Public Sector Deficit is expected to be higher than the legal limit by the end of the year (and next)

PANAMA - In Brief 02 Jul 2019 by Marco Fernandez

Héctor Alexander, new Minister of MEF beginning July 1, stated last week that that the real situation of the public finances may be worse than the figures submitted by the Varela Administration, because of the -so far- unknown amount of accounts payable to contractors and suppliers. His estimation is that the deficit will be around US$ 1,826 million (or around 2.7 percent of our nominal GDP projection), larger than the 2.0 percent allowed by the current Fiscal Responsibility Law. Our calculation is that the deficit will surpass the 3.1 percent mark that we initially projected. He anticipated asking for a waiver on the deficit limit before the end of the year, suggesting that the initial adjustment of the fiscal numbers may come from a reduction in the public investment program. This waiver could span a two-year period, because the 2020 limit is “only” 1.75% of GDP and expected increases in current revenues are not large.If a waiver is proposed, issues such as the importance of keeping the primary position under a more detailed scrutiny and establishing the growth of current expenditures as a true credible anchor of the fiscal situation might be part of the package presented to rating agencies and the financial markets. Alexander mentioned that the NFPS savings were negative (minus US$ 500 million until April) meaning that the Government is unable to fully pay for current expenditures, interests and subsidies. We consider that any waiver will pass smoothly in the PRD-controlled Legislative Assembly and thus hope that a comprehensive fiscal reform is approved.President Cortizo announced in his inaugural speech several economic initiatives (in addition to the reforms to t...

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