Journal Issue


International Monetary Fund
Published Date:
April 2012
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1. Panama’s growth rates are among the highest in the region, largely owing to strong fundamentals and prudent policies. Real GDP growth has averaged 8 percent over the past five years which, together with successful fiscal consolidation, has resulted in a rapid decline in debt ratios. Partly for this reason, Panama’s sovereign debt is now rated one notch above investment grade, on par with Brazil and Mexico.1 The recent ratification of a bilateral Free-Trade Agreement (FTA) by the U.S. Congress will help sustain private investment (Box 1). In July 2011, Panama was taken off the OECD’s “grey list” of tax heavens upon signing 12 double taxation treaties, though it still has to complete the peer review process.2

2. The government’s economic strategy for 2009–14 aims at positioning Panama as a world-class financial and logistics hub, while alleviating social exclusion. Cumulative public investment in physical and social infrastructure during this administration is expected to reach 50 percent of 2010 GDP (US$13.6 billion, excluding the US$5.3 billion Panama Canal expansion) by 2014. Tax reforms enacted in 2009–10 are expected to increase tax revenue by about 1.4 percent of GDP by 2013. The Panama Canal expansion will double existing transit capacity and increase transfers to the budget. In the social area, the government is expanding safety nets. Implementation of the economic reform agenda has not been disrupted by the breakup of the two-party ruling coalition in September 2011, as President Martinelli’s party rapidly regained majority in the National Assembly. Nonetheless, recent legislative initiatives have met unexpected resistance.3

3. The authorities were appreciative of staff’s advice in the context of previous Article IV consultations and technical assistance (TA) missions. Countercyclical fiscal policy in 2009 helped mitigate the impact of the crisis, but a modest consolidation, as advised by staff, would have been appropriate in 2010 in light of the strong recovery. At the same time, the authorities are seeking Fund advice on the establishment of a Sovereign Wealth Fund (SWF) to safeguard the additional revenues from the expanded Panama Canal, and are heeding longstanding Fund recommendations to strengthen the financial safety net.

4. Economic growth in 2010–11 continued to surprise on the upside. Real GDP grew by 7.5 percent in 2010 and by 10.5 percent during January-September 2011 (Figure 1). The construction, commerce and transportation sectors have shown the most dynamism. Canal traffic remained strong (8.1 percent growth during January-September) with a 20 percent growth in toll revenue (January-September, cumulative, compared to the same period in 2010). West-East and South-East traffic increased reflecting buoyant growth in emerging Asia and South America. GDP growth in 2011 is projected to be around 10 percent, closing the output gap created during the 2009 slowdown.

Figure 1.Panama: Real Sector Developments, 2007-11

Source: National Authorities and IMF staff calculations.

5. Inflation remained above historical averages. Headline inflation rose from 2.4 percent in 2009 to 6.3 percent at end-2011 (y/y), reflecting in part high world food and fuel prices, the increase in the VAT rate, and a large (19 percent) increase in the minimum wage in 2010; core inflation reached 4.1 percent in 2011 (Figure 1). During 2011, the authorities took steps to alleviate the impact of price increases on the population by introducing a price threshold for the most demanded grade of gasoline, whereby taxes were adjusted downwards when the market price increased.4 Further increases in gasoline and electricity subsidies were announced in November 2011.

Box 1.The U.S.-Panama Free-Trade Agreement

In October 2011, the U.S. Congress ratified a long-pending FTA with Panama. The agreement, which was signed in 2007, is expected to come into effect in the second quarter of 2012.

Upon its implementation, the FTA will provide for immediate duty-free access of the majority of bilateral exports. Its immediate effect on Panamanian exports is likely to be limited since most already enter the U.S. tariff-free on account of existing trade preference regimes (e.g. Caribbean Basin Initiative). For some sensitive products, mostly agricultural, the FTA provides for a more gradual phasing out of existing tariffs over a 15-year period.

In the short-term, Panama’s tariff revenues (about 1.5 percent of GDP) are expected to decline. Total U.S. exports to Panama in 2010 amounted to US$2½ billion, while Panama’s exports to the U.S. were only US$211 million.

Over the medium-term, bilateral trade and investment flows are expected to expand and, for Panama, likely offset short-term costs.

  • Increased imports will increase product variety, though their effect on domestic prices is unclear. There is some evidence that prices in Panama tend to be sticky downwards as declines in international prices are not fully passed on to consumers.

  • Panama’s agricultural sector may need a proactive strategy to shift production toward non-traditional crops. Panama’s agricultural output has been declining in recent years. Lower domestic demand for less competitive Panamanian produce and difficulties in complying with phyto-sanitary requirements for exports may compound the woes of the sector. Moving towards higher value-added crops would help mitigate these effects, but would require investments in seeds, fertilizers and training for farmers.

  • Panama’s services sector and, possibly light manufacturing, are expected to benefit in the medium-term. The FTA, boosted by synergies from the development around the Canal could make it profitable for multinational firms to relocate in Panama, to export pharmaceuticals, light manufacturing goods, and logistics services to the U.S..

6. The fiscal stance remained moderately expansionary. The deficit of the non-financial public sector (NFPS) was 1.9 percent in 2010 and was targeted to stay at about 2 percent in 2011.5 Nonetheless, owing to higher-than-anticipated capital spending execution6 and somewhat disappointing tax collection, the deficit of the NFPS rose to 3½ percent of GDP at end-September 2011. Record-high Panama Canal dividend transfers (US$1,043 billion or 3.3 percent of GDP) and measures to restrain investment spending and related operational costs are expected to help contain the deficit in the last quarter of 2011. Nonetheless, the end-year outturn is likely to have remained somewhat above the authorities’ target but below the deficit ceiling allowed by the SFRL.7 In cyclically-adjusted terms, the deterioration of the primary balance is projected to be about 2.2 percentage points of GDP during 2010–11 (Table 2).

7. Panama’s financial system showed resilience during the global crisis, due in part to prudent policies and good supervision. Financial soundness indicators remained robust, with a very low and stable NPL ratio (Figure 3). As of end-October 2011, bank credit growth reached 17 percent, slightly above nominal GDP, while deposit growth slowed from 11 percent in 2010 to about 8 percent. Deposit interest rates have been declining in line with global market developments, but lending rates have remained broadly stable (Figure 4).

Figure 2.Panama: Fiscal Developments, 2007–11

Sources: National Authorities; and IMF staff calculations.

1/ Data refers to the Central Government.

2/ Excludes Panama Canal Authority.

3/ Includes Panama Canal Authority debt starting 2010.

4/ NFPS deficit and amortization only.

Figure 3.Panama: Banking System Indicators in International Perspective 1/

Sources: National authorities; and IMF staff calculations.

1/ Regional aggregates correspond to median values.

Figure 4.Panama: Financial Sector Developments, 2007-11

Source: National Authorities and IMF staff calculations.

8. The external current account deficit has widened, largely owing to the rapid growth of imports related to the Canal expansion. The current account deficit rose to -10.7 percent of GDP in 2010 and is projected to peak at -13 percent in 2011 (Figure 5). The deficit is almost fully financed by Foreign Direct Investment (FDI) flows, which grew by 17 percent (y/y) in nominal terms by end-September 2011.

Figure 5.Panama: External Sector Developments

Source: National Authorities and IMF staff estimates and projections.

1/ LA5 refers to Brazil, Chile, Colombia, Mexico and Peru.

2/ The data for 2011 is the yoy growth rate in October.


9. Panama’s macroeconomic outlook is favorable, with broadly balanced risks. The Canal expansion and the large public investment program, which will peak in 2011–12, will continue to sustain domestic demand (Chart 1). While there are still some risks of overheating related to the fast growth pace, these are likely to be broadly offset by the easing of pressures on world commodity prices and by global risks to activity and financial stability (Box 2).

Chart 1.Panama: Capital Investment

  • Economic growth is projected to slow down gradually starting in 2012 towards its medium-term potential of about 5–6 percent. Real GDP growth is expected to moderate to about 7–7½ percent in 2012 owing to lower external demand. Panama’s growth would be vulnerable to a sharp global slowdown insofar as it affects demand in emerging Asia and the Americas. Such a shock would affect activity in the ports and the Colón Free Zone (CFZ), as well as Canal traffic, with knock-on effects on revenue, investment spending, credit and real activity.8

  • Risks to inflation from both external and domestic sources remain on the upside. Imported inflation is expected to decelerate as commodity prices stabilize, but there is a high degree of uncertainty surrounding international prices. Strong domestic demand and a 17 percent minimum wage increase which took effect in January 2012 also may exert pressure on core inflation, especially as spare capacity and total unemployment (4.5 percent in August 2011) are at historic lows.9

  • The 2012 budget envisages an NFPS deficit of 2 percent of GDP by year-end, in line with the gradual return to the ceiling of one percent established in the SFRL. With limited fiscal space, further increases in untargeted subsidies would have to be offset by adjustments in other spending categories. Public debt vulnerabilities would remain low, also thanks to prudent liability management.

