sep, 2020): 18.5.
Sharp loss of revenues due to lockdown and demand effects precipitated a marked deterioration in the fiscal position.
Nonfinancial public sector fiscal deficit swelled to about 10 percent of GDP, but remained in line with the amended fiscal rule.
External current account improved to a surplus of 2⅓ percent of GDP in 2020, driven by:
- sharp contraction in imports,
- lower oil prices,
- increased copper exports,
- resilient canal revenues.
Financial sector remained stable, well capitalized, and liquid despite the pandemic shock and moratorium on servicing bank loans.
Panama remains on the Financial Action Task Force (FATF) grey list; FATF acknowledged actions taken but judged progress insufficient to remove Panama from the list and noted timelines for implementing all items of the FATF action plan had expired.

Outlook and risks

Growth projection: recover to 12 percent in 2021 and converge to potential of about 5 percent over the medium-term.
Major downside domestic risks:
- delays in addressing items in the FATF’s Action plan and improving effectiveness of the AML/CFT regime and tax transparency frameworks;
- increase in NPLs from the moratorium on servicing bank loans;
- setbacks in fiscal consolidation which jeopardize market confidence.
Major external risks:
- new pandemic waves;
- continued weaknesses in global trade curtailing traffic flow and revenue from the Canal.
Other risks: natural disasters and extreme climatic events that could disrupt canal activity, agriculture, and tourism.

Fiscal and public finance considerations

Revenue and grants (percent of GDP): 22.0 (2017), 20.9 (2018), 21.8 (2019), 22.6 (2020), 23.1 (2021 est.), 23.1 (2022 est.).
Expenditure (percent of GDP): 24.2 (2017), 24.9 (2018), 24.1 (2019), 30.7 (2020), 29.3 (2021 est.), 26.4 (2022 est.).
Current, including interest (percent of GDP): 17.0 (2017), 17.2 (2018), 17.6 (2019), 25.3 (2020), 24.4 (2021 est.), 21.6 (2022 est.).
Capital (percent of GDP): 6.6 (2017), 5.8 (2018), [no value shown for 2019], [no value shown for 2020], [no value shown for 2021], [no value shown for 2022].
Overall balance, including ACP (percent of GDP): -2.2 (2017), -2.9 (2018), -3.2 (2019), -8.9 (2020), -6.7 (2021 est.), [no value shown for 2022].
Overall balance, excluding ACP (percent of GDP): -3.6 (2017), -10.1 (2018), -7.4 (2019), -4.0 (2020), [no value shown for 2021], [no value shown for 2022].
Debt of the Non-financial public sector (percent of GDP): 37.3 (2017), 42.2 (2018), 64.0 (2019), 62.9 (2020), 62.5 (2021 est.), [no value shown for 2022].
- External (percent of GDP): 28.7 (2017), 30.6 (2018), 55.1 (2019), 54.2 (2020), 54.4 (2021 est.), [no value shown for 2022].
- Domestic (percent of GDP): 6.7 (2017), 8.9 (2018), 8.7 (2019), 8.1 (2020), [no value shown for 2021], [no value shown for 2022].
Debt of ACP (percent of GDP): 3.8 (2017), 3.5 (2018), 2.9 (2019), [no value shown for 2020].
External Debt: 149.6 (2017), 153.0 (2018), 156.8 (2019), 201.9 (2020), 186.3 (2021 est.), 185.3 (2022 est.).
GDP (in millions of US$): 62,203 (2017), 64,928 (2018), 66,788 (2019), 52,938 (2020), 59,447 (2021 est.), 63,084 (2022 est.).

Financial sector issues and supervision

Panama’s banking system remained resilient and generally well-regulated, but vulnerable to unanticipated shocks.
Directors recommended:
- restrict and phase out regulatory forbearance on loans granted during the pandemic;
- implement a supervisory action plan and close monitoring;
- continually recalibrate the ad hoc provisioning requirement on modified loans to evolving circumstances;
- conduct a risk-focused loan portfolio examination of all banks, including assessment of fundamental asset quality, to assess credit exposures and capital buffers.

Financial integrity, FATF, and tax transparency

Exiting the FATF grey list must remain a priority.
Authorities should expediently address remaining deficiencies in the AML/CFT regulatory framework.
Efforts to further enhance tax transparency should continue, in close cooperation with the European Union.

Structural reforms and medium-term priorities

Directors called for reforms to enhance competitiveness and growth potential, including:
- improvements in the business climate;
- strengthening policies related to labor mobility, governance, and institutional capacity;
- enhancing innovation and technological sophistication in key industries;
- deepening financial inclusion;
- upgrading workforce skill levels;
- streamlining the insolvency framework;
- improving the functioning of the judicial system.
Directors welcomed long-term goals of enhancing the efficiency of spending, particularly in health, education, and social areas, including improving living conditions of indigenous populations.

Key social and demographic indicators

Population (millions, 2020): 4.3
Poverty line (percent, 2017): 20.7
Population growth rate (percent, 2020): 1.4
Life expectancy at birth (years, 2018): 78.3
Total unemployment rate (Sep, 2020): 18.5
Adult literacy rate (percent, 2018): 95.4
GDP per capita (US$, 2020): 12,373
IMF Quota (SDR, million): 376.8

IMF Executive Board Concludes 2021 Article IV Consultation with Panama — Press Release No. 21/179 (June 16, 2021), IMF Communications Department.

IMF Executive Board Concludes 2021 Article IV Consultation with Panama

Source details

Other formats

Bibliographic details

Economic performance in 2020

Outlook and risks

Fiscal and public finance considerations

Financial sector issues and supervision

Financial integrity, FATF, and tax transparency

Structural reforms and medium-term priorities

Key social and demographic indicators

References