(MENAFN- Newsroom Panama)
The increase in public debt levels as a result of the pandemic limits the room for maneuver of the countries of the region to face adverse events faced by the economies says the International Monetary Fund (IMF) in an analysis that evaluates the recovery and future prospects of Central America.
The text points out that 'the region's economic prospects are now subject to an unusually high degree of uncertainty' and that 'a possible confluence of adverse global factors could once again test the resilience of the economies.'
Among the factors that can affect economies, the IMF refers to greater volatility in the prices of raw materials, in a region that depends on fuel imports; weakening growth in trading partners, including the United States; and tighter financing conditions due to faster rises in global and domestic interest rates.
Panama affect
All these elements can potentially affect Panama, which does not escape the regional trend of having less fiscal space to face the challenges.
The strong contraction of the economy in 2020, as a result of the restrictions imposed by the Government, reduced income, while expenses grew. That caused a substantial increase in debt when compared to the size of the economy, which went from 46.3% in 2019 to 68.5% in 2020.
Although in 2021 the weight of the debt was reduced to 63.7% of the gross domestic product (GDP), it is still well above the 2019 level and the 40% recommended by the Fiscal Social Responsibility Law.
That rule was modified for the last time in 2020 to give more space to the fiscal deficit during the pandemic and, as of that year, traced a path of consolidation or reduction of the deficit. In other words, each year the imbalance in public accounts has to be less in order to comply with a standard closely followed by risk rating agencies and international organizations.
Public spending
Despite calls from the private sector, public spending on payroll and subsidies - as well as interest on the debt - has risen in recent years, reducing flexibility in the general state budget.
The IMF report indicates that, in general terms, the region recovered solidly and that, since the start of the pandemic, the performance of the economies that the IMF groups as Central America, Panama, and the Dominican Republic (CAPRD) have been among the best in Latin America.
However, the text indicates that of this group of countries grouped under the name CAPRD, 'by 2021, only Panama's GDP had not exceeded levels recorded before the pandemic.
This, despite the high growth of the economy last year, which in percentage terms rose by 15.3%. For economist Luis Alberto Morán , this situation is a consequence of the strong economic contraction that Panama had, in terms of production and employment, and the closure of businesses, with sectors that have been left behind in recovery including construction and tourism
In the first quarter of 2022, GDP exceeds the records of 2019 and the expectation of local and international entities is that this exercise will finish closing the gap compared to before the pandemic.
Morán said that“with the global ramifications of the war in Ukraine, Panama still maintains economic vulnerability, due to a weak labor market, high dependence on subsidies, and current debt levels.
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