  • The external current account deficit as a share of GDP is projected to start declining in 2012 and to stabilize at about 8 percent of GDP by 2017. FDI flows are expected to remain buoyant and finance the bulk of those deficits, although they may be vulnerable to abrupt changes in sentiment in originating countries (about 40 percent of FDI flows come from the U.S. and Spain). A sudden decline in FDI flows would prompt a concomitant adjustment in private demand, though the final effect on domestic demand would be mitigated by the works on the Canal expansion, which are fully pre-financed.10

  • The banking system’s diversified ownership structure, high reliance on deposit funding, and low exposure to European banks are expected to limit near-term spillover risks from a further deterioration in financial conditions.11 Stress tests conducted as part of the FSAP confirmed that high levels of capitalization would cushion heightened credit risks arising from the impact of a major tail event, although some onshore banks would be vulnerable to short-term liquidity pressures, and liquidity concentration in a few international banks may pose some risks (Box 3). Interbank contagion analysis revealed only limited risks for onshore banks stemming from illiquidity or insolvency of offshore or international banks.12 Nonetheless, as in 2008–09, the drying up of foreign credit lines could affect domestic lending and real activity. It could also push interest rates up, which would squeeze bank margins and increase credit risk, as most loans carry floating rates and household indebtedness is rising.

Box 2.Overheating Indicators, 2008–11

Overheating indicators for Panama in 2011 are broadly comparable to those of other fast-growing economies in Latin America (LA). Nonetheless, overheating pressures in Panama are somewhat lower than during the pre-crisis. high-growth episode. As in other LA countries, growth in Panama started to slow down around mid-2011 (Figure 1); and is projected to continue to decelerate in the context of weaker external demand

Source: IMF staff estimates based on The Economist’s Overheating Index, authorities’ data, World Economic Outlook, International Financial Statistics, and IMF staff projections.

1/ Points that are closer to the center indicate less overheating pressures.

2/ The Growth Differential is captured by the difference between the average growth in 2007–2011 and the average growth rate between 1997–2007. Labour Market Tightness is measured by the difference between the current unemployment rate and the average unemployment rate between 1997–2007. Excessive Credit Growth is the difference between the growth of credit to the private sector in real terms and real GDP (based on latest available observation in 2011). External Current Account Deficit is based on IMF staff projections for 2011. Core Inflation is the average for 2011. Real Interest Rates are captured by the difference between lending rates and the inflation rate in 2010 and rescaled so that lower values correspond to lower overheating pressures

Box 3.Panama’s FSAP: Main Findings and Reform Priorities

A first-time FSAP was concluded in September 2011, and included modules on Basel Core Principles and Insurance. The authorities have committed to completing an AML/CFT assessment as part of the FSAP process by end-2012.

Overall, stress tests confirmed Panama’s banking sector’s soundness.

  • Credit risks are relatively low. The main credit risk scenario assumed the re-occurrence of the 2008-09 economic downturn. Reflecting high levels of capitalization and robust profits, only three small banks would have difficulties meeting the minimum 8 percent of risk-weighted assets to capital ratio in such scenarios.

  • Market and sovereign risks are negligible, reflecting banks’ low exposures to sovereign debt and quick re-pricing of assets and liabilities.

  • Banks are highly liquid. Nonetheless, systemic liquidity has been declining and some banks, accounting for about 15 percent of total liquidity, are vulnerable to short-term deposit withdrawals.

  • Interbank contagion and cross border risks, including liquidity concentration, were tested by analyzing linkages, exposures and risk of default among onshore, offshore and international banks. Overall, the tests showed that contagion to onshore banks would be limited to a few medium-sized banks, although high liquidity concentration in certain international banks is a concern.

Despite the authorities’ recent efforts, several shortcomings were observed in the regulatory sphere and market infrastructure. Key recommendations include:

Strengthen Financial Sector Surveillance

  • Improve risk-based supervision, by adopting regulation on operation and market risks as well as setting concentration limits for interbank deposits.

  • Strengthen cross-border supervision, including through establishing a holding company capital standard and consolidated regulatory reporting at the holding company level, and expanding the supervisory sphere by including securities, insurance, and foreign exchange houses supervisors. Together with other regional supervisors, the Superintendency of Banks of Panama (SBP) should also design more detailed arrangements for the supervision of individual groups specifying which regulator is in charge of each entity in the group, and for making decisions on groups where the SBP is not in a position to assume supervision.

  • Develop an institutional framework for macroprudential policy and instruments to safeguard against systemic risks, in particular, through improving off-site supervision, and closing data gaps (e.g. housing prices, household and corporate debt).

  • Establish a financial safety net for emergency liquidity assistance, notably by pooling a fraction of banks’ liquidity holdings (Box 4);

  • Improve sharing of information across agencies and broaden the perimeter of financial oversight, including by regulating and supervising more closely cooperatives, and amending the draft insurance law.

Develop Domestic Financial Markets

  • Formulate a capital market development strategy aimed at achieving better efficiency of the secondary market, upgraded market making, and effective securities lending. Develop a framework for repo operations.

  • Upgrade the payments system, by adopting a law that would guarantee payment finality and by introducing a real-time gross settlement system, as well as a law facilitating electronic presentation of checks among banks.


Effective implementation of its ambitious agenda hinges on the government’s ability to maintain macroeconomic stability while reducing growth bottlenecks. This poses significant policy challenges, which were at the center of discussions with the authorities. The near-term priority is keeping fiscal policy firmly anchored while building buffers and strengthening crisis-prevention tools. Over the medium-term, efforts should focus on (i) strengthening the fiscal framework to enhance efficiency of public spending, while improving revenue management; (ii) upgrading financial supervision and infrastructure in line with international best practices; and (iii) implementing structural policies to improve competitiveness, and foster sustainable growth.

A. Near-Term Policies

10. The pace of fiscal consolidation envisaged in the authorities’ medium-term budget framework is broadly appropriate, but over-performing on fiscal targets would allow to rebuild buffers. The envisaged path for the NFPS deficit would imply a broadly neutral fiscal stance in 2012–13 (Chart 2). Nonetheless, staff noted that, with output now at capacity and a stronger-than-anticipated fiscal impulse in 2011, demand driven by the implementation of large public infrastructure projects, together with the forthcoming minimum wage increase, would likely put further pressures on prices and the external current account (Box 2). In the absence of a monetary policy, over-performing on fiscal objectives could help dampen inflationary pressures while creating additional fiscal space. The authorities pointed out that a number of factors were mitigating potential overheating risks, including the fact that the public investment program was expanding productive capacity, and that flexible labor markets would help alleviate skilled labor shortages. They also cautioned that a faster fiscal tightening could be contractionary, which would not be appropriate given the deteriorating global outlook.

Chart 2.Panama: NFPS Balances and Fiscal Impulse

(Percent of GDP)

Sources: National Authorities and IMF staff calculations.

11. Fiscal policy should remain firmly anchored on a strengthened SFRL. While recognizing that fiscal deficits of moderate size would not compromise fiscal solvency, staff expressed concern that continued activation of the SFRL’s escape clauses risks eroding its value as a fiscal anchor. The authorities pointed out that the SFRL waivers had been activated only twice in strict application of the law in light of unforeseen shocks, and that both times the actual deficit closed well under the admissible limit. Beyond 2014, the authorities and staff agreed that the SFRL would have to be modified, along with the creation of a SWF, to anchor the overall surpluses implied by the baseline projections given higher Canal transfers.

12. Crisis prevention tools could be strengthened in line with FSAP recommendations (Box 3). Although near-term financial sector vulnerabilities are low, the FSAP highlighted that the supervisory authorities’ capacity to monitor systemic risk is hampered by the current institutional and policy framework and data gaps. Staff encouraged the authorities to implement enabling legislation that would allow the newly-established council of supervisors to effectively oversee the whole financial system, and build up the capacity of individual supervisory agencies. In the near term, the SBP should continue to strengthen its analysis of macro-financial linkages.

13. Macro-prudential instruments can help prevent the emergence of credit-related asset price bubbles (Annex I). While voluntary exposure limits have been effective in avoiding excessive bank leverage in real estate lending thus far, staff recommended monitoring property markets more systematically, including through a reliable housing price index and other indicators, such as household and corporate leverage ratios. 13 The authorities noted that rising property prices were fueled by effective demand, not credit expansion, and did not see evidence of asset price bubbles. They indicated that banks’ conservative loan-to value ratios with additional caps on maximum loan size effectively transferred most of the risk to developers and buyers. Nonetheless, they agreed that there is a need to develop a housing price index, and were open to consider macro-prudential tools if the need arose.

14. Plans to establish a fund to respond to possible bank liquidity shortages are welcome (Box 4). By not having a central bank, Panama lacks both a traditional lender of last resort and a mechanism to mitigate systemic liquidity shortages. The authorities emphasized that these features had contributed to the strength and resilience of the system, which relies on banks holding high levels of liquidity beyond the prudential requirement of 30 percent of short-term deposits.14 Nonetheless, the authorities and staff agreed that the current arrangement entailed substantial opportunity costs and could work to the detriment of Panamanian banks, and that the absence of a lender of last resort limits considerably the state’s ability to preserve financial system stability. The authorities also agreed that the creation of a domestic liquidity fund would help address those concerns. While agreeing that limited public resources could be used in the start-up phase of the fund, staff stressed that pooling part of the liquid reserves currently held by banks to address idiosyncratic, temporary liquidity shortfalls, would be both efficient and help reduce moral hazard. Staff also suggested that consideration should be given to completing the safety net, including by introducing a deposit insurance scheme and strengthening the bank resolution process.

Box 4.Liquidity Provision Facilities in El Salvador and Panama

As a fully dollarized economy, Panama does not have a central bank or a Lender of Last Resort (LOLR). Unlike in some other fully dollarized economies, e.g. El Salvador, Panama’s financial system does not have formal safety nets, such as reserve requirements or deposit insurance. Because of this, Panamanian banks hold relatively high levels of liquidity as self-insurance.

