Panamanian Fiscal Deficit To Narrow In 2022 And 2023, Despite Calls For Higher Spending

• Fitch Solutions has forecast that the Panamanian fiscal deficit will narrow from 6.7% of GDP in 2021 to 5.1% in 2022 and 4.2% in 2023, due to rising revenues stemming from growing tax and Panama Canal earnings, and fiscal consolidation measures enacted by President Laurentino ‘Nito’ Cortizo. 
• Prior to the COVID-19 pandemic, Panama ran modest fiscal deficits averaging 2.1% of GDP from 2015-2019. After running a record fiscal deficit of 10.2% of GDP in 2020, the government has seen a rebound in revenues and has limited expenditure growth.
• In 2022, the post-pandemic economic rebound is expected to continue and will support 10.5% revenue growth, while the government implements austerity measures that will limit expenditure growth to 3.4%. Consequently, Fitch forecasts that the Panamanian economy will grow 7.0% in 2022, reaching 2019 GDP levels and driving higher sales and income tax growth than last year. 
• However, while tax revenue growth will ease with slowing economic growth in 2023, revenue growth will be sustained by higher expected profits from the Panama Canal, underpinning Fitch’s view that revenues will grow to 7.9%. 
• On the expenditure side, the government will attempt to strike a balance between getting closer to compliance with the country’s Fiscal and Social Responsibility Law (FSRL) and maintaining some social spending, to address the cost-of-living crisis which has led to nationwide protests and demonstrations. This will support total expenditures growth of 3.5% in 2023.

(Source: Fitch Solutions)