## IMF Executive Board Concludes 2021 Article IV Consultation with Panama

_IMF News, June 16, 2021_

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## Bibliographic details
- Published: June 16, 2021

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### 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.*

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## References

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- [Questions & Answers](https://www.imf.org/en/About/FAQ/imf-response-to-covid-19)
- [Panama and the IMF](http://www.imf.org/external/country/PAN/index.htm)
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_Source: https://www.imf.org/en/news/articles/2021/06/16/pr21179-panama-imf-executive-board-concludes-2021-article-iv-consultation-with-panama_