During the 2008-09 global financial crisis, a few Panamanian banks experienced liquidity shortages, due to the sudden freeze of external credit lines. In response, the Superintendency of Banks set up a daily bank-by-bank reporting system focusing on short-term liquidity in October 2008, and enacted temporary changes in regulations to reduce the impact of global financial volatility on banks’ equity positions. In addition, the state bank, the National Bank of Panama (BNP), established a collateralized line of credit for US$400 million to replace some of the lost export financing. In January 2009, the government set up a liquidity fund (PEF) for a total of US$1.1 billion (5 percent of total deposits) for on-lending for productive investment and working capital needs. The fund pooled resources from the Interamerican Development Bank (US$500 million) and Andean Development Corporation (US$210 million) as well as the BNP. However, high interest rates, uncertainty about acceptable collateral, and a quick resumption of access to private foreign credit lines deterred demand; the PEF disbursed less than US$100 million before closing at end-2010.

El Salvador also created vehicles of liquidity support during the crisis. The liquid asset requirement was temporarily eliminated; and the IMF and IDB provided precautionary external funding.

The 2008-09 episodes highlighted the desirability of permanent liquidity facilities in fully dollarized economies. The Salvadorian authorities are currently working on setting up a liquidity fund and an LOLR as part of a comprehensive liquidity management strategy. The Panamanian authorities are receiving technical assistance to establish a liquidity facility.

  • In El Salvador, the liquidity fund under consideration would be funded by pooling a fraction of current reserve requirements (3 percent of deposits). This fund would provide liquidity to solvent banks facing liquidity pressures for up to 90 days, charge interest penalties, and be collateralized with investment grade assets. A second facility, an LOLR, would gradually provide coverage for up to 8 percent of total deposits (over the next four years) and grant emergency liquidity for up to 90 days—(renewable once) to banks that have accessed the liquidity fund. The facility is expected to be funded with contingent credit lines from abroad and through the central bank’s holdings of tradable government bonds.

  • In Panama, the liquidity facility should provide coverage only to on-shore general license banks with temporary liquidity problems. Contrary to the PEF, it should not require on-lending of resources. International experience suggests that the facility should have resources equivalent to about 10 percent of total on-shore deposits (approximately US$3 billion). Although various options are still under consideration, funding could include contributions from the state as well as pooling part of the banks’ existing assets, replicating centralized reserve requirements. Based on the PEF’s experience, this will also require standardization and availability of more liquid collateral.

Liquidity in Dollarized Economies


1/ For El Salvador, constructed as a ratio of a sum of total reserve requirement, 3 percent liquidity requirement and total cash assets to total deposits. For Panama, consitutes a ratio of liquid assets to total deposits.

Source: IMF staff calculations.

B. Measures to Strengthen the Fiscal Framework

15. The authorities and staff agreed that undertaking the ambitious public investment program within the limits established by the SFRL posed significant fiscal management challenges. In particular, they discussed measures that would further improve the budget framework, public spending efficiency, and revenue management.

Enhancing the budget framework and the quality of social spending

  • Adequate coverage in the fiscal accounts of public enterprises and public-private partnerships would improve liability management and planning. In this regard, staff cautioned against the exclusion of a growing number of public enterprises from the definitions of the public sector balance and public debt subject to SFRL limits. Staff noted that the practice hindered a comprehensive monitoring of public sector activities and fiscal risks, especially if the excluded entities borrowed from the markets.15 The increasing resort to turnkey arrangements to execute public infrastructure projects, with total commitments amounting to about US$2 billion as of mid-2011, raises similar concerns.16 Staff advised the authorities to continue monitoring closely contingent liabilities, and to incorporate them into the public debt accounting framework.

  • The authorities’ efforts to improve the targeting of subsidies and to further expand the existing conditional cash transfer program are cost-effective ways to enhance the effectiveness of social spending. Subsidies on fuel, water and electricity cost more than 1 percent of GDP and are largely regressive. The authorities indicated that they plan to gradually reduce the electricity subsidy provided to households consuming less than 500 KWH,17 and to introduce means-tested pre-paid gas payment cards.

  • Staff encouraged the authorities to develop a roadmap to strengthen public financial management. Recent technical assistance missions from the Fund have highlighted the importance of strengthening medium-term expenditure and budget frameworks, establishing a Single Treasury Account, and enhancing the quality and coverage of government finance statistics in line with the move to the 2001 GFSM classification. Given limited institutional capacity, the authorities agreed with staff’s advice to develop a prioritized action plan to make those improvements.

Strengthening revenue management

16. Stronger revenue collection would create additional fiscal space for spending on social programs and infrastructure. Staff welcomed recent progress in raising Panama’s tax revenue collection through the implementation of two tax reforms. Notwithstanding this progress, Panama continues to have one of the lowest tax ratios in the region (Figure 2). Foregone income related to tax evasion is estimated at about 5 percent of 2011 revenue. Staff encouraged the authorities to quickly initiate operations of the Large Taxpayer Unit and strengthen fiscal controls. The authorities noted that the introduction of fiscal cash registers in most retailers would help tackle tax avoidance and fraud. They are tightening controls on incoming goods in the Colon Free Zone and making progress in registering and valuing land at market prices. The authorities were also encouraged to prepare estimates of tax expenditures and include them in budget documents.

17. The authorities’ plan to create a Sovereign Wealth Fund to save part of the additional resources expected from the Panama Canal expansion is welcome (Chart 3). The mechanism would improve control over the Canal resources and create a buffer for stabilization purposes and potentially for the coverage of future pension liabilities (Box 5).18 The authorities agreed with staff on the need to integrate the SWF into the budget framework. This would require modifying the SFRL, which the authorities intend to propose to the National Assembly in 2012.

Chart 3.ACP Expansion: Revenue and Financing

(Percent of GDP)

Sources: ACP and IMF staff calculations.

Box 5.Panama’ Sovereign Wealth Fund: A Fiscal Perspective

Starting in 2015, permanent and relatively stable higher transfers to the budget following the Canal expansion create important challenges for fiscal policy design and implementation in Panama. Canal revenues (tolls, fees and dividends) are not dependent on domestic economic activity but may generate domestic spending pressures if they are made available in full for public spending.

As part of technical assistance on this matter, staff constructed three long-term scenarios to assess what fraction of incremental revenue could be spent contemporaneously without creating excessive domestic demand pressures. All scenarios assumed the overall fiscal deficit complies with the one percent of GDP limit established in the SFRL until 2015.

  • In staff’s baseline scenario, once canal revenue starts to expand in 2015, expenditure is assumed to increase in line with nominal GDP growth. This would result in gradually rising overall fiscal surpluses.

  • Scenario 1 assumes that the overall fiscal balance posts deficits of one percent of GDP until 2025. With higher revenues from the Canal, this policy implies an additional 5 percent increase in nominal government spending starting in 2015 relative to the baseline. This sizable and steady increase in government spending would crowd out private demand and none of additional revenue would be saved.

  • Scenario 2 assumes a yearly increase in canal dividends of 25 percent starting from 2015, and the path for the fiscal balance as in the baseline scenario. Expenditure in 2015 would be about 3 percent higher than in the baseline scenario and also crowd out private demand.

The simulations suggest that the creation of a SWF would require modifying the fiscal rule and the SFRL. The estimates in the baseline scenario are consistent with setting a target for the non-canal fiscal balance at about -3 percent of GDP, which fits the historical pattern (Chart 1). An alternative would be to adopt an expenditure rule that sets the rate of growth of total expenditure at the rate of nominal GDP growth, supplemented with an overall balance target, and with a cap on canal transfers. Under the baseline scenario, accumulated resources of the SWF would amount to about 8 percent of GDP by 2025 (Chart 2).

The design of the SWF should conform to international best practices. In particular, (i) the fund’s main objective should be macroeconomic stabilization and/or coverage of future pension liabilities; (ii) it should invest the resources abroad; (iii) it should operate as a financing fund and not have the capacity to spend; and (iv) there should be no earmarking of transfers.

Chart 1.Panama: Fiscal Balances (Baseline)

(percent of GDP)

Source: Authorities and IMF staff calculations.

Adjusted for windfall CG capital revenue in 2007.

Chart 2.Panama: SWF Balance (Baseline)

(cumulative flows, US dollar million)

Source: IMF Staff calculations.

C. Building a World-Class Financial Center

18. Panama has established itself as an important regional hub for banking services but will need to upgrade oversight and financial infrastructure to compete globally. For the most part, banks follow a fairly traditional business model, while insurance, equity, and capital markets are relatively small and/or underdeveloped. However, to be competitive in a broader range of investment and wealth management services, Panama would have to make improvements in several areas. According to the FSAP these include: (i) bringing financial system oversight more closely in line with international best practices; and (ii) upgrading all non-bank segments of the financial system. The authorities welcomed the FSAP recommendations (Box 3), and the SBP is currently preparing a reform action plan based on them.

19. Strengthening risk-based and consolidated cross-border supervision, and extending the perimeter of supervision to large nonbank deposit-taking institutions should be key priorities. Panama’s legal framework is strong and supportive of banking supervision, and compliance with Basel Core Principles is good. However, risk-based supervision is in its initial stages and it will take some time before new regulations are fully phased in. The SBP also agreed on the need to regulate operational and market risks, and setting concentration limits for interbank deposits. Panama is host to several large regional financial groups and cross-border supervision is broadly inline with international best practices. Nonetheless, the FSAP recommended further improvements, notably: (i) adopting capital adequacy standards at the holding company level and setting related-party exposure and concentration limits for regional groups; and (ii) expanding the supervisory sphere by including securities, insurance, and foreign exchange houses supervisors. The authorities noted that the Ministry of Commerce was working on measures to strengthen the supervision of cooperatives.

