The latest numbers for the fiscal performance are surprising… for the wrong reasons
The Ministry’s projection of the level of nominal GDP for 2020 is US$ 64,000 MM, a decrease of 2.8% compared to the official figure for 2019. We predict deflation of 0.5% for the year; therefore, real GDP, according to the fiscal quarterly data, might decrease by around 3.3% in 2020, a more pessimistic scenario than the forecast of several international organizations and rating agencies. Some international institutions predicted a drop of 2% in economic activity for the year. Our estimates were less rosy: a decrease of 4%, based on the amount of job destruction in the last two months, the stoppage of economic activity for three months (March-May) in 40% of the economy, and a meager 2% real growth in the two months prior to Covid19’s appearance in Panama.
Fiscal numbers as of March showed that the Central Government deficit was lower during the first quarter of a pandemic year than in the same period of 2019, a “normal” year. The Non-Financial Public sector showed a similar trend. The net deficit reached 1.15% of projected GDP, lower than the 1.5% of GDP in Q1 2019.
The MEF presents these deficits compared with the expected GDP level for the whole year. We consider that the growth estimates of the government are optimistic, and therefore the deficit ratios will be higher at the end of the year.
For the Panamanian economy to continue its growth path it is necessary to reinvent the international share of production and diversify the local economy: depending solely on bricks, mortar, shopping malls, and banking debt to support them won’t do the trick after Covid-19 recedes.
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