Panama’s floating debt: scope, spillovers and solutions
Floating debt has turned into an off-budget fiscal shock absorber. By our definition, recognized (meaning "accepted") accounts payable plus turnkey work-in-progress, it reached about US$5.2 bn (6% of GDP) in 2024, up by roughly US$3.1 bn, or 3.1 percentage points of GDP, since 2019. The build-up reflects the onboarding of previously unendorsed invoices and a heavier reliance on turnkey contracts—choices that ease today’s cash strain but could shift refinancing risk into the future.
The impact on the private sector has been adverse because arrears function the same as forced, unanticipated supplier financing. For example, delays by the government in reimbursing the preferential-interest mortgage subsidy prompted banks to pause new mortgage lending. Thus, sales of homes below the subsidy threshold of US$120,000 have been falling since 2023. The recent reform of the legal mechanism and the partial settlement of bank arrears via Treasury bills and notes could help revive this sector. In public works, deferrals and re-profilings—of US$526 million on Metro Line 2 (shifted from 2020–2021 to 2023–2025) and US$105.8 million on the Line 1 extension (from 2024 to 2024–2028)—have lifted interest costs and could increase risk premia.
Our comprehensive accounting puts total public obligations near US$63 bn (69.6% of GDP), including gross NFPS and state-owned enterprise debt (excluding the Panama Canal). The lack of transparency requires a straightforward solution: budget realism and prioritization; continuing with cash-basis figures but adding accrual-based ledgers (commitment registers, aging schedules), and enforcing rule-based payment discipline (interest surcharges after 30 days of delay, standardized timelines, and FIFO). The 2026 draft budget moves in that direction (lower capital outlays and a freeze on current spending), but it remains constrained by the 7%-of-GDP earmark for education and automatic pay increases. The government has announced plans to amend and introduce greater flexibility via a draft bill, but that would require hands-on negotiation by President Mulino with legislators.
In other news, Cobre Panamá—under audit by a private firm but with arbitrations by the corporation suspended—continues to cast a macro-fiscal overhang that a decisive settlement could ease. Polls reflect discontent with the project, but the trend seems to favor a re-opening sometime in 2026.
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