Panama's economy, a country that for years has been considered one of Central America's engines of growth, is facing a series of challenges that have put its expectations of sustainable development in check. In an environment where public debt, tax collection difficulties and a decline in investment are setting the tone, it is crucial to analyze the implications of these factors and their effect on the country's economic future.
Debt containment
Based on data provided by the Public Financing Directorate of the Ministry of Economy and Finance (MEF), it was evidenced that Panama's public debt balance reached $51,860.5 million at the end of July. This figure reflects an increase of only $47.7 million (0.1%) compared to the balance recorded at the end of June 2024. This slight increase can be attributed to the implementation of financing mechanisms that have included an increased issuance of Treasury Bills for an amount of $83.2 million.
This debt outlook, although controlled in its increase, raises questions about long-term fiscal sustainability. The nature of indebtedness, which has focused on the issuance of financial instruments to alleviate fiscal gaps, could become a risk if not accompanied by effective strategies for growth and promotion of fiscal revenues.
Pressure on collections
The tax collection situation in Panama is also worrisome. According to statements made by José Galindez, president of the International Fiscal Association (IFA) in Panama, it is anticipated that by the end of 2024 the country will face significant pressures on its tax revenues, given that there is no growth in sight capable of supporting an increase in public spending.
The Report on Tax Statistics in Latin America and the Caribbean 2024, prepared by the Inter-American Development Bank (IDB), shows that Panamanian tax collection is equivalent to 13.1% of gross domestic product (GDP), one of the lowest percentages in the region. Comparatively, Brazil leads with 33.3%, underscoring the South American giant's ability to finance its initiatives through a more robust tax system.
Panama's inability to raise its tax collection levels generates a high risk of limited public spending, which may result in lower social development and a more pronounced economic slowdown. Thus, it is imperative that significant fiscal reforms be implemented that not only broaden the tax base, but also optimize efficiency in the management of public resources.
Investments
Another factor that has a negative impact on Panama's growth expectations is the decrease in investments, both domestic and foreign. Economist Olmedo Estrada, professor at the Universidad Latina de Panamá, has highlighted the urgent need to increase investment flows, especially in sectors that have sustained the country's growth, such as tourism, air transportation, ports, financial activities, land transportation and the Colon Free Zone.
In 2023, Foreign Direct Investment (FDI) in Panama totaled $2,015 million, down from $2,096 million in 2022 and an even steeper drop compared to $3,895 million in 2019. During the pandemic period, the numbers were dismal, reaching only $172 million in 2020 and $1,646 million in 2021.
The loss of investment grade, evidenced by the downgrade by Fitch Ratings, has had a significant impact on the country's image as an investment destination. Estrada warns that the negative perception that has been generated around Panama's political and economic situation could be driving away investors, who are looking for stability and a favorable environment for their capital.
Future growth
Projections by the Economic Commission for Latin America and the Caribbean (ECLAC), the World Bank (WB) and the International Monetary Fund (IMF) indicate that the Panamanian economy will reach a growth rate of 2.5% in 2024, a figure considerably lower than in previous years. This economic slowdown is largely due to the cessation of operations of the Cobre Panama mine, a key investment project that ended in 2023 following the declaration of unconstitutionality of the mining contract by the Panamanian Supreme Court of Justice.
This context suggests an urgent need to diversify the economy and promote other export sectors that can absorb the impact of the reduction in mining activities. The promotion of policies that favor investment in infrastructure, technology and human development will be fundamental to ensure sustained growth and overcome the current challenges.
Conclusion
In summary, Panama's current situation, characterized by growing debt, pressures on tax collection and declining investment, poses a complicated scenario for its growth expectations. To reverse this negative trend, concerted action by public and private actors is required, focused on improving fiscal sustainability, optimizing tax collection and creating a favorable environment for investment. In an interconnected world, Panama must redouble its efforts to reposition itself as an attractive destination for investors and thus ensure its future economic and social development.
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