20. Recent and planned legal reforms aimed at strengthening the insurance sector and securities markets are timely, but additional reforms are needed. The FSAP found that both insurance and securities market oversight fell short of minimum international standards, which could create reputational risks. Recent and ongoing legislative efforts to increase the autonomy and resources of sector regulators would help improve compliance, but staff also called for further strengthening prudential regulation, particularly with regard to the determination of solvency margins and regulating the investment of capital. The capacity of insurance and capital market supervisors should also be enhanced.

21. Staff welcomed recent steps to develop domestic capital markets. The establishment of a market maker program, including the re-launching of domestic debt placements and the creation of custodian arrangements to enhance connectivity with international markets has already increased the volume of secondary market transactions. These advances would benefit from further upgrades in payment systems infrastructure.

22. Maintaining a strong AML/CFT regime in line with international standards is essential to support the further development of Panama’s financial sector. In this regard, staff welcomes the authorities’ commitment to completing an AML/CFT assessment as part of the FSAP process by end-2012.

D. Boosting Competitiveness and Sustaining Growth

23. Panama’s competitiveness has improved in recent years (Annex II). The trend real effective exchange rate (REER) has depreciated since 2009, although rising domestic inflation has mitigated the fall. Export growth has been strong, and Panama remains an attractive destination for FDI (Figure 5 and Annex II, Figure 1). Econometric estimates based on the standard CGER methodologies do not suggest a significant exchange rate misalignment, although competitiveness could deteriorate if inflation remains significantly above that of trading partners. Survey-based competitiveness indicators and rankings show that, overall, Panama’s competitiveness position has been improving in recent years, and compares well with the largest economies in the region. Those surveys highlight political stability, infrastructure, and financial development as Panama’s strengths.

24. Going forward, the recently-approved FTA with the U.S. is expected to boost Panama’s status as a regional logistics hub (Box 1). Simplified procedures and taxation regimes should attract further investments in the services sector and light manufacturing, building on the enhanced interconnectedness provided by the expansion of the Canal and ports facilities. The authorities have established a logistics secretariat tasked with removing remaining bottlenecks to support the expansion of these sectors. Promotion of non-traditional exports would be necessary for the agricultural sector to reap the benefits of the FTA.

25. At the same time, Panama needs to make improvements in the areas of human capital, access to basic services, and institutions. Staff noted that some key indicators of social progress and educational achievement are low, both in relation to Panama’s impressive improvements in real per capita income and compared with peers (Figure 6).19 The authorities argued that the results of a recent study showed that poverty and inequality had declined significantly.20 They noted that the government’s emphasis on building comprehensive safety nets was starting to show positive results, and indicated that they are implementing measures to improve security and reinforce the legal and judicial framework.

Figure 6.Panama: Social and Development Indicators

Source: National Authorities and WDI.

Figure 7.Panama: Public Debt Sustainability: Bound Tests 1/

(Public debt in percent of GDP)

Sources: International Monetary Fund, country desk data, and staff estimates.

1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.

2/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and primary balance.

3/ A 10 percent of GDP shock to contingent liabilities occurs in 2012.

26. It was agreed that a strategy to enhance human capital through labor market and education reforms was necessary. The coexistence of high rates of youth unemployment (14.9 percent in 2011) with very low total unemployment points to growing skill mismatches.21 The authorities and staff concurred that improvements in human capital and labor productivity are essential to ensure that the benefits of Panama’s economic success are widely shared by the population and to sustain high growth rates over the medium term. The authorities noted that recent programs such as cash transfers for all school children were improving enrollment and reducing drop-out rates, and pointed at joint efforts with the private sector to increase availability of vocational and on-the-job training.


27. Panamas’ economy has shown impressive resilience to external turbulence in recent years. Strong fundamentals, including Panama’s strategic position as a regional logistics and banking hub, political stability, steady fiscal consolidation and prudent liability management, have contributed to some of the highest growth rates in the region and lowered public debt levels.

28. Overall vulnerabilities are low and the outlook is favorable, with broadly-balanced risks. The large-scale public investment program and the Panama Canal expansion are expected to continue to drive demand and growth in 2012, and thus mitigate the adverse impact of the weak global outlook. Stress tests confirm Panama’s banking sector’s soundness, though some liquidity risks warrant heightened vigilance. Panama’s current account developments seem consistent with external stability, and there are no major external vulnerabilities Nonetheless, a large external shock affecting global trade and liquidity could cause serious disruptions.

29. In the near term, policies should focus on building buffers and strengthening crisis-prevention tools. With output now at capacity, the neutral fiscal stance envisaged for 2012 is broadly appropriate, though a tighter fiscal stance would be preferable to help rebuild buffers and contain second-round inflation pressures. Although there is no evidence of asset price bubbles and conservative lending practices by banks limit exposure to fast-growing sectors, the capacity to analyze macro-financial linkages and monitor systemic risk should be strengthened by improving the regulatory framework and closing data gaps. Macro-prudential tools could play a useful role in managing rapid credit growth in some sectors in the absence of monetary policy, while establishing a fund to respond to temporary liquidity shortages would bolster financial system stability.

30. Strengthening the fiscal framework, enhancing financial sector supervision, and removing growth bottlenecks are the key medium-term challenges.

  • In the fiscal area, maintaining the government’s ambitious investment program within the limits of the SFRL calls for continuing enhancements in the quality and effectiveness of spending, including through plans to better target subsidies, and strengthening tax administration, notably through the establishment of a large taxpayer unit. The envisaged creation of a Sovereign Wealth Fund to save part of the additional revenue from the expanded Panama Canal would be useful to contain spending pressures and create buffers.

  • Financial sector oversight should be brought in line with best international practices, and all non-bank segments should be upgraded, in line with FSAP recommendations. Enabling legislation to allow the new council of supervisors to operate as an effective supervisor of the whole system is urgently needed. Although banking supervision is strong and effective overall, risk-based and consolidated supervision should be further enhanced. Potential reputational risks highlight the need to continue with efforts to strengthen oversight of non-bank financial institutions. Ongoing initiatives to develop capital markets, notably through the market-makers initiative, are welcome.

  • Sustaining growth over the medium term requires managing the public investment program carefully to avoid supply bottlenecks and obtain the best value for money from new infrastructure. Once the public investment program and the Panama Canal expansion taper off, growth will have to be driven by productivity gains. In this regard, ongoing efforts to improve the quality of education and to remove skill mismatches through vocational and on-the-job training would be key.

31. Staff recommends that the next Article IV consultation takes place on the standard 12-month cycle.

Table 1.Panama: Selected Economic and Social Indicators
Population (millions, 2010 census)3.4Poverty line (percent, 2008)32.4
Population growth rate (percent a year)1.6Adult literacy rate (percent)94.5
Life expectancy at birth (years)75.4GDP per capita (USD, 2010)7,820
Total unemployment4.5IMF Quota (SDR, million)206.6
(Percent change)
Production and prices
Real GDP (1996 prices)
Consumer price index (average)
Consumer price index (end-of-year)
Domestic demand (at constant prices)
Public consumption2.
Private consumption−2.1−2.824.47.09.4
Public investment 1/58.317.234.439.34.5
Private investment14.2−13.4−
Financial sector
Private sector credit14.61.313.617.812.0
Broad money18.59.411.68.98.7
Average deposit rate (1-year)
Average lending rate (1-year)
External trade 2/
Merchandise exports75.5−37.112.713.24.8
Merchandise imports33.7−
(In percent of GDP)
Saving-investment balance
Gross domestic investment27.625.626.029.028.0
Public sector8.29.411.915.214.4
Private sector19.416.214.113.813.6
Gross national saving16.724.915.316.015.4
Public sector9.
Private sector7.
Public finances
Revenue and grants34.933.533.333.433.8
Current, including interest24.124.524.823.723.7
Overall balance2.5−0.4−3.4−5.5−4.3
Overall balance, excluding ACP0.4−1.0−1.9−2.3−2.0
External sector
Current account−10.9−0.7−10.7−13.0−12.6
Net exports from Colon Free Zone0.
Net oil imports−
Foreign direct investment9.
Total public debt
Total debt 2/41.143.540.536.835.2
Memorandum items:
GDP (in millions of US$)23,00224,16326,59031,53234,946
Sources: Comptroller General; Superintendency of Banks; and Fund staff estimates.

Includes Panama Canal Authority (ACP).

Including ACP and net of Fiduciary Fund’ holdings of non-government assets.

Sources: Comptroller General; Superintendency of Banks; and Fund staff estimates.

Includes Panama Canal Authority (ACP).

Including ACP and net of Fiduciary Fund’ holdings of non-government assets.

