The order of factors does affect the product: a defeat for the Executive in the Assembly

PANAMA - In Brief 11 Oct 2024 by Marco Fernandez

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This week, the Executive Branch presented its proposal for the 2025 national budget to the Legislative Branch, which was challenged on Thursday by the Budget Commission for three reasons: (1) it was not submitted on time, as the Constitution (Article 184) requires the proposal to be sent within the first 40 days of the new administration taking office; (2) the budget allegedly did not include the 7% of GDP for contributions to educational institutions, as mandated by a vague 2023 law establishing this percentage; and (3) under the still-in-force Social Fiscal Responsibility Law (LRSF), the budget should have shown a deficit of 1.5% of nominal GDP, not the 3% implied in the Cabinet’s proposal. Although the LRSF applies to the fiscal result.  The first reason (late submission) was known to the authorities, but the new MEF team could not make the necessary adjustments in time. The second (7% for education) will require a redefinition of allocations, amounting to 1% to 1.5% of GDP—an adjustment of considerable size, approximately one-third of the deficit presented by the MEF, which would eliminate the projected primary surplus. The third issue (violation of the LRSF) will require the Assembly to approve the new law (which the Cabinet approved on Tuesday), proposing a path of deficit reduction to 2.5% of GDP by 2027. This reform would reinforce the soon-to-be-established Fiscal Council, with new tasks and structure, as part of the Mulino administration's transparency initiatives. We do not foresee major difficulties in approving the new fiscal limits next week, although the Assembly has strengthened its oversight capabilities with its actions yesterday. The new budget will ...