A new fiscal ceiling is approved, the economy stalls and a dangerous Constitutional reform is underway

PANAMA - Report 01 Nov 2019 by Marco Fernandez and Alex Diamond

The Legislative Assembly approved the revision of the Fiscal Responsibility Law (FRL) on October 28. The proposal approved by the Cabinet was enacted without modifications. Minister Alexander made a technical presentation in which he described the situation of the public finances and the need for an increase of the ceiling of public debt for 2019-2024. The approval modifies only one article of the FRL, which refers to (a) the increase in the ceiling of the deficit for 2019 (from current 2.0%, allowed by the 2018 amendment) to 3.5% of GDP; and (b) a new table for 2020-2024. For 2020, the deficit could be up to 2.75%, 2.50% in 2021, and 2.0% afterward, slightly over the previous limits.

As a background to this proposal, Alexander presented in October the MEF´s estimation of the deficit (without any adjustment for 2019): 4.5% of GDP. After taking into consideration some adjustments in the operation and investment budgets, the deficit would reach 3.5%, the limit that the new Law establishes. The 2020 budget (already under discussion in the Legislative) projects a 2.75% deficit, consistent with the new Law.

The same day that the Assembly approved the FRL in its new version, the plenary approved the first round of Constitutional amendments against most of the opinion of every spectrum of society, from left to right, from the private sector and the labor leaders. It was a Legislative-driven reform that went against -in key issues- to the proposal that President Cortizo sent to parliament last month.

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