Uncertainty about public finances

Panama is one step away from losing investment grade and the conflict over the issue of mining threatens to worsen this situation.

Main risk assessment agencies they downgraded the country’s investment grade.

In case of Fitch Ratingswarns that subsidies for fuel and electricity and an increasing interest bill put pressure on the fiscal deficit in 2023, and a large increase in budget spending in 2024 increases the risk of further slippage that could result in an upward trajectory of public debt.

For its part, for Moody’s, Panama has failed to respond effectively to the structural fiscal challenges it faces. This indicates the weakness of management and the low efficiency of fiscal policy.

He adds that if these conditions persist, they will lead to a worsening of the situation Fiscal strength of Panamasince government dependence on specific income measures is insufficient to reverse this trend.

For him former Minister of Economy and Finance, Frank De Lima This has become a structural problem, because the revenues generated by the state barely cover business costs and debt.

“During the pandemic we borrowed to pay for the government’s operating costs and if you read the Moody’s report, you realize that it had to resort to extraordinary incomesuch as the sale of land to the Panama Canal, to bolster budget revenue,” the former official said.’

500 dollars

The millions obtained from the sale of land to Kanal were used to pay debts to suppliers.

375 dollars

million was the minimum annual contribution the mining company would make, which has now been suspended.

Another point criticized by rating agencies is maneuvers carried out by the governments of Juan Carlos Varela and Laurentin Cortiz compliance with the Law on Fiscal Responsibility.

In the case of the first, sacrificed payment to government suppliersleaving a debt of approximately $1.8 billion.

Meanwhile, Cortiz’s management acted as a kind of factoring a interest payments of $300 millionwhich had to be done in 2022 and implemented in 2023 in order to meet the required deficit of 4%.

“The rating agencies said that Panama has a problem with public finances. The Fiscal Responsibility Law has no credibility because it is always changing,” De Lima said.

Uncertainty

Now, on the eve of the protests he started contract with Minera Panamathere is greater uncertainty about the future of public finances.

He President of the Chamber of Commerce Adolfo Fábregaconsiders that the probability of affecting the investment rating is a fact.

“The attracting foreign investment will be drastically affected, even those who are already trapped in our homeland,” said the entrepreneur.

Fábrega is worried economic effect that it could be not only at the macro level, but at all levels, with unemployment rising.

In this sense, De Lima admits that the conflict over the mine puts at risk the revenues provided for in the contract and affects the investment climate and legal security of the country.

However, he said that at this point we have to Keep calm and think coolly.

“I think better terms for the country can be renegotiated on the other hand, look at what will happen to the Supreme Court of Justice,” he said.