Country Report Panama October 2009

Outlook for 2010-11

• Although the economy has continued to grow, financial constraints related to weak revenue growth in 2010 will prevent the administration from following through on election promises of massive infrastructure spending.
• Panama's failure to fulfil commitments on the exchange of tax information will continue to thwart the main foreign policy priority—US ratification of the preferential trade agreement (PTA) signed in 2007.
• The authorities are unlikely to keep the fiscal deficit below the 2% of GDP ceiling (as mandated by the fiscal responsibility law) in 2010, with revenue expected to increase gradually and the government reluctant to cut spending.
• Panama will be one of the few countries in Latin America to post positive growth in 2009, and it will be in a relatively solid position to build upon this performance in 2010-11, with annual growth set to average 3%.
• Although inflation jumped to historically high levels in 2008 and early 2009, following a sharp fall since mid-2009 (reflecting lower food prices and weaker demand), we expect inflation to remain low throughout the forecast period.
• In spite of a recovery in export revenue in 2010, sharply rising imports related to the Canal expansion and other investment projects will increase the trade deficit to US$16.3bn, lifting the current-account deficit to 12.4% of GDP.

Monthly review

• Public approval ratings for the new government have remained high, but the administration is facing growing criticism on a variety of issues, suggesting that its honeymoon period may already be drawing to a close.
• International criticism of the banking sector has complicated the outlook for one of the government's policy priorities—securing the long-delayed US congressional approval of a free-trade agreement signed in mid-2007.
• The unveiling of the 2010 budget has emphasised the difficulties faced by the authorities, who are attempting to maintain fiscal prudence but at the same time fulfil campaign pledges to boost investment spending.
• GDP data from the second quarter confirm that growth has continued to slow, but that Panama remains one of the few countries in Latin America to register positive overall growth in the first half of 2009 (2.5% year on year).
• Inward foreign direct investment (FDI) has shown signs of holding up relatively strongly. FDI in the first half of 2009 (US$765m) declined by 39% on the year-earlier period, but was still the second-highest result on record.

Source: Country Report

This report covers the following industry codes:
SIC Code: 70;79;39;59;15
NAICS Code: 72;71;31;44;23