Data Recovery Panama 4

Despite slowing in 2018, Panama is expected to remain among the most dynamic economies in the region with strong fundamentals, according to latest data from the International Monetary Fund.

In a press release issued last week, IMF executive directors commended Panama's impressive growth performance and noted that macroeconomic fundamentals remain solid, with growth set for a rebound in the near term.

Growth was projected at 4.3 per cent in 2018, but is expected to climb to 6.3 per cent in 2019 supported by the opening of a large mine — Minera Panam — and a recovery in construction before converging to its potential of 5.5 per cent over the medium term.

Inflation of the country is expected to average about two per cent.

Meanwhile, Panama's external current account deficit, mostly covered by Foreign Direct Investment, is expected to reach nine per cent of GDP in 2019 and gradually decline to about 5.5 per cent of GDP over the medium term.

According to the IMF, Panama's fiscal policy is expected to remain guided by the amended Fiscal Responsibility Law. The overall Non-Financial Public Sector (NFPS) deficit is projected to increase to 2 per cent of GDP in 2018–19 and gradually fall to 1.5 per cent of GDP over the medium term, keeping public debt sustainable.

However, the directors considered that, while the outlook remains positive, the balance of risks is tilted to the downside.

Against this background, the IMF has called for sustained policy efforts to strengthen the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFT) framework and enhance tax transparency to preserve Panama's competitive advantage as a regional financial centre.

The Fund also recommended measures to enhance financial sector resilience and reforms to facilitate continued robust and inclusive growth.

“Promptly address the remaining shortcomings in the AML/CFT framework, including making tax crimes a predicate offence to money laundering and ensuring the availability of timely and accurate beneficial ownership information of entities incorporated in Panama,” the IMF said.

“In addition, the authorities should advance the implementation of tax transparency initiatives to ensure a successful Global Forum assessment against enhanced standards,” it continued.

Panama's growth was estimated at 3.7 per cent in the first half of 2018, compared to 5.4 per cent a year ago, reflecting a sharp deceleration in key sectors including construction, which was affected by a prolonged strike in April/May.

The unemployment rate of the country also increased marginally to 5.8 per cent in March 2018 from a year ago, reflecting less dynamic activity; while inflation remains subdued at 0.8 per cent, year-on-year in September 2018, despite supply shocks that have increased food and fuel prices.

Panama's overall deficit of the NFPS reached 1.6 per cent of GDP in the first half of 2018, compared to deficit of 0.2 percent of GDP in the first semester of 2017, due to accelerated budget execution to support the economic weakening.

According to the IMF, key risks relate to setbacks in implementing the remaining Financial Action Task Force recommendations and making continued progress on tax transparency, continued oversupply in the domestic property markets, delays in completing the large mining project, political uncertainty ahead of the upcoming elections, a sharper-than-expected tightening of global financial conditions, and rising trade protectionism.

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