Journal Issue

IMF Executive Board Concludes 2011 Article IV Consultation with Panama

International Monetary Fund
Published Date:
April 2012
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On February 22, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Panama.1


Panama’s economy rebounded quickly following the 2008–09 global crisis. Supported by strong fundamentals, political stability, and prudent fiscal management, real GDP growth rates have been among the highest in the region. Macroeconomic stability and policies to foster greater social inclusion have reduced unemployment to historic lows and improved poverty indicators.

Following the 2009 slowdown, output grew by 7½ percent in 2010, and may grow by 10 percent for the year in 2011. Construction, commerce and transportation have been the most dynamic sectors, while canal traffic has been buoyed by strong demand from emerging Asia and South America. High international commodity prices, combined with Value Added Tax (VAT) and minimum wage increases, have pushed inflation above historical averages, with inflation in 2011 projected to be above 6 percent. The fiscal stance remained moderately expansionary in 2010–11, adding to domestic demand pressures. The widening of the external current account deficit has continued to be driven by strong capital goods imports, related to the canal expansion, but Foreign Direct Investment flows have also increased. Bank credit to the private sector in 2010-11 grew at rates slightly above nominal GDP. A first-time Financial Sector Assessment Program (FSAP) conducted in September 2011 confirmed that the financial system is sound, and that it would remain adequately capitalized even under challenging external conditions.

Panama’s macroeconomic outlook is favorable, with broadly balanced risks. The Panama Canal expansion and the large public investment program are expected to sustain domestic demand. Risks of overheating stemming from the strong domestic demand, tight labor markets and inflation are expected to be offset by the easing uncertainties in world commodity markets. Key medium-term challenges are to strengthen the fiscal framework, upgrade financial sector supervision and infrastructure, and improve the quality of education and training to enhance competitiveness and ensure sustained broad-based growth.

Executive Board Assessment

Executive Directors commended Panama’s remarkable resilience to external turbulence, on the back of strong economic fundamentals and prudent policies. Robust economic growth and steady fiscal consolidation have contributed to lowering the public debt ratio. The growth outlook for 2012 is favorable, underpinned by large scale public investments, and overall vulnerabilities are low. The priorities going forward are to build policy buffers, further increase financial sector resilience, and foster sustained and more inclusive growth.

Directors considered that the envisaged neutral fiscal stance in 2012-13 is broadly appropriate, although many saw merit in a somewhat tighter fiscal stance to rebuild buffers more rapidly and help contain possible overheating pressures. With the implementation of the public investment program, Directors underscored the importance of continuing to strengthen the fiscal framework to enhance spending efficiency and improve public finance and liability management. Directors welcomed the authorities’ efforts to strengthen revenue collection to provide room for social spending and to enhance the effectiveness of such spending by better targeting subsidies. They supported the plan to create a Sovereign Wealth Fund to save additional revenue from the expanded Panama Canal, noting that the Social and Fiscal Responsibility Law will need to be modified to anchor surpluses.

Directors welcomed the resilience of Panama’s financial system, while supporting continued efforts to strengthen crisis prevention and the institutional and policy framework. They generally saw merit in the authorities’ plans to establish a fund to respond to temporary liquidity shortages in the financial system while aiming to avoid moral hazard. They also saw scope for macroprudential tools in managing rapid credit growth in the absence of monetary policy.

Directors commended Panama’s success in establishing a strong banking center, which has become an important regional hub. To compete globally and in a broader range of investment and wealth management services, Panama will need to upgrade its financial sector supervision and infrastructure. Risk based and consolidated banking supervision and oversight of non bank segments will need to be enhanced. Directors welcomed the authorities’ commitment to complete an AML/CFT assessment by end 2012.

Directors noted that Panama’s competitiveness has improved in recent years. The recently approved Free Trade Agreement with the United States is expected to boost further Panama’s status as a regional logistics hub. To continue to attract investment and promote employment, Panama will need to further improve the business environment and the labor market. Directors also stressed the importance of enhancing human capital and improving access to basic services to foster inclusive growth.

Public Information Notices (PINs) form part of the IMF’s efforts to promote transparency of the IMF’s views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

Panama: Selected Economic Indicators
(Annual percent change)
Real economy
Nominal GDP16.
Real GDP (1996 prices)
Consumer price index (average)
Consumer price index (end-of-year)
Money and credit
Private sector credit14.61.313.617.8
Broad money18.59.411.68.9
Average deposit rate (1-year)
Average lending rate (1-year)
(Percent of GDP)
Saving and investment
Gross domestic investment 127.625.626.029.0
Gross national saving16.724.915.316.0
Nonfinancial public sector
Revenue and grants34.933.533.333.4
Current, including interest24.124.524.823.7
Overall balance2.5−0.4−3.4−5.5
Overall balance, excluding ACP0.4−1.0−1.9−2.3
External sector
Current account−10.9−0.7−10.7−13.0
Capital and financial account10.51.49.810.8
Real effective exchange rate (depreciation -)−1.32.0−2.1
External public debt 235.740.136.031.8
Memorandum items:
GDP (in millions of US$)23,00224,16326,59031,532
Sources: Comptroller General; Superintendency of Banks; and IMF 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 IMF staff estimates.

Includes Panama Canal Authority (ACP).

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

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here:

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