Table 2.Panama: Summary Operations of the Nonfinancial Public Sector 1/(In percent of GDP)
Current revenue24.724.925.225.726.0
Tax revenue10.610.911.611.912.1
Nontax revenue of central government6.
o/w: Panama Canal fees and dividends3.
Social security agency5.
Public enterprise operating balance1.
Other 2/
Capital revenue1.
Current primary expenditure15.616.216.816.416.5
Central government8.
Rest of the general government7.
Social security agency6.
Decentralized agencies0.
Overall balance, excluding ACP0.4−1.0−1.9−2.3−2.0
Panama Canal Authority (ACP)
Current expenditure2.
Transfers to the government3.
Interest payments0.
Capital expenditure1.
Overall balance2.10.5−1.5−3.2−2.2
Overall balance, including ACP2.5−0.4−3.4−5.5−4.2
Net financing, excluding ACP−
Memorandum items:
Savings (including ACP)
Primary balance (including ACP)5.62.5−0.6−3.0−1.7
Primary balance (excluding ACP)
Structural primary balance/
Sources: Comptroller General; Ministry of Economy and Finance; and Fund staff estimates and projections.

Official presentation excludes the operations of the ACP which reverted to Panama on December 31, 1999.

Includes the balances of the nonconsolidated public sector and revenue of the decentralized agencies.

Structural primary balance adjusts for output gap.

Sources: Comptroller General; Ministry of Economy and Finance; and Fund staff estimates and projections.

Official presentation excludes the operations of the ACP which reverted to Panama on December 31, 1999.

Includes the balances of the nonconsolidated public sector and revenue of the decentralized agencies.

Structural primary balance adjusts for output gap.

Table 3.Panama: Summary Operations of the Central Government(In percent of GDP)
Revenues and grants19.818.519.019.820.2
Current revenue18.418.118.418.919.3
Direct taxes5.
Income tax4.
Tax on wealth0.
Indirect taxes5.
Import tax1.
Petroleum products0.
Other tax on domestic transactions0.
Nontax revenue7.
Of which: Panama Canal Authority1.
Panama Canal Authority: fees per ton 1/
Transfers from decentralized agencies1.
Capital revenue1.
Total expenditure19.519.921.522.522.3
Wages and salaries4.
Goods and services1.
Transfers to public and private entities3.
Savings 2/
Overall balance0.3−1.4−2.5−2.7−2.1
Financing (net)−
Memorandum items:
Primary balance3.41.50.2−0.4−0.1
GDP (in millions of US$)23,00224,16326,59031,53234,946
Sources: Comptroller General; Ministry of Economy and Finance; and Fund staff estimates and projections.

Includes public service fees.

Revenues and grants less current expenditure.

Sources: Comptroller General; Ministry of Economy and Finance; and Fund staff estimates and projections.

Includes public service fees.

Revenues and grants less current expenditure.

Table 4.Panama: Monetary Accounts 1/
(In millions of U.S. dollars at end-period)
Net foreign assets5,2576,0428,6328,5296,6526,838
Short-term foreign assets, net5,2726,0508,6378,5326,6546,841
National Bank of Panama2,0282,6953,4062,9452,2452,265
Rest of banking system3,2443,3555,2315,5864,4094,575
Long-term foreign liabilities1485222
National Bank of Panama1485222
Net domestic assets11,91115,06114,41117,13420,36022,513
Public sector (net credit)−2,435−2,465−3,265−2,740−2,830−2,679
Central government (net credit)−314−456−672−702167718
Rest of the public sector (net credit)−2,121−2,009−2,593−2,038−2,997−3,397
Private sector credit18,54021,24521,51424,44828,81132,272
Private capital and surplus−5,578−6,419−5,573−6,438−6,627−7,201
Other assets (net)1,3832,7001,7341,8631,006120
Liabilities to private sector17,16720,33522,24024,81327,01129,351
Total deposits17,10020,27422,07324,69926,88829,217
Demand deposits3,0423,7624,3665,1885,8456,477
Time deposits10,53612,16513,14514,03415,81015,770
Savings deposits3,5224,3474,5625,4775,2336,970
(12-month change in relation to liabilities to the private sector at the beginning of the period)
Net foreign assets7.74.612.7−0.5−7.60.7
Net domestic assets8.218.4−
Public sector credit (net)−6.7−0.2−3.92.4−0.40.6
Private sector credit19.315.81.313.217.612.8
Private capital and surplus11.24.9−
Other assets (net)6.87.7−4.80.6−3.5−3.3
Liabilities to the private sector15.918.59.411.68.98.7
(12-month percent change)
Memorandum items:
M2 2/15.918.59.411.68.98.7
Private sector credit18.214.61.313.617.812.0
(In percent of GDP)
Total deposits86.488.191.492.985.383.6
Private sector credit93.792.489.091.991.492.3
Sources: Superintendency of Banks; National Bank of Panama; Savings Bank; and Fund staff estimates and projections.

Domestic banking system only; comprises general license banks; does not include offshore banks; deposits from and credit to nonresidents reported in the net foreign assets.

M2 consists of resident bank deposits only; estimates of U.S. currency in circulation are not available.

Sources: Superintendency of Banks; National Bank of Panama; Savings Bank; and Fund staff estimates and projections.

Domestic banking system only; comprises general license banks; does not include offshore banks; deposits from and credit to nonresidents reported in the net foreign assets.

M2 consists of resident bank deposits only; estimates of U.S. currency in circulation are not available.

Table 5.Panama: Commercial Bank Performance Indicators 1/(In percent; end-of-period)
Asset quality
Nonperforming loans as percent of total loans
Banking system1.
Domestic banks1.
Foreign banks1.
Ratio of provisions to nonperforming loans
Banking system104.8120.0139.6131.9140.2141.4
Domestic banks120.2150.3160.2132.3161.7146.8
Foreign banks93.599.6124.1131.5123.2136.3
Pretax return on average assets
Banking system2.
Domestic banks2.
Foreign banks2.
Ratio of liquid assets to total deposits
Banking system28.428.425.223.621.620.5
Domestic banks25.927.627.425.623.622.0
Foreign banks30.629.323.121.619.618.9
Ratio of liquid assets plus marketable
securities to total deposits 2/
Banking system43.042.940.039.436.636.2
Domestic banks39.039.938.337.136.635.9
Foreign banks46.245.741.741.638.538.6
Capital adequacy ratios
Ratio of capital to risk-weighted assets
Banking system14.816.417.516.516.115.6
Domestic banks17.318.419.218.618.117.7
Foreign banks13.015.314.714.514.213.6
Foreign banks’ share of domestic banking
system assets57.553.953.153.553.053.2
Sources: Superintendency of Banks; and Fund staff estimates.

Domestic banking system only, comprises general license banks; does not include offshore banks.

Liquid assets, as defined in Article 75 of the 2008 Banking Law, also include marketable short-term securities (Indice de Liquidez Financiera - Metodología del Cálculo).

Sources: Superintendency of Banks; and Fund staff estimates.

Domestic banking system only, comprises general license banks; does not include offshore banks.

Liquid assets, as defined in Article 75 of the 2008 Banking Law, also include marketable short-term securities (Indice de Liquidez Financiera - Metodología del Cálculo).

Table 6.Panama: Medium-Term Balance of Payments
(In millions of U.S. dollars)
Current account−2,513−179−2,848−4,094−4,385−4,774−5,060−4,827−4,343−4,227
Trade balance excluding Colón Free Zone−4,057−4,123−5,047−7,080−7,768−8,452−8,850−9,192−9,564−9,739
Exports, f.o.b.3,4262,1542,4282,7492,8803,0563,3003,6233,9034,225
Imports, f.o.b.−7,482−6,277−7,474−9,830−10,649−11,508−12,150−12,815−13,467−13,964
Of which: related to canal expansion−96−106−713−1,189−1,085−1,150−549−230−113−113
Net exports from Colón Free Zone81,942492572606639675716764769
Re-exports, f.o.b.8,5999,88310,25211,94612,78613,59314,46215,42116,54316,735
Imports, f.o.b.−8,592−7,941−9,761−11,375−12,180−12,954−13,788−14,706−15,779−15,965
Services, net2,5112,9783,0743,8124,2584,4644,6765,2196,0776,529
Travel, net1,0421,1461,2791,4651,5571,6881,8792,0432,2472,486
Transportation, net1,2151,5761,4511,9382,2482,2792,2562,5903,2013,391
Other services254256344409454497540586630651
Income, net−1,507−1,449−1,859−1,980−2,126−2,128−2,329−2,403−2,515−2,709
Private sector−960−844−1,225−1,321−1,450−1,573−1,703−1,839−1,980−2,005
Public sector−547−605−634−658−676−556−625−563−535−704
Of which: NFPS interest−622−620−669−675−684−564−633−572−544−713
Of which: related to Canal Expansion−41−84−110−114−113−115−115
Current transfers, net532472491582646705768833896923
Capital and financial account2,4073322,6153,3944,4054,7945,1104,8974,4434,327
Financial account2,3513022,5733,3514,3624,7515,0674,8554,4004,284
Public sector2091,7063061,2975541,247503443222−84
Nonfinancial public sector1871,6762701,2685251,218474414193−113
Other net flows22303636363636363636
Private sector, medium and long-term1,077−784,0403,5603,1433,3903,6393,8003,9344,000
Direct investment2,1471,2592,3502,7803,1283,4623,8254,1284,4384,686
Portfolio investment−555−1,021−1,170−1,431−1,300−1,485−1,703−1,953−2,235−2,483
Short-term flows1,065−1,326−1,773−1,505665114925612243368
Errors and omissions778558−2280000000
Overall balance673711−460−70020205070100100
Net foreign assets of the BNP−667−711460700−20−20−50−70−100−100
Memorandum items:(In percent of GDP)
Merchandise exports14.
Merchandise imports32.526.
Net exports from Colón Free Zone0.
Current account−10.9−0.7−10.7−13.0−12.5−12.5−12.2−10.7−9.0−8.5
Of which: related to Canal Expansion−0.4−0.4−2.7−3.9−3.3−3.3−1.6−0.8−0.5−0.5
Direct foreign investment9.
External public debt35.740.136.031.829.
Sources: Office of the Comptroller General; and Fund staff estimates and projections.
Sources: Office of the Comptroller General; and Fund staff estimates and projections.
Table 7.Panama: Medium-Term Macroeconomic Framework
(Percent change)
Economic growth and prices
Real GDP at market prices10.13.27.510.
CPI (period average)
CPI (end of period)
(Percent of GDP)
Savings and investment
National savings16.724.915.316.015.415.116.017.319.019.5
Public sector9.
Private sector7.
Gross domestic investment27.625.626.
Public sector8.29.411.915.214.413.911.
Of which: Canal Expansion0.
Private sector19.416.214.113.813.613.817.217.818.018.2
External savings−10.9−0.7−10.7−13.0−12.6−12.5−12.2−10.7−9.0−8.5
Nonfinancial public sector, excluding ACP
Revenue, excluding ACP transfers23.122.122.823.
Primary balance3.
Overall balance0.4−1.0−1.9−2.3−2.0−1.5−1.0−
Net external financing0.−0.3−0.9
Net domestic financing−1.2−−0.10.0
Panama Canal Authority (ACP)
Current expenditure2.
Transfers to the government3.
Interest payments0.
Capital expenditure1.
Overall balance2.10.5−1.5−3.2−2.2−2.2−−0.1
Nonfinancial public sector, including ACP
Overall balance2.5−0.4−3.4−5.5−4.3−3.7−1.3−
Total public debt 1/41.143.540.536.835.235.533.631.228.727.0
o/w: ACP0.
Exports, f.o.b., excluding Colón Free Zone14.
Imports, f.o.b., excluding Colón Free Zone−32.5−26.0−28.1−31.2−30.5−30.2−29.2−28.4−27.8−27.9
Net exports of Colón Free Zone0.
Current account balance−10.9−0.7−10.7−13.0−12.6−12.5−12.2−10.7−9.0−8.5
Foreign Direct Investment9.
(In millions of U.S. dollars)
Memorandum items:
Nominal GDP23,00224,16326,59031,53234,94638,13741,56445,08048,49749,990
External debt (public, percent of total non-bank external debt)66.175.871.567.261.663.659.357.454.752.8
External Debt (excluding banks, percent of GDP)54.052.950.347.347.545.845.743.942.340.9
External Debt (including banks, percent of GDP) 2/195.1166.3168.7157.4166.9166.5167.2166.7166.9169.1
Sources: Office of the Comptroller General; Ministry of Economy and Finance; and Fund staff estimates and projections.

