The China connection begins amid anticipated fiscal performance and public-sector budget
Economic activity, measured by the Monthly Index of Economic Activity, grew 4.4% y/y in September and 5.6% from January to September. External activities such as the Panama Canal, ports, tourism, and airport traffic, as well as construction showed continuous growth, while Colon Free Zone re-exports and retail commerce contracted.
Earlier this month, the Legislative Assembly approved the General Budget. The public-sector net participation in the economy is projected to reach US$ 20.6 billion, or 33% of GDP for 2018. Total investment (net of internal transfers) is expected to reach US$ 7.4 billion: US$ 5.3 billion (71.6 %) from the Central Government); US$ 2.7 billion from the decentralized agencies (36.5%) and the rest from SOEs.
The fiscal results up to September showed a NFPS deficit of US$ 1.43 billion (or 3.3% of our estimation of the GDP until September), while the deficit of the Central Government was US$ 2.34 billion (or 5.3% of GDP). The main items in this variance are related to the Social Security System balance (US$ 424 million) and non-consolidating agencies (US$ 218 million). The MEF figures showed the deficit using nominal GDP for fiscal year 2017, which underestimates the deficit up to the third quarter.
President Varela´s visit to China is expected to bring a wide range of investments, technical assistance and cooperation to several areas of the economy. We discuss several of the short-term effects of his visit in our report. The challenge for Panama now is to engage our weak institutional framework with the specific tasks of the large menu of options from a strong state with a clear strategic path. Fortunately, China’s route is consistent in theory and practice with Panama’s long-term economic destiny. But the devil is in the details, and now we enter the phase of details after the champagne bottles were uncorked and the festive mood tones down.
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