Low growth, high fiscal deficit, and mixed news in the institutional front
The growth rate in the second quarter was 2.8%, the lowest since the financial crisis of 2Q-2009. For the first half of the year it was 3.0%; therefore, the 4.0% growth that MEF projects seems difficult to achieve, despite the expected boom in copper exports. From a national accounting-GDP perspective, Panama is becoming commodity-dependent, an unprecedented situation since bananas in the sixties. However, copper does not have the same relevance in terms of fiscal revenues (the royalty payments are negligible, as per the contract with the Australian-owned company) nor in terms of job creation (the number of employees during the operation is lower than the number during the construction period). However, an expected renegotiation of the exploitation contract may increase royalty payments.
The announcement by Minister Alexander of an austerity program for the remainder of 2019 refers to adjustments in the budget, not necessarily in actual expenditures. Revenues continue to stall, and the net deficit by the end of the year may reach 3.5% - 3.8%, above the 2.0% ceiling approved at the end of 2018 by the previous government. Deflation does not help public finances since the deficit limits are in nominal terms. The possible increase in the unit price of fuel might pressure the implicit deflator upwards in the last quarter, but the strong dollar does not help.
The budget proposal for 2020 reflects a net deficit for 2020 equivalent to 3.5% of a nominal GDP (which we calculate ay US 69,694 million). Gross financial needs are US 3.8 billion dollars, of which US 1.7 billion represents the amortization of existing debt. The government plans to tap the foreign market for these needs.
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