Including ACP and net of Feduciary Fund’ holdings of non-government assets.

Includes offshore banks.

Sources: Office of the Comptroller General; Ministry of Economy and Finance; and Fund staff estimates and projections.

Including ACP and net of Feduciary Fund’ holdings of non-government assets.

Includes offshore banks.

Table 8.Panama: Debt of the Nonfinancial Public Sector
(In millions of U.S. dollars)
External debt8,2039,6879,57110,01510,216
Bilateral and guaranteed suppliers210223325367369
Commercial banks170219217216216
Global bonds 1/6,4737,5996,8636,5306,448
ACP 2/00341931931
Domestic debt1,2578211,1901,5742,067
Private creditors8285198941,2781,771
Public financial institutions429302296296296
Total Public debt9,46010,50810,76211,58912,283
(In percent of GDP)
Memorandum items:
Held by Fiduciary Fund (In percent of GDP)
Held by Social Security Agency (In percent of GDP)
GDP (in millions of U.S. dollars)23,00224,16326,59031,53234,946
Sources: Comptroller General; Ministry of Economy and Finance; and Fund staff estimates and projections.

Net of assets held by the Fiduciary Fund, excluding holdings of government securities.

Disbursements from multilateral development banks and JBIC for the Panama Canal expansion.

Sources: Comptroller General; Ministry of Economy and Finance; and Fund staff estimates and projections.

Net of assets held by the Fiduciary Fund, excluding holdings of government securities.

Disbursements from multilateral development banks and JBIC for the Panama Canal expansion.

Table 9.Panama: Vulnerability Indicators
Financial indicators
Broad money (12-month percent change)18.59.411.68.9
Private sector credit (12-month percent change)14.61.313.617.8
Deposit rate (6-month; in percent) 1/
External indicators
Merchandise exports (12-month percent change)75.5−37.112.713.2
Merchandise imports (12-month percent change)33.7−
Current account balance (in percent of GDP)−10.9−0.7−10.7−13.0
Capital and financial account balance10.51.49.810.8
Of which: direct investment9.
Public sector external debt35.740.136.031.8
In percent of exports of goods and services 2/95.1104.4110.896.9
External interest payments (in percent of Exports of goods and services) 2/
External amortization payments (in percent of Exports of goods and services) 2/
REER, percent change (depreciation -) 3/−1.32.0−2.1
Gross international reserves at end of period
In millions of U.S. dollars 4/2,7103,4242,9752,275
In months of imports of goods and services3.
In percent of broad money13.315.412.08.4
In percent of short-term external debt 5/1,2851,992620600
(In millions of U.S. dollars)
Memorandum items:
Nominal GDP23,00224,16326,59031,532
Exports of goods and services 2/8,6299,2758,64110,331
Sources: Ministry of Economy and Finance; and Fund staff estimates and projections.

One-year average for the banking system, comprising of general license banks, excluding offshore banks.

Includes net exports of the Colón Free Zone.


Corresponds to gross foreign assets of the National Bank of Panama (a publicly-owned commercial bank).

Short-term public external debt includes amortization in the following year. Excludes global bonds debt exchange operations.

Sources: Ministry of Economy and Finance; and Fund staff estimates and projections.

One-year average for the banking system, comprising of general license banks, excluding offshore banks.

Includes net exports of the Colón Free Zone.


Corresponds to gross foreign assets of the National Bank of Panama (a publicly-owned commercial bank).

Short-term public external debt includes amortization in the following year. Excludes global bonds debt exchange operations.

Table 10.Panama: Net International Investment Position (NIIP)
(In percent of GDP)
Net international investment position−79.5−66.3−64.2−59.3
Portfolio investment abroad38.
of which: debt securities27.727.727.727.7
Other investment143.1123.5128.8120.6
Trade credits15.313.512.612.6
Loans (short term, to banks)81.165.859.261.6
Currency and deposits38.934.238.535.6
Other assets7.910.114.310.8
Reserve assets19.
Direct investment inward84.976.974.670.9
Portfolio investment34.133.430.426.6
of which debt securities34.133.430.426.6
Financial derivatives0.
Other investment161.0132.9138.4130.8
Trade credits5.
Monetary authorities0.
General government8.
Other sectors4.
Currency and deposits109.791.380.466.2
Other liabilities4.
Sources: Panamanian authorities, other reporting agencies, and Fund staff calculations.
Sources: Panamanian authorities, other reporting agencies, and Fund staff calculations.
Table 11.Panama: Summary Operations of the Nonfinancial Public Sector, GFSM 2001 Classification 1/(In percent of GDP)
Social contributions5.
Other revenue9.
Compensation of employees6.
Use of goods and services2.
Consumption of fixed capital0.
Social benefits4.
Other expense1.
Net acquisitions of financial assets7.07.38.310.
Acquisitions of nonfinancial assets7.07.38.310.
Disposals of nonfinancial assets0.
Consumption of fixed capital0.
Gross operating balance10.
Net operating balance0.
Net lending(+) /borrowing (-)0.4−1.0−1.9−2.3−2.0−1.5−1.0−
Statistical Discrepancy0.00.20.0−3.4
Transactions in financial assets and liabilities−−1.1
Net acquisition of financial assets−0.1−1.2−0.2−2.2
Currency and deposits (foreign)0.0−0.1−0.10.0
Debt securities (domestic)−0.2−1.1−0.1−2.2
Net incurrence of liabilities−
Debt securities (foreign)
Loans (domestic)−0.9−
Loans (foreign)
Sources: Comptroller General; Ministry of Economy and Finance; and IMF staff estimates and projections.

Excludes Panama Canal Authority.

Sources: Comptroller General; Ministry of Economy and Finance; and IMF staff estimates and projections.

Excludes Panama Canal Authority.

