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International Monetary Fund. Western Hemisphere Dept.
Macroeconomic vulnerabilities have declined since the peak of the COVID-19 pandemic in 2020. The economy is expected to rebound swiftly in 2021 as activities return to normality and the population is increasingly vaccinated. External imbalances are contained. The fiscal position is gradually consolidated as the authorities remain committed to the revised fiscal rule, which will ensure a declining path for the NFPS debt. The outlook remains subject to elevated risks, including uncertainties arising from possible more contagious variants of the COVID-19 virus. Domestic risks include setbacks in implementing the FATF action plan to exit the grey list, delays in fiscal consolidation, and a prolonged pandemic that could exacerbate socioeconomic hardship and derail economic policies and the recovery.
International Monetary Fund. Western Hemisphere Dept.
After over two decades of unprecedented economic expansion, Panama’s economy contracted sharply in 2020 amidst challenges from the COVID-19 pandemic. As conditions rapidly deteriorated, Panama requested financial support under the Rapid Financing Instrument (RFI) for 100 percent of quota equivalent to US$0.5 billion (SDR 0.4 billion) to address immediate balance of payments needs, which the IMF Executive Board approved on April 15, 2020. Subsequently, uncertainties magnified, and Panama requested a two-year arrangement under the Precautionary and Liquidity Line (PLL) for 500 percent of quota, equivalent to US$2.7 billion (SDR 1.9 billion), as insurance against extreme external shocks, which was approved by the IMF Executive Board on January 19, 2021.
International Monetary Fund. Western Hemisphere Dept.
This 2020 Article IV Consultation with Panama discusses that focuses on Panama’s near and medium-term challenges and policy priorities and was prepared before coronavirus disease 2019 became a global pandemic and resulted in unprecedented strains in global trade, commodity and financial markets. Growth is expected to recover to 4.8 percent in 2020. However, the balance of risks is tilted to the downside. A gradual fiscal consolidation can address the large fiscal imbalances while being mindful of the weak economy. Tax and customs administration reforms are needed to address the shortfall in revenues and provide room for public investment and social spending. The economic slowdown, which began in mid-2018 due to a construction strike, extended into 2019. The external current account deficit narrowed and remained adequately financed by foreign direct investment. As the economic situation in Venezuela continues to deteriorate, an increasing number of Venezuelans have migrated to Panama, creating additional social pressures.
International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper focuses on background, challenges, and policy options in Panama. Panama stands at a crossroad between taking the leap to become an advanced economy or getting stuck in the middle-income trap. The beginning of a new administration provides a window of opportunity to initiate and implement ambitious reforms. This note takes stock of fiscal issues in Panama and proposes policy options. The new administration’s fiscal agenda should feature a comprehensive reform of tax and customs administrations, a review of tax incentives and exemptions and consider steps toward a broader tax policy reform. Efforts to further strengthen the fiscal framework with the appointment of the members of the Fiscal Council should continue going forward. Panama should adopt best practice fiscal accounting and reporting methods. A comprehensive assessment and management of fiscal risks is necessary to create buffers and safeguard public finances given fiscal policy’s exclusive stabilization role.
International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper argues that Panama’s prospects for maintaining buoyant growth critically depends on continued productivity growth underpinned by comprehensive reforms focused on improving education quality, attracting talent, and continuing to enhance the investment climate. Panama experienced both episodes of growth convergence and divergence over the past several decades. Following a stellar performance in recent decades, Panama’s prospects of maintaining high growth rates and moving toward the club of high-income economies critically depends on continued productivity gains. Panama’s economy embarked on a path of rapid growth since the political stabilization in the 1990s, which has brought it closer to moving from the middle to the high-income bracket. However, maintaining high growth rates may prove increasingly challenging, particularly for countries at Panama’s current level of income. Policies that focus on improving education quality, attracting foreign talent toward knowledge-based sectors of the economy, and strengthening the investment environment are likely to be essential for sustaining productivity growth.
International Monetary Fund. Western Hemisphere Dept.
Panama has had the longest and fastest economic expansion in recent Latin American history. The economy has expanded at an average rate of about 6 percent per annum over the last quarter of a century, with Panama achieving one of the highest per capita income in Latin America. More recently, GDP grew by about 5½ percent in 2017 (driven by the expanded Canal), and then slowed to 3¾ percent (y/y) in H1-2018. Inflation remained subdued, reaching almost 1 percent (y/y) in September 2018. The external current account deficit stayed at 8 percent of GDP in 2017, mostly covered by FDI. The fiscal position continued to be strong, with the overall deficit of the non-financial public sector (NFPS) at about 1½ percent of GDP. Credit growth has decelerated as financial conditions have started to tighten.
International Monetary Fund. Western Hemisphere Dept.
This 2017 Article IV Consultation highlights Panama’s economy as the fastest growing in Latin America over the past two decades. It is expected to remain among the most dynamic in the region, with stable and low inflation, sustainable public debt, a declining current account deficit, and a stable financial sector. Economic growth moderated to 4.9 percent in 2016 in the face of external headwinds, and inflation and unemployment remain subdued but have risen slightly. Fiscal consolidation continues in line with fiscal rule targets, and public debt is sustainable. Credit growth remains strong, but has begun to slow recently. The outlook is favorable despite heightened external uncertainty.
International Monetary Fund
Correspondent banking relationships (CBRs), which facilitate global trade and economic activity, have been under pressure in several countries. So far, cross-border payments have remained stable and economic activity has been largely unaffected, despite a recent slight decrease in the number of CBRs. However, in a limited number of countries, financial fragilities have been accentuated as their cross-border flows are concentrated through fewer CBRs or maintained through alternative arrangements. These fragilities could undermine affected countries’ long-run growth and financial inclusion prospects by increasing costs of financial services and negatively affecting bank ratings.
International Monetary Fund. Western Hemisphere Dept.
This 2016 Article IV Consultation highlights Panama’s expected continued growth—among the strongest in Latin America—against a backdrop of low inflation, a stable financial system, and a declining current account deficit. GDP grew by 5.8 percent in 2015, and growth is projected to remain at about 6 percent in 2016 and over the medium term. The economy will be supported by the expected opening of the expanded canal and lower fuel prices. The overall fiscal deficit is expected to consolidate to 1.2 percent of GDP over the medium term. Public debt is projected as sustainable.
International Monetary Fund. Fiscal Affairs Dept. and International Monetary Fund. Legal Dept.
In an environment in which growth and employment prospects in many countries remain subdued and a number of high-profile corruption cases have fueled moral outrage, and amid a growing consensus that corruption can seriously undermine a country’s ability to deliver inclusive economic growth in a number of different areas, addressing corruption globally—in both developed and developing countries—has become increasingly urgent. When corruption impairs government functions, it can adversely affect a number of important determinants of economic performance, including macrofinancial stability, investment, human capital accumulation, and total factor productivity. Moreover, when systemic corruption affects virtually all state functions, distrust of government can become so pervasive that it can lead to violence, civil strife, and conflict, with devastating social and economic implications. This Staff Discussion Note focuses on corruption that arises from the abuse of public office for private gain, whether it manifests itself transactionally (for example, a bribe) or through powerful networks between business and government that effectively result in the privatization of public policy. While designing and implementing an anticorruption strategy requires change on many different levels, the IMF's experience in assisting member countries suggests that several elements need to be given priority: transparency, rule of law, and economic reform policies designed to eliminate excessive regulation. Perhaps most important, however, addressing corruption requires building effective institutions, with the clear objective of developing a competent civil service that takes pride in being independent of both private influence and public interference.