Q3 fiscal results: a sign of things to come

PANAMA - Report 26 Nov 2018 by Marco Fernandez

The Fiscal Responsibility Law was amended to allow the NFPS to raise the ceiling of the net deficit to 2% of GDP at the end of 2018, up from 1% set in the previous version. The results through September suggest that even the new ceiling will be difficult to attain. The fiscal balance of the NFPS shows a net deficit of US 2,487million (3.8% of full-year GDP, which is how the MEF presents the relative size of the deficit). Last year, the deficit amounted to 1.5% of GDP as of the same date.

By this time last year, two weeks after the end of the ordinary sessions of the Legislative Assembly (Diputados) the Public Sector Budget Law for the following year had been enacted ‒ but not in the weird year of 2018. On November 20, the Executive announced the dates for extraordinary sessions of the Assembly from December 26-December 31. We anticipate that the budget will be approved.

The poor numbers shown in the public sector accounts are, in part, the reflection of the deceleration of the economy, as we have been reporting since the beginning of the second quarter. The Monthly Index of Economic Activity (IMAE) continues to move below 4% (3.8% in September and 3.1% accumulated in the first nine months of the year). The economic indicators suggest that the economy as a whole will grow in 2018 at a rate below external analysts’ expectations (around 5%) and closer to our estimate of 3.8%-4.0%.

Former President Ricardo Martinelli decided to run for mayor of Panama as an independent candidate, and as legislator for the CD party in the 2019 elections, presumably without the backing of the CD Party's top echelon, especially its current legislators. Meanwhile, Martinelli will continue his trial facing the Supreme Court as usual, and his lawyers will try to delay the final verdict, waiting for the nine Supreme Court judges to decide whether Martinelli will continue his current journey or if his case is transferred to the lower courts.

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