IMF Executive Board Concludes 2022 Article IV Consultation with Panama
IMF News, March 24, 2023
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- Published: March 24, 2023
Background and recent performance
- In the decade-and-a-half preceding the Covid-19 pandemic, an unprecedented construction and investment boom precipitated a rapid economic expansion in Panama:
- Major projects included expansions of the Panama Canal and Tocumen Airport, large scale building of new skyscrapers in Panama City, and construction of one of the largest copper mines in the world.
- Real GDP grew by 6 percent annually, poverty declined sharply, and income levels rapidly converged with those in advanced countries.
- Covid-19 impact and recovery:
- Real GDP shrank by 18 percent in 2020.
- Unemployment spiked to 18½ percent in 2020, from 7 percent in 2019.
- Output expanded by 15 percent in 2021 and a projected 9 percent in 2022.
- Employment has rebounded strongly, while inflation remained low compared with other countries.
- The fiscal deficit declined from 10.4 percent of GDP in 2020 to 4 percent of GDP in 2022.
Risks and outlook
- External and domestic risks identified:
- A sharper than expected downturn of the world economy.
- Renewed surges of food and energy prices.
- Disruptions to global capital markets.
- Uncertainty about when the rebound from the deep Covid-related downturn will have run its course.
- Medium-term growth potential concern because construction is unlikely to provide the same support to growth as in the previous decade-and-a-half.
- Prolonged inclusion of Panama in the Financial Action Task Force (FATF) grey list.
- Disruptions to copper mining activities after negotiations between the government and Minera Panama on a new contract failed to meet a mid-December 2022 deadline.
Executive Board assessment and policy advice
- Main messages:
- Directors agreed with the thrust of the staff appraisal: strong post-pandemic recovery but an uncertain outlook and notable risks.
- Policies should focus on rebuilding buffers and ensuring convergence of Panamanian income levels with those in advanced countries continues.
- FATF / AML-CFT:
- Critical importance of prioritizing an exit from the FATF grey list at the earliest date possible by expeditiously addressing the remaining deficiencies in the AML/CFT regulatory framework.
- Urged AML/CFT regulation and supervision to be applied to Fintech companies.
- Fiscal policy and debt sustainability:
- To ensure debt sustainability in the medium term, further reducing the fiscal deficit is important, in accordance with the fiscal rule.
- Tax revenue will need to increase to sustainably reduce the fiscal deficit while preserving social spending and creating room for more education spending.
- Emphasized improving tax and customs collection efficiency and broadening the tax base by reducing exemptions, deductions, and tax expenditures.
- Address deficits in the defined-benefit pension component of the social security system.
- Financial sector resilience:
- Capital adequacy and liquidity indicators in the banking sector are well above regulatory minima.
- As Panama does not have a lender of last resort and deposit insurance, keeping the banking system well capitalized and liquid is important.
- Highlighted need for continued intensive supervision and monitoring and expanding the macroprudential policy toolkit to mitigate future asset quality and liquidity risks.
- Structural and statistical reforms:
- To sustain income convergence, other productive sectors must take over from construction; governance and human capital must improve.
- Called for structural reforms to enhance innovation, improve critical infrastructure, and strengthen labor policies to bolster competitiveness and growth potential.
- Encouraged the authorities to work toward SDDS subscription and stressed the importance of more timely statistics to reinforce transparency.
Key statistics and projections (selected)
- Population (millions, 2021): 4.3
- Poverty line (percent, 2019): 21.5
- Population growth rate (percent, 2021): 1.4
- Adult literacy rate (percent, 2019): 95.7
- Life expectancy at birth (years, 2019): 78.5
- GDP per capita (US$, 2021): 14,664
- Total unemployment rate (October 2021): 11.3
- IMF Quota (SDR, million): 376.8
- Real GDP (2007 prices), percent change:
- 2018: 3.7
- 2019: 3.0
- 2020: -17.9
- 2021: 15.3
- 2022: 9.0
- 2023 (proj.): 5.0
- 2024 (proj.): 4.0
- Consumer price index (average):
- 2018: 0.8
- 2019: -0.4
- 2020: -1.6
- 2021: 1.6
- 2022: 2.9
- 2023 (proj.): 2.2
- 2024 (proj.): 2.0
- Output gap (% of potential):
- 2020: -17.1
- 2021: -6.3
- 2022: -0.9
- 2023 (proj.): 0.0
- Demand components (selected):
- Public investment 1/:
- 2018: 6.9
- 2019: 1.0
- 2020: -62.4
- 2021: 133.7
- 2022: 13.5
- 2023 (proj.): 12.4
- 2024 (proj.): -4.6
- Private investment:
- 2018: -45.4
- 2019: 47.4
- 2020: 15.5
- 2021: 5.2
- 2022: 5.9
- 2023 (proj.): 5.7
- Saving-Investment Balance (In percent of GDP):
- Gross domestic investment:
- 2018: 41.5
- 2019: 38.3
- 2020: 24.1
- 2021: 32.5
- 2022: 34.3
- 2023 (proj.): 34.7
- Gross national savings:
- 2018: 33.9
- 2019: 33.3
- 2020: 23.7
- 2021: 29.3
- 2022: 30.4
- 2023 (proj.): 30.7
- Public finances 1/ (percent of GDP):
- Revenue and grants:
- 2018: 22.0
- 2019: 20.8
- 2020: 20.5
- 2021: 22.2
- 2022: 23.1
- 2023 (proj.): 23.3
- Expenditure:
- 2018: 24.9
- 2019: 27.1
- 2020: 26.0
- 2021: 25.8
- 2022: 25.1
- 2023 (proj.): 24.6
- Overall balance, excluding ACP:
- 2018: -3.2
- 2019: -10.4
- 2020: -6.7
- 2021: -4.0
- 2022: -3.0
- 2023 (proj.): -2.0
- Total Public Debt — Debt of Non-Financial Public Sector 2/ (percent of GDP):
- 2018: 37.3
- 2019: 41.9
- 2020: 65.6
- 2021: 58.4
- 2022: 55.4
- 2023 (proj.): 54.9
- 2024 (proj.): 54.1
- 2025 (proj.): 53.2
- 2026 (proj.): 52.4
- 2027 (proj.): 51.5
- 2028 (proj.): 50.8
- External component:
- 2018: 31.1
- 2019: 35.2
- 2020: 50.6
- 2021: 50.9
- 2022: 51.1
- 2023 (proj.): 50.5
- External Debt (percent of GDP):
- 2018: 153.0
- 2019: 155.0
- 2020: 209.4
- 2021: 188.3
- 2022: 169.4
- 2023 (proj.): 168.1
- 2024 (proj.): 167.0
- 2025 (proj.): 166.5
- 2026 (proj.): 166.0
- 2027 (proj.): 164.3
- 2028 (proj.): 162.5
- Memorandum item — GDP (in millions of US$):
- 2018: 64,929
- 2019: 66,984
- 2020: 53,977
- 2021: 63,605
- 2022: 71,299
- 2023 (proj.): 76,540
- 2024 (proj.): 81,383
- 2025 (proj.): 86,331
- 2026 (proj.): 91,580
- 2027 (proj.): 97,148
- 2028 (proj.): 103,055
IMF Executive Board concluding statement on the 2022 Article IV consultation with Panama (Press Release No. 23/95).