Press Release No. 18/210

IMF Staff Concludes Visit to Panama

June 1, 2018

A staff team of the International Monetary Fund (IMF), led by Alejandro Santos, visited Panama during May 21-June 1, 2018. At the conclusion of the visit, Mr. Santos issued the following statement:

“The economy of Panama remains among the most dynamic and stable in Latin America despite the recent prolonged strike in the construction sector and the relative weakening of economic activity in the first quarter which will lead to a downward revision of our growth projection of 5.6 percent for 2018 (by about 1 percentage point). At the same time, the recovery from the impact of the strike and the coming on stream of a large copper mine will lead to an upward revision of our growth projection of 5.8 percent in 2019 (by about 1 percentage point). Over the medium-term, the economy will gradually converge to its potential growth of 5.5 percent. Inflation will remain low and is expected to pick up to about 2 percent in 2018 mainly due to higher fuel prices.

“The external position is expected to improve significantly next year with the completion of the import-intensive mining project, the start of copper exports, and external service receipts related to higher traffic in the Panama Canal. The outlook is subject to downside risks mostly related to external factors, including lower international maritime traffic due to trade disputes, and a faster-than-expected tightening of U.S. monetary policy, while a stronger global growth would be an upside risk and a boost to activity.

“Fiscal policy is projected to remain guided by the deficit limit under the fiscal responsibility law (which we estimate to be about 1.5 percent of GDP given the expected contributions from the Panama Canal Authority of some 2.5 percent of GDP). Efforts will be required to curb the growth of current expenditures to provide additional room for needed strategic public investment. The authorities’ initiative to establish a fiscal council will further strengthen the fiscal framework.

“The banking system remains solid, well capitalized, liquid and profitable, with low non-performing loans, and the authorities continue to advance their agenda for improving bank regulations and supervision (including the implementation of Basel III). Given the need to continue strengthening the financial system, it will be important to take further measures related to financial integrity and tax transparency. In particular, the mission supports to have legislation approved related to the criminalization of tax evasion, which would bring Panama closer to international standards on Anti-Money Laundering/Countering the Financing of Terrorism, and tax transparency, thus helping to strengthen Panama’s position as a regional financial center.”

The mission is grateful to the authorities for their kind hospitality, excellent cooperation and open discussions.