A staff team of the International Monetary Fund (IMF), led by Alejandro
Santos, visited Panama during July 17-23, 2019, invited by the Panamanian
authorities. At the end of the visit Mr. Santos issued the following
statement:
“While Panama remains among the most dynamic economies in Latin America,
the economic recovery has been slower than anticipated. Real GDP grew at an
annual rate of 3.1 percent in the first quarter of 2019 (compared to 4
percent in the same period of last year), due to a softening in
construction and services. More recent data point to a continuation of a
sluggish recovery, leading us to revise down our growth projection for 2019
to 5 percent (from 6 percent estimated in our February visit). Panama’s
fundamentals remain solid, with the economy expected to recover and
converge to its potential growth of 5½ percent by next year, and inflation
edging up to 2 percent over the medium-term. The banking system remains
well-capitalized and liquid with low non-performing loans. The external
position will continue strengthening over the medium term. The balance of
risks to the outlook is tilted to the downside, related to fears of rising
trade protectionism, weaker global outlook, and potential pressure on
banks’ correspondent relations.
“Preliminary data indicate a decline in fiscal revenues and an acceleration
in the implementation of budgetary spending, leading to a fiscal deficit in
the first half of the year above the 2 percent of GDP limit established by
the fiscal rule for the whole year. In addition, sizable arrears
accumulated to suppliers and banks which need to be cleared. The
authorities estimate that in the absence of corrective measures, the fiscal
deficit could reach almost 4 percent of GDP in 2019. The authorities are
committed to corrective measures but fear that a rapid pace of
implementation could weaken the ongoing recovery further. Against that
background, the authorities expect to reduce the fiscal deficit by over 2
percent of GDP in the next two years, allowing them to observe the deficit
limit under the fiscal responsibility law of 1¾ percent of GDP by 2021.
“In June 2019, the Financial Action Task Force (FATF) placed Panama on the
list of countries with strategic deficiencies on its anti-money laundering
framework. Despite recent progress on financial integrity, including the
recognition of tax evasion as a predicate offense to money laundering, the
legal framework needs to be further strengthened and its effectiveness
needs to be demonstrated. The authorities are fully committed to
implementing the recommendations of the action plan agreed with the FATF
and aim to be out of this list as soon as it is possible. Sustained efforts
to enhance the anti-money laundering framework and tax transparency will be
crucial to strengthen Panama’s position as a regional financial center.
“Sustaining inclusive growth over the medium term will require reinforcing
the structural reform agenda, especially in education, social security and
public health services. Further improvements in fiscal revenues and
stricter expenditure controls will be required to improve macroeconomic
management, create the necessary fiscal space to cover the cost of future
reforms, and strengthen fiscal discipline. We encourage the authorities to
upgrade the statistical framework to facilitate sound economic decision
making at all levels of government.”
The mission is grateful to the authorities for their kind hospitality,
excellent cooperation and open discussions.
