Gloomy outlook for the public sector finances

PANAMA - In Brief 20 Aug 2018 by Marco Fernandez

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The official Ministry of Finance’s (MEF) report on Non-Financial Public Sector performance through June showed dismal numbers. Total revenues grew 0.8 percent in the first six months: Central Government revenues didn’t increase even in nominal terms and only Social Security revenues performed reasonably well (5.9 percent increase in the period). Total expenditures, however, jumped 17.6 percent, boosted by Central Government outlays (13.3%), mainly payroll. Investment increased 29.4 percent, but some of the social transfers are registered as investment, and therefore we must wait for more detailed numbers to separate “true” infrastructure investments from specific transfers. The most worrying datum is the change of sign in the primary balance: from 433 million in the first half of 2017 (+0.7% of GDP) to -521 million in 2018 (-0.8% of GDP). The net deficit jumped from 95 million (-0.2 percent of GDP) in January-to-June 2017 to 1,061 in 2108 (-1.6 % of GDP). Note that, according to the usual methodology of MEF, the deficit in six months is compared with the nominal GDP of the whole year, understating thus the real deficit position of the NFPS. The Central Government numbers were worse: net deficit reached 2.6 % of GDP, double than last year’s. Using data from the DGI (Internal revenue Agency) -which do not necessarily coincide with the MEF´s information- the reason for the poor revenue profile is the 2.1% drop in tax revenues compared with the first semester of 2017, and 7.8% below budget. Direct taxes as well as indirect taxes decreased with respect to 2017 and more notorious with respect to budget. Personal income tax is the worst performer so far: 9.4% reduction from 2...