In the current context of the Panamanian economy, the diversity of projections for the country's growth highlights the complexity of the economic situation. Recently, JP Morgan raised its growth expectations for Panama this year to 5.2%. However, several economists warn that the economic reality could be more in line with a growth between 2.5% and 3%. This discrepancy in projections calls for an in-depth analysis of the factors that influence the country's economic performance, particularly in relation to the mining industry and credit rating.
Analysis by Economist Olmedo Estrada
During a forum organized by Capital Financiero, economist Olmedo Estrada presented an analysis suggesting that a 2.5% growth should be considered as an optimistic estimate in the midst of an economic scenario facing serious difficulties. According to Estrada, mine production has been a determining factor in this situation. “We are making a 2.5% approach as an optimistic positive growth because we are truly being affected by the mine's production,” he stated. He pointed out that the contribution of mining to the Panamanian economy has decreased significantly, which has a negative impact on the growth of other sectors.
Estrada's analysis reveals that if the mine contributes only 5% to the economy, this already represents a negative start. “The economy started minus 5% with minus 5% contribution from the mining industry,” he emphasized. This reduction in mining production means that the country is starting the year on an unfavorable economic footing, projecting growth that is unlikely to reach the optimistic rates that JP Morgan is proposing.
Impact of Mine Closure and Loss of Investment Grade Status
The situation is further complicated by the operational closure of the mine and the recent loss of investment grade by Fitch Ratings. As Estrada points out, the downgrading of the credit rating implies warnings about the risks associated with investing in Panama. “This rating by Fitch Ratings is affecting us because the rating is downgraded. When you downgrade a country, you are saying that there are risks, and to invest there, you have to take many precautions,” he added.
The loss of the investment grade has limited the arrival of foreign capital to the country, which is crucial to foster economic growth. Investments in Panama have declined drastically, falling to levels of $1.2 billion, a figure that does not provide the strength needed to achieve the desired growth figures. “That really doesn't give the country the strength to be able to grow at the rates we are talking about 5%,” Estrada said, reflecting his skepticism about the country's ability to attract investment in the near future.
Tax Collection Considerations
In addition to the challenges presented by mining and credit rating, the forum also addressed issues related to tax collection and tax policies in Panama. José Galindez, president of the International Fiscal Association of Panama, addressed the need to review the country's tax structure. “Panama currently collects 13.1% as a function of GDP, where social security contributions are also contemplated,” he noted.
Galindez suggested that Panama could adopt a qualified minimum tax, within the framework of the global minimum tax, as a gradual approach to increase tax collection. “The revision of exonerations, which represent about 4% of GDP, is crucial to increase collection in a way that will help decrease the fiscal deficit,” he emphasized. This approach not only seeks to shore up the country's fiscal sustainability, but also to improve the perception of Panama as a viable investment destination.
Conclusions
Panama's current economic outlook presents significant challenges that could limit its growth to more conservative rates, as economists such as Olmedo Estrada argue. The combination of declining mining production, credit rating downgrades, and limitations in attracting investment are issues that policymakers should urgently consider.
In addition, it is clear that a restructuring of fiscal policy, along with an evaluation of tax exemptions and taxes on multinationals, could be critical steps toward economic stability. As Panama navigates these challenges, the goal should be to foster an environment that not only revives economic growth, but also ensures a more sustainable and resilient future for the country.
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