Our projection for 2024: The economy is uncertain, the NFPS budget is under discussion, and it formally complies with the fiscal law
The year 2023 will be a reminiscence of how sudden events can alter the course of economic projections. While the first semester of 2023 witnessed robust growth of 8.8%, driven by the traditional sectors, we anticipate a slowdown in the second half of the year, culminating in a 1.9% contraction in Q4. Factors contributing to this shift include the closure of operations at the copper mine and the aftermath of nationwide road blockades in November.
Looking ahead to next year, Panama is expected to sustain a modest 1% growth rate, influenced by the closure of the copper mine, persistent higher interest rates, and electoral uncertainties due to the upcoming elections in May. The fiscal landscape faces challenges in the current year and the next one. Without implementing measures such as delaying payments to state contractors, extending the fiscal year, or applying waivers, the government is at risk of not meeting the fiscal rule in 2023. Anticipating an economic slowdown severely impacting revenue and the absence of extraordinary income received this year, we project increases in both the fiscal deficit and public debt for the next year. A credible fiscal consolidation strategy will be needed to avoid losing the investment grade and maintain growth in the short term.
Last week, the Ministry of Economy and Finance proposed a 4.9% reduction in the 2024 budget, mainly affecting capital spending. Notable cuts in current spending raise concerns for the electoral campaign. A slight revenue reduction reflects an expected economic slowdown. Approval uncertainty for the Legislative Assembly's budget centers on potential rejection for increased funds in an election year. Rejection would result in a 2024 budget with slightly reduced spending and decreased deficits under constitutional guidelines.
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