We project the GDP level and growth for 2020 based on the two scenarios: the re-opening of private and public construction and mining in the last quarter of the year, or a continued stalling of most economic activity due to the Covid-19 pandemic. The first would translate into a 9.5% decline (in line with President Cortizo's announcement on Thursday). The pessimistic scenario would be -11.4%. In the worst case, the NFPS deficit would be 8.3% of GDP, and the net debt/GDP ratio would top 58.3%. The Central Government may have to tap the market again during the year for US$ 1.6 billion, unless a profound fiscal reform (or a delay of payments) is advanced in the coming months, something we do not foresee.
Minister Alexander presented the 2021 budget proposal to the Legislative Chamber. Its final numbers will be known once the revisions are made by the commissions and the plenary, both controlled by the incumbent PRD Party. The MEF is projecting 4% GDP growth for 2021, lower than expected, given the sharp decline in activity in 2020. In 2021, the Cobre Panama mine will operate during the entire year for the first time, and we have to assume a surge of both public construction and some new retail activity. The expected NFPS deficit could be more than US$ 4.5 billion or between 6-7% of GDP, much higher than the limit set by the 2018 amendment of the FRL (2.5% for 2021). Markets anticipate a sharp decline in activity and a large deficit for 2020 in every country in the region. A credible medium-term fiscal consolidation will be required for Panama to maintain its investment grade.
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