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Panama: Staff Report for the 2016 Article IV Consultation—Informational Annex

Author(s):
International Monetary Fund. Western Hemisphere Dept.
Published Date:
November 2016
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Fund Relations

(As of March 31, 2016)

Membership Status: Joined: March 14, 1946; Article VIII

General Resources Account:SDR Million%Quota
Quota376.80100.00
Fund holdings of currency322.4085.56
Reserve Tranche Position54.4114.44
SDR Department:SDR Million%Allocation
Net cumulative allocation197.01100.00
Holdings128.2665.10

Outstanding Purchases and Loans: None

Latest Financial Arrangements:

TypeDate of ArrangementExpiration DateAmount Approved (SDR Million)Amount Drawn (SDR Million)
Stand-ByJun 30, 2000Mar 29, 200264.000.00
EFFDec 10, 1997Jun 20, 2000120.0040.00
Stand-ByNov 29, 1995Mar 31, 199784.3084.30

Projected Payments to Fund

(SDR Million; based on existing use of resources and present holdings of SDRs):1

Forthcoming
2016201720182019
Principal
Charges/Interest0.030.040.040.04
Total0.030.040.040.04

Implementation of HIPC Initiative: Not Applicable

Implementation of Multilateral Debt Relief Initiative (MDRI): Not Applicable

Implementation of Post-Catastrophe Debt Relief (PCDR): Not Applicable

Safeguards Assessment

Under the Fund’s safeguards assessment policy, the National Bank of Panama (NBP) was subject to the transitional procedures with respect to the Stand-By Arrangement, which was approved on June 30, 2000, and expired on March 29, 2002. The transitional procedures required a review of the NBP’s external audit mechanism only. The assessment was completed on July 12, 2001 and concluded that NBP’s external audit mechanism was at the time adequate.

Non-financial Relations

Exchange Rate Arrangement

Panama uses the U.S. dollar as the primary means of payment in the local economy. Its national currency (balboa) is issued in the form of coins only and serves as a unit of account. The exchange rate of the balboa is fixed at B 1 per U.S. dollar. Panama has accepted the obligations of Article VIII, Sections 2(a), 3, and 4, and maintains an exchange system that is free of restrictions on the making of payments and transfers for current international transactions.

Last Article IV Consultation

The 2015 Article IV consultation was concluded on June 10, 2015. Panama is on the standard 12-month consultation cycle.

FSAP: A first-time FSAP was concluded in September 2011. It confirmed the banking sector’s strength and resilience to potential shocks, noting nonetheless that data gaps prevent a full analysis of macro-financial linkages. It concluded that the regulatory framework for banks was broadly adequate, but the regulation of nonbanks had important shortcomings. It recommended to build the capacity to monitor systemic risks and introduce a financial safety net, including a facility aimed at addressing temporary liquidity shortfalls and a limited deposit insurance fund.

Technical Assistance

Panama is a large recipient of technical assistance (TA) directly through the Fund or CAPTAC-DR. Latest assistance concentrated in the area of the national accounts, both on annual and quarterly national accounts, and producer price and export and import prices. Assistance was also provided in improving the external sector statistics. Assistance in the fiscal area included the practical application of the accounting policies established in the International Public Sector Accounting Standards (IPSAS), implementation of the single treasury account and medium-term expenditure framework. CAPTAC is delivering TA support in the areas of tax administration. In the financial area, TA concentrated mostly on improving financial supervision.

Resident Representative: None.