Table 12.Panama: Public Sector Debt Sustainability Framework, 2008-2017(In percent of GDP, unless otherwise indicated)
ActualProj.Debt-stabilizing primary balance9/
1Baseline: Public sector debt 1/41.143.540.536.835.235.533.631.228.727.00.8
o/w foreign-currency denominated35.740.136.031.829.
2Change in public sector debt−6.92.4−3.0−3.7−1.60.3−1.9−2.4−2.5−1.7
3Identified debt-creating flows (4+7+12)−9.2−1.5−0.3−−2.2−3.4−4.8−4.2
4Primary deficit−5.6−−1.2−2.7−4.3−5.0
5Revenue and grants29.428.027.828.529.228.828.428.830.330.9
6Primary (noninterest) expenditure23.825.628.731.630.830.
7Automatic debt dynamics 2/−3.60.9−1.3−3.9−1.3−0.9−0.9−0.8−0.50.8
8Contribution from interest rate/growth differential 3/−3.60.9−1.3−3.9−1.3−0.9−0.9−0.8−0.50.8
9Of which contribution from real interest rate0.62.21.7−
10Of which contribution from real GDP growth−4.2−1.3−3.0−3.4−2.5−2.3−2.1−1.9−1.6−1.5
11Contribution from exchange rate depreciation 4/
12Other identified debt-creating flows0.
13Privatization receipts (negative)
14Recognition of implicit or contingent liabilities0.
15Other (specify, e.g. bank recapitalization)
16Residual, including asset changes (2−3) 5/2.33.9−2.7−3.0−2.0−
Public sector debt-to-revenue ratio 1/139.8155.0145.8129.1120.6123.2118.2108.394.687.3
Gross financing need 6/−2.1−2.8
in billions of U.S. dollars7341,8281,9732,6992,0682,4235721,423−995−1,394
Scenario with key variables at their historical averages 7/−0.2
Scenario with no policy change (constant primary balance) in 2011-201634.532.332.232.633.836.540.91.1
Key Macroeconomic and Fiscal Assumptions Underlying Baseline10-Year




Real GDP growth (in percent)
Average nominal interest rate on public debt (in percent) 8/
Average real interest rate (nominal rate minus change in GDP deflator, in2.−
Nominal appreciation (increase in US dollar value of local currency, in per0.
Inflation rate (GDP deflator, in percent)−2.2
Growth of real primary spending (deflated by GDP deflator, in percent)21.610.920.−
Primary deficit−5.6−2.50.9−−1.2−2.7−4.3−5.0

Nonfinancial public sector including Panama Canal Authority.

Derived as [(r - p(1+g) - g + ae(1+r)]/(1+g+p+gp)) times previous period debt ratio, with r = interest rate; p = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).

The real interest rate contribution is derived from the denominator in footnote 2/ as r - π (1+g) and the real growth contribution as -g.

The exchange rate contribution is derived from the numerator in footnote 2/ as ae(1+r).

For projections, this line includes exchange rate changes.

Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period. Negative sign implies accumulation of assets.

The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.

Derived as nominal interest expenditure divided by previous period debt stock.

Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.

Nonfinancial public sector including Panama Canal Authority.

Derived as [(r - p(1+g) - g + ae(1+r)]/(1+g+p+gp)) times previous period debt ratio, with r = interest rate; p = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).

The real interest rate contribution is derived from the denominator in footnote 2/ as r - π (1+g) and the real growth contribution as -g.

The exchange rate contribution is derived from the numerator in footnote 2/ as ae(1+r).

For projections, this line includes exchange rate changes.

Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period. Negative sign implies accumulation of assets.

The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.

Derived as nominal interest expenditure divided by previous period debt stock.

Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.


1. Panama’s real estate market has been highly dynamic in recent years, in line with strong economic growth and low unemployment.1 In spite of very rapid construction growth in the years prior to the global financial crisis, the sector achieved a soft landing during the economic slowdown of 2008–09 (Annex I, Figure 1). Investment in luxury residential properties was sustained by safe-haven inflows from the region, which substituted in part for lower demand from advanced economies. Although the share of construction and mortgage lending in bank portfolios rose to 28.5 percent by end-2008, banks managed their exposures to the construction sector quite conservatively, mainly through self-imposed lending limits. While 2009 saw a sharp slowdown in housing activity and overall credit growth, starting in 2010 construction activity rebounded strongly. New constructions shifted to lower-value housing for the domestic market, and, increasingly, to commercial and industrial real estate propelled by Panama’s ambitious public investment program (Annex II, Figure 1).

Annex I Figure 1.Panama: Real Estate Sector Developments

1/ Data for Q1 and Q2 2011.

Source: Superindendency of Banks, and IMF staff calulations.

2. Although there is no clear evidence of a property market bubble (partly due to data gaps), market participants indicate that prices of prime residential and industrial real estate are rising rapidly. By contrast, signs of excess supply in the commercial segment are emerging, with prices of office space declining by about 10 percent during 2010-11 and the share of pre-sold commercial units to be finished in 2012 running at a low 50 percent. There is also anecdotal evidence that developers have started to rent unsold units to meet the demand from middle and high-level expatriate staff of multinational companies. Going forward, softer economic activity and lower safe-haven investments may reduce demand and increase the inventories of finished units.

3. In the absence of monetary policy tools, macroprudential policy can play an important role in managing demand and safeguarding sound credit expansion. As banking practices become more competitive in an environment of low interest rates, macroprudential policy can help prevent or reduce the severity of asset price bubbles by limiting the leverage of borrowers relative to market values or income. Commonly-used instruments include limits on the loan-to-value ratio as well as on the relation between debt or debt service to household income. Other economies with hard pegs and a macro-critical housing sector (e.g. Hong Kong SAR and Singapore) are actively and successfully using those types of instruments to influence market and price developments, sometimes adjusting limits as market dynamics change.2

4. Panama’s macroprudential policy framework is at an incipient stage. However, the current juncture consisting of a dynamic domestic economy, low U.S. interest rates, and a rapidly deteriorating global outlook, should provide an impetus for developing additional demand management tools. Self-imposed restrictions by banks on clients’ leverage and general exposure limits cannot be relied upon to deliver desirable aggregate outcomes. Moreover, property market developments are monitored through periodic surveys of construction activity, but information on market prices and other property market indicators is not collected. Similarly, data on household or corporate indebtedness is not compiled for prudential purposes. A key FSAP recommendation is therefore to step up data collection to allow the calculation of price indices and other market indicators on an ongoing basis. Information on the credit burden of households should also be made available. Beyond pure market surveillance, the authorities should be ready to enforce limits on loan to value or debt (service) to income ratios, should developments in certain market segments warrant such actions. More generally, the use of such countercyclical tools should be embedded in an institutional framework for macroprudential policy.


1. This annex analyzes Panama’s external stability and competitiveness using several methodologies to assess the level of the real effective exchange rate (REER) and non-price survey-based indicators.1 Despite the large deficits as a share of GDP, the analysis suggests that Panama’s current account developments are consistent with external stability, and that there are no major external vulnerabilities. Results from three quantitative methodologies suggest that, as of end-2010, the real effective exchange rate was broadly in line with fundamentals. Survey data analysis indicates that Panama’s competitiveness is dampened by structural factors related to institutions, human capital development and skills’ allocation through the labor market (Annex II, Figure 1).

Annex II Figure 1.Panama: Competitiveness Indicators

Source: National Authorities, World Economic Outlook, World Bank Doing Business data, Worldwide Governance Indicators and IMF staff calculations.

1/ LA5 refers to Brazil, Chile, Colombia, Mexico and Peru.

External Stability

2. Panama’s external current account (CA) is projected to post deficits in excess of 10 percent of GDP through 2014 before returning to its long-term norm of 5-7 percent by 2016-17. The external CA moved from near balance in 2009 to a projected deficit of 13 percent of GDP in 2011, primarily owing to a surge in capital goods imports related to the canal expansion and the public investment program. Although Foreign Direct Investment (FDI) in flows are expected to continue financing the bulk of the external current account deficits in the coming years, questions about the sustainability of those deficits are pertinent.

3. The composition of imports and FDI do not suggest that Panama’s external accounts are on an unsustainable path, but downside risks exist. Imports growth in 2011 has been mostly driven by capital goods related to the Panama Canal expansion and public investment projects. Although FDI remains strong, Panama could be vulnerable to a sharp deterioration of economic conditions in countries which are the main sources of inward FDI such as the U.S. and Spain (Figure 5), particularly as a large share of FDI consists of reinvested earnings.

4. An analysis of the composition of external assets and liabilities does not reveal major vulnerabilities, though private external debt liabilities are relatively high. The estimates of Panama’s International Investment Position suggest that private external debt liabilities have been rising over time, reaching 127 percent of GDP at end-2010. However, most of these represent increased loan liabilities of offshore banks rather than external debt exposures of on-shore Panamanian households or companies.

REER Assessment

5. Panama’s Nominal Effective Exchange Rate (NEER) and the CPI-based Real Effective Exchange Rate (REER) are much lower than their end-2008 peak. However, in 2011, reflecting the uncertain global external environment, the NEER appreciated in line with movements in the dollar, while the REER rose also owing to high domestic inflation (Annex II, Figure 1). Panama’s inflation is projected to remain somewhat above that of major trading partners, particularly the U.S, in the near future, which could dent competitiveness.

6. Results from the exchange rate assessment as of end-2010, using three standard methodologies, are somewhat ambiguous but do not suggest significant REER misalignment (Table 1). While the macroeconomic balance approach and the external sustainability approach suggest overvaluation of 8.1 and 7.8 percent respectively, the equilibrium Real Exchange Rate (RER) method suggests an undervaluation of about -10.5 percent. As is well known, these estimates are very sensitive to key parameter assumptions (such as the elasticity of the current account balance to the REER) and to the estimated current account norm.

7. The macroeconomic balance approach relies on an estimate of a current account norm, based on fundamental determinants of the current account balance. The determinants used in the calculations are the fiscal balance, the old-age dependency ratio, population growth, the oil balance, relative GDP per capita growth and output growth. Using coefficients from the pooled estimation in Lee et al. (2008), the current account norm is estimated at about -4.7 percent of GDP. Given an estimated elasticity of the current account balance to the REER of 0.25,2 the REER depreciation required to close the gap between the norm and the underlying current account balance in 2016 is estimated to be 8.1 percent.3

8. The external sustainability approach estimates the current account to GDP ratio needed to stabilize the net foreign asset (NFA) position of the country.4 In this case, it is assumed that Panama’s NFA position in 2007, -87 percent of GDP, is close to its long-term equilibrium level.5 The approach then calculates the corresponding NFA-stabilizing current account balance, estimated here at -6.6 percent of GDP. Using the elasticity estimate of 0.25, the results suggest an exchange rate misalignment of 7.8 percent.

