Unraveling the Fiscal Accounts and Interpreting the Economic Indicators
Fiscal results presented by the Ministry of Economy and Finance (MEF) show two issues that do not properly allow grasping Panama’s real fiscal stance: the notion of adjusted deficit and the impact of turnkey projects. Moreover, nominal GDP estimated by the MEF for 2015 is under scrutiny, since it is uncertain which GDP methodology is the “correct” one.
The debate about the NFPS deficit should not be limited to accounting issues. We believe that the numbers reported by the MEF have inconsistencies. For macroeconomics purposes, rather than accounting ones, what matters is that the non-adjusted deficit, which was 2.8% of GDP, still appears to be manageable by the authorities.
The fiscal results show that analysts’ projections, including our own, understated CAPEX growth for the fourth quarter of 2015. On the revenue side, the official figures were in line with our projections (3.9% y/y growth) or less than one percent difference.
NFPS debt reached $20,200 million or 39% of GDP in 2015, according to the MEF, the highest level since 2010. We consider that this ratio is still at manageable levels, even though it grew slightly. Net debt ratio remains below legal limit.
Economic indicators ratify the deceleration in 2015, showing positive results in maritime transport activities, tourism and construction; negative results in goods exports, industrial activity and the Colon Free Zone; and mixed in consumption.
Regarding to prices, the factors that explained the lower inflation rate in 2015 (falling oil prices, stronger US dollar, price control policy of select staples and a moderation of the economic activity) continued to be present in January 2016. CPI experienced a small increase (0.3%) in January compared to December.
Panama is in the right direction to exit the FATF’s (GAFI) gray list tomorrow. According to known sources, Panamanian authorities received the support of multiple countries (France, Mexico, Canada, Brazil and Argentina) led by the United States to exit the gray list. Moreover, the FATF’s Americas Regional Review Group (ARRG) submitted the results report of the January on-site visit yesterday in the FATF Plenary with a positive outcome.
Given this outlook, and considering that the expanded canal will initiate operations by midyear, along with the mining development plans, public investment acceleration, and the exit of the FATF’s gray list, we reaffirm our 5.9-6% growth forecast for 2016. Naturally, the international environment will have much to do with this year’s performance.
Now read on...
Register to sample a report