Relations with the World Bank-Under JMAP

(As of March 31, 2016)

TitleProductsProvisional Timing of MissionsExpected Delivery Date (Closing date)
Lending (active)Second Programmatic Shared Prosperity Development Policy Loan (P151804)May 2016June 2017
Metro Water and Sanitation Improvement (P119694)September 2016June 2017
Catastrophe Deferred Draw Down Disaster Risk Management Development Policy Loan (P122738)September 2016November 2017
Enhanced Public Sector Efficiency Technical Assistance Loan (P121492)April 2016August 2018
Sustainable Production Systems and Conservation of Biodiversity (P145621)September 2016December 2019
Advisory Services and Analytics, Trust Funds (active)Strengthening Social Protection and Inclusion System (P155097)June 2016February 2022
Panama Disaster Risk Management Program (TF017335)September 2016May 2016
Probabilistic Risk Assessment to Improve Resilience to Natural Hazards in Panama (TF014499)September 2016September 2016
Urban Mobility Reform (P155132)April 2016June 2016
Panama Property Tax
AssessmentApril 2016June 2016
Integrated Urban Water Management in Colon (P154539)September 2016July 2016
Panama Public Private Partnership (P146838)April 2016July 2016
Urban Planning to Panama City Phase II (P159648)September 2016September 2016
School Dropout: Causes and Consequences(P155484)September 2016December 2016
Panama Energy Diagnostics (P154315)September 2016January 2017
Implementation of Trade Facilitation Agreement (P156050)May 2016June 2017
Water Security for Panama: Key Building Blocks for Development of the National Water Security Plan (P159466)April 2016June 2017
WASH Poverty Diagnostic (P150563)September 2016September 2017
Treasury’s Fee-For-Service for the Fondo de Ahorro de PanamaApril 2016April 2019

Relations with the Inter-American Development Bank

(As of March 31, 2016)

In 2015, the IDB disbursed a total of US$418.6 million. The Bank approved five loans for a total of US$600 million during the year. Two of them were Policy-Based Loans (Logistic planning, multimodal transport and logistic platforms and Transparency and Equity Spending on Social Protection) in the amount of US$300 million and three investment loans for the following sectors: Social Inclusion and Development (US$50 million), Integrated Health Service Networks Strengthening (US$140 million) and Sanitation (US$110 million, co-financed with US$50 million from the China Cofinancing Fund for Latin America and the Caribbean).

The preliminary projection of disbursements for 2016 is around US$300 million. The IDB expects to approve five loans for US$350 million in the areas of Transport and Logistics, Integration, eGoverment, Sanitation and Transparency and Equity Spending on Social Protection.

Panama: Relations with the Inter-American Development Bank(In millions of U.S. Dollars)
Operations
SectorApprovedDisbursedUndisbursed Amounts
Education100.070.229.8
Health240.050.0190.0
Reform/Modernization of the State28.923.15.8
Energy20.04.915.1
Transport70.039.330.7
Water and Sanitation339.1135.0204.1
Total798.0322.5475.5
Source: Inter-American Development Bank.1 Sovereign-Guaranteed including the China Cofinancing Fund for Latin America and the Caribbean.

Estimated.

Loan Transactions
20102011201220132014201520162
a. Disbursements302.2181.1170.8303.9392.8418.6300.0
b. Repayment92.099.9104.9108.7102.3114.2159.2
c. Net lending210.281.166.0195.2290.5304.4140.8
d. Interest and charges50.749.045.655.355.568.276.3
e. Subscriptions and contributions0.71.93.60.02.01.71.8
f. Net transfer158.830.216.7139.9233.0234.662.7
Source: Inter-American Development Bank.1 Sovereign-Guaranteed including the China Cofinancing Fund for Latin America and the Caribbean.

Estimated.

Source: Inter-American Development Bank.1 Sovereign-Guaranteed including the China Cofinancing Fund for Latin America and the Caribbean.

Estimated.

Statistical Issues

(As of March 31, 2016)