9. Under the equilibrium exchange rate approach the degree of misalignment is calculated as the deviation of the actual REER from its estimated value. To obtain the equilibrium real exchange rate, the dynamic OLS coefficient estimates are applied to Panama data.6 The fundamentals included are the terms of trade, the public consumption to GDP, and investment-to-GDP ratios, trade openness, and the relative real GDP per capita to proxy for the productivity differential between Panama and its major trading partners. Estimates suggest that as of end-2010 Panama’s REER was some 10.5 percent below equilibrium.

Table 1.Panama: REER Assessment Results(in percent)
NFA to NFA-stabilising Underlying
CA NormGDPCACAGapElasticityMisalignment

Survey-Based Indicators of Competitiveness

10. Panama’s ranking in various competitiveness surveys has improved in recent years. Overall, competitiveness surveys (based either on perceptions or objective measures) highlight several areas of strength, including financial development, infrastructure, macroeconomic and political stability, and openness to trade. At the same time, results indicate that Panama’s main weaknesses relate to institutions, health and education, and labor markets.7

11. In the latest DB assessment (DB 2012),8 Panama ranked 61st out of 183 economies. This represents a marginal improvement relative to the 2011 assessment when Panama was placed 63rd Panama scores well on trading across borders, but is at a disadvantage against all comparator countries (Latin America and Caribbean average) with regards to registering property, protecting investors, paying taxes, and enforcing contracts.

12. According to the GCI, Panama ranks 49 out of 142 countries in 2011-12 (up from 53 in 2010-11). Table 2 provides a comparison of the rankings of Panama with Singapore (ranked second) and the five largest Latin American economies. Panama’s rankings on individual pillars suggest that its relative strengths are its financial development, infrastructure, technological readiness, macroeconomic environment and business sophistication. At the same time, according to the survey Panama’s key weaknesses lie in human capital development and labor markets. It scores poorly with regards to the delivery of health care and primary education, provision of on-the-job training and the allocation of labor resources.

13. The 2010 World Governance Indicators show that Panama lags behind Singapore on all indicators except voice and accountability. The World Governance Indicators, developed by Kaufmann et al. (2010) provide additional dimensions with which to assess the external competitiveness of economies. They assign scores to countries on 6 indicators of governance, notably: control of corruption; government effectiveness; political stability and absence of violence/terrorism; regulatory quality; rule of law and voice and accountability. Each dimension is assigned a score from -2.5 to 2.5 (indicating better governance). Based on the 2010 scores, shown in Figure 2, it would appear that Panama falls behind Singapore on all indicators except voice and accountability. However, except for Chile, Panama fares better than the large emerging markets of Latin America on most indicators of governance.

14. The authorities have identified several key areas to promote Panama’s competitiveness, and ongoing efforts and initiatives aim at reducing bottlenecks. A special secretariat has been established to coordinate the development strategy of logistics-related activities and remove remaining bottlenecks to further expansion. A new initiative by the Ministry of Education seeks to involve private sector enterprises in providing training to students to better align supply and demand for skills. Strengthening security; reinforcing institutions (especially the judiciary); and the introduction of a bankruptcy law are other elements of the government’s competitiveness strategy.

Table 2.Global Competitiveness Rankings: Panama, Singapore and LA5 Countries
Overall GCI Ranking492555331685867
Ranking on Pillars:
3Macroeconomic Environment4195211514423952
4Health and Primary Education793808771786997
5Higher Education and Training784625743607277
6Good Market Efficiency4617411325998450
7Labor Market Efficiency11527383398811443
8Financial Market Development271524337687238
9Technological Readiness4010615445756369
10Market Size8537291046321243
11Business Sophistication4615553139615689
Source: World Economic Forum Global Competitiveness Report 2011-2012.
Source: World Economic Forum Global Competitiveness Report 2011-2012.

Fitch and Moody’s further upgraded Panama in June and August 2011, respectively.

The OECD’s Global Forum on Transparency and Exchange of Tax Information conducts a two-stage peer review of (i) whether a country’s legal framework complies with international standards; and (ii) implementation of the framework. Panama is in the process of completing the first stage.

Draft mining and public-private partnerships laws had to be withdrawn from the National Assembly following opposition from grassroots groups and public sector workers.

The budget recuperates the subsidy when the price goes below the established threshold.

The Social and Fiscal Responsibility Law (SFRL), approved in 2008, establishes a limit for the NFPS deficit of 1 percent of GDP. The law contains escape clauses that allow the deficit limit to increase to up to 3 percent of GDP, with a gradual adjustment path back to the norm, in case of (i) a sharp drop in Panama’s economic growth, (ii) a sharp decline in growth of the global economy, or (iii) a national emergency. Such clauses were invoked in 2009 and 2010, raising the deficit ceiling to 2.5 and 3 percent of GDP in 2010 and 2011, respectively.

In previous years, the authorities anticipated executing only about 70 percent of the budgeted investment envelope, but this ratio has increased significantly (to about 86 percent in 2011) thanks to improved capacity.

Twenty percent of total revenue is collected in Q4, including dividends from state enterprises.

China and U.S. trade account for between 60 and 70 percent of Canal traffic.

By law the minimum wage is adjusted every two years, following consultations with stakeholders.

The US$5.3 billion (20 percent of 2010 GDP) project is financed by the ACP’s own resources and loans from multilateral institutions.

There is only one on-shore Spanish bank (BBVA) in Panama, holding 4 percent of total system’s assets.

With total assets of about 50 percent of 2010 GDP, offshore banks are supervised both by the home country and Panama’s Superintendency of Banks. They are not allowed to operate in Panama, but they participate in the relatively small interbank market.

There are no lending standard surveys or housing price indices in Panama. The official statistical agency collects data on new constructions as provided by the builder, but data on market prices is unavailable.

Using the statutory definition, liquidity coverage includes repayments due on six-month obligations and securities, and stands at 63 percent of short-term liabilities. Excluding loan obligations and securities, and dividing by deposits of all maturities lowers the ratio to about 20 percent at end-September 2011.

Three entities were excluded from the fiscal accounts since 2010: the electricity transmission company, the international airport and the newly-created highway company. Two of the entities broadly met the criteria of being profitable commercially run enterprises, with relatively small debts of 1.5 percent of GDP as of end-2010. The highway company plans to borrow US$1.07 billion during 2011-12, but the debt does not carry a state guarantee and would be fully backed by future toll revenue.

A turnkey project involves contracting public infrastructure projects to private companies, which receive full payment from the state upon final delivery.

The threshold is planned to be reduced by 50KWH every two quarters starting in second quarter of 2012 until it reaches 300KWH. This is estimated to generate US$30 million in annual savings.

The Social Security System (CSS) was overhauled in 2007-08 through the introduction of individual savings accounts and a reform of the defined benefit system. Currently CSS receives US$140 million annually from the budget to compensate for the deficit of the defined benefit system. Further reform of the system would be needed to prevent these deficits from continuing to increase after 2030.

In of the tests of the OECD Program for International Student Achievement (PISA) conducted in 2009, Panama scored fourth and second last in reading and science, and math tests, respectively, out of 65 participating countries (

The World Bank’s 2011 study uses 2008 data (Panama Poverty Assessment, Report No. 62955 – PA).

According to Manpower Co., Panama ranks second after Brazil in businesses’ hiring intentions in Q4 2011 in the Americas, and fifth globally. Thirty eight percent of companies in Panama struggle to find skilled labor. In addition, Panamanian companies are only allowed to hire 10 percent of their labor force from abroad.

Prepared by T. Wezel.

Wong, E., T. Fong, K. Li and H. Choi, “Loan-to-Value Ratio as a Macro-Prudential Tool – Hong Kong’s Experience and Cross-Country Evidence”, Hong Kong Monetary Authority Working Paper 01/2011.

Prepared by P. Muthoora.

The elasticity of 0.25 is the current account balance elasticity obtained for Panama in Tokarick (Tokarick, 2010, “A method for Calculating Export Supply and Import Demand Elasticities,” IMF Working Paper 10/180).

This coincides with the end of the WEO projection period for the calculation of the underlying current account balance.

The NFA position is obtained from Lane and Milesi-Ferretti (2009). This measure of the NFA is based on adjusted FDI and reserve assets figures and differs from the authorities’ estimates.

The choice of 2007 as the reference year allows to focus on a level of NFA that is not affected by the expansion of the Panama canal or the 2008-09 slowdown.

Lee et al, 2008, “Exchange Rate Assessments: CGER Methodologies,” International Monetary Fund, Occasional Paper 261.

The surveys reviewed are the World Bank Doing Business (DB) Indicators; the World Economic Forum’s Global Competitiveness Index (GCI) and the Worldwide Governance indicators.

The data for all indicators of the Doing Business Assessment 2012 are for end-June 2011, except for data on paying taxes which are for January-December 2010. The methodology was modified for three of the indicators (Getting credit, Dealing with Construction Permits and Paying taxes) in the 2012 DB assessment. Consequently, Panama’s 2011 ranking was revised from 72nd to 63rd. Comparisons over time with the new methodology are only possible for the updated 2011 and the 2012 rankings.

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