IMF Concludes 2012 Article IV Mission to Panama

Press Release No. 12/452
November 20, 2012

An International Monetary Fund (IMF) mission, headed by Corinne Deléchat, visited Panama between November 6-16 to conduct the country’s annual Article IV consultation.1 At the end of the discussions, Ms. Deléchat issued the following statement in Panama City:

“Panama’s growth performance continues to exceed expectations, buoyed by the Panama Canal expansion and large public infrastructure projects. Annual real Gross Domestic Product (GDP) growth averaged about 9 percent over the past five years, the highest in Latin America. Panama’s financial sector is solid; banks remain well-capitalized, liquid and profitable. Recent and upcoming Free-Trade Agreements (FTAs) should help sustain foreign direct investment flows once public investment spending starts to unwind. The mission welcomes the creation of the Panama Savings Fund, which will further strengthen the economy’s resilience to external shocks.over the medium term.

“The near-term outlook is favorable. Real GDP growth could exceed 9½ percent in 2012. Easy credit and fiscal conditions should support public and private consumption through 2013. Headline and core inflation have started to decline thanks to a moderation in world food prices, but domestic demand pressures should keep average inflation at about 5½-6 percent in 2012-13.

“In this context, the near-term fiscal policy challenge is to preserve fiscal space and avoid overheating. With the economy growing above capacity, further fiscal stimulus should be avoided, by keeping fiscal deficits below the revised Social and Fiscal Responsibility Law (SFRL) ceilings. A more neutral fiscal stance would help contain inflation and reduce public debt faster.

“At the same time, the global economy remains weak, and downside risks have intensified. Panama’s trade and financial openness increases the country’s vulnerability to external shocks, though strong domestic fundamentals would mitigate their impact. Nonetheless, a decline in U.S. output and international financial markets turmoil associated with the “fiscal cliff” could have a significant impact on Panama, through both trade and financial channels. Low direct trade and financial linkages with Europe would minimize the direct impact of a worsening of the European debt crisis.

“Ongoing efforts to upgrade financial sector supervision including by strengthening the capacity to monitor systemic risks and to enhance the financial safety net in line with best international practices are welcome and should be accelerated. While the banking system is healthy, strong credit growth, particularly in commercial real estate, tourism, and the Colón Free zone should be closely monitored, together with rising household and corporate leverage.

“Medium-term discussions focused on structural policies to ensure a smooth transition to sustainable growth once the public investment projects are completed. Ensuring that public investment is of high quality and complements private investment will require improvements to budget planning, accounting, and monitoring to enhance the effectiveness of public spending. Better targeting of subsidies and improvements in tax administration would help preserve social and capital expenditure within lower deficit limits.

“The mission welcomes recent improvements in the business environment. Efforts to address remaining bottlenecks in the logistics chain should continue to ensure that Panama can reap the full benefits of the FTAs and of the Canal expansion. The government’s initiatives to improve the quality of public education and the availability of vocational training in partnership with the private sector should help develop the mix of skills required by a modern, service-based economy and raise living standards of all Panamanians.”


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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