GDP grew 25.5% in Q3, anticipating a double-digit growth rate for 2021, but challenges remain, including the pension reform and the GAFI review in February
On December 17, INEC published the GDP results for the third quarter of 2021: a 25.5% growth rate compared to Q3 2020 (reporting nominal activity of US$16,167 million). During Q2, the real growth rate was 40.0%, following a decrease of 8.4% in Q1. Value added in Q3 was US$10,338 million or 14% above Q2 in real value. The accumulated growth rate through September was 14.9%. Depending on the results in Q4, full-year activity could grow between 14% and 17%, one of the largest increases in Latin America, and way above the forecasts of international agencies, private think tanks, and the Ministry of Economy and Finance. Maritime activities (Canal, seaports, services to vessels, and fuel storage) benefited from the restrictions in the international supply chain. The Colon Free Zone is a surprising newcomer in overall activity. Copper mining continues to drive GDP growth.
The Technical Board of Actuaries of the Social Security Agency (CSS) concluded at the beginning of 2021 that the solidarity pension sub-system required profound changes in its basic parameters: retirement age, replacement rate, and contributions by workers and firms. This report would have been a critical element introduced to the National Dialogue, the ad-hoc meeting of key society representatives invested in devising a new law to save the CSS from a financial meltdown. Even if the retirement age remained as it is now (62 years for males and 57 for females), the replacement rate must come down from 60% of the final salary to 40%. Even in the optimal scenario, the "cocktail" of parameter changes must reflect significant budget commitments from the Central Government from 2023 and forward. In 2023, the financial reserves will diminish, and the system become one of the pay-as-you-go variety.
President Cortizo, though, when opening the discussions of the Dialogue a year ago, made the tactical error of announcing his position on the issue: any reform would have to keep the parameters at status quo, and thus the proposals needed to be "creative". His statement, made with the idea of winning some time and an increase in his popularity, clashed with the recommendations of the Technical Board. Also, the approval of any reform requires 81% of favorable votes, a feat quite impossible to achieve under the current political circumstances.
A second challenge for the government is to convince the technical members of the FATF-GAFI in February to accept Panama's position that substantial steps are being taken to control money laundering in commercial activities. If the evaluation comes out negative, Panama could move from the "gray list" to the "black list" of non-cooperating countries on issues of international financial transparency.
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