ASSESSMENT OF DATA ADEQUACY FOR SURVEILLANCE
General: Data provided to the Fund has some shortcomings, but is broadly adequate for surveillance. The accuracy, timeliness, and publication of economic statistics has improved, but weaknesses in national accounts, government finance, and balance of payment statistics need to be addressed.
Real Sector: Although the timeliness of real sector data provision has improved, the data are often subject to sizable revisions. The IMF national accounts technical assistance mission conducted in 2010–11 noted slow progress in expanding coverage of financial activity, as well as overestimation of the deflator used to calculate financial services output in volume terms. Since 2011, progress was made in compiling financial intermediation services indirectly measured (FISIM) on a monthly basis following the 2008 System of National Accounts (2008 SNA). Progress was also made in broadening the coverage of household output, employment, compensation of employees, and mixed income in informal activities for 2007–2012 due to the improvement in the compilation of employment matrices. Quarterly GDP data and the monthly economic activity index have benefited from the use of monthly VAT records as source data, and from the correct application of the Denton Proportional method for aligning quarterly data to annual data (reducing further revisions) and the X13 ARIMA-SEATS software for seasonally and calendar-adjusting the quarterly series. In addition, IMF technical assistance has been provided to compile input-output tables that will be available by the end of FY2017; to compile the financial account and the flow of funds table; to develop updated producer, export, and import price indices; and to support the development of the quarterly economic surveys to nonfinancial enterprises. After the change of the base year of the national accounts (NA) to 2007, the rebased NA data from the production approach were published for 2007–2015. NA data from the expenditure and income approaches are available for 2007–2014.
Government finance statistics: Further efforts are needed to improve the quality of fiscal data. Apart from timeliness, consistency of data related to the transfers between public sector units should be improved. Since September 2004, the operational balance of the Panama Canal Authority (ACP) was excluded from the official definition of the nonfinancial public sector (NFPS) used for fiscal policy purposes. Information on the ACP is only available in the Annual Report posted on its website (www.pancanal.com) on a fiscal-year basis. There is a need to ensure a consistent and timely flow of ACP statistics. Moreover, in 2011, three public enterprises have been excluded from the NFPS accounts and public debt (Tocumen International Airport, ETESA – an electricity distribution company, and ENA – the National Highway company). It would also be necessary to compile and disseminate information on these entities in a timely fashion. The 2012 decree establishing the Savings Fund of Panama (Fondo Ahorro de Panama, or FAP) mandated reporting of deferred payment schemes (e.g. turnkey projects) in budget documentation.
The authorities received technical assistance from the IMF Statistics Department (STA) to implement the Government Finance Statistics Manual 2001 (GFSM 2001) and the Fiscal Affairs Department (FAD) conducted a mission on observance of fiscal standards and codes (ROSC) in October 2005. The authorities, however, cannot elaborate fiscal statistics in accordance with GFSM 2001 without a priori reforming public accounting. The August 2012 CAPTAC report on fiscal statistics for financial programming also emphasized the need to improve the information and analysis of turnkey projects’ impact on fiscal sustainability. In 2011 through 2013, FAD provided technical assistance in the area of public accounting, including implementation of government accounting reforms and the practical application of the accounting policies established in the International Public Sector Accounting Standards (IPSAS), an important step toward improving fiscal transparency. The authorities have also started to publish the liabilities derived from the turnkey projects and of the state-owned enterprises. The financial accounting system was not prepared to support the recording of transactions and economic events under the accrual method. The authorities launched a new platform for centralized management of public sector financial information (Integración y Soluciones Tecnológicas del Modelo de Gestión Operativa, ISTMO), which would help enhance transparency and efficiency. Panama reports limited fiscal data to STA (for publication in the International Financial Statistics or the Government Finance Statistics Yearbook).
Monetary and Financial Statistics: Panama regularly reports monetary data for depository corporations using the standardized report forms (SRFs) for publication in the International Financial Statistics. Panama participated in a regional project for harmonizing monetary and financial statistics in Central America and the Dominican Republic, supported by CAPTAC. The aim was to facilitate cross-country comparison and regional analysis. The second stage of the harmonization project developed a work program to expand the institutional coverage to include other depository corporations and all other financial corporations (OFCs). In February 2014, Panama started to report Financial Soundness Indicators (FSIs) to STA on a regular (quarterly) basis with data beginning in 2005. Data gaps prevent a deeper analysis of systemic risks as the authorities do not collect adequate data on real estate prices, loan write-offs, loan-to-value ratios, and leverage indicators for households and corporates.
Balance of payments: Weaknesses in foreign trade flows calculations, particularly those involving the Colon Free Zone, need to be addressed. Substantial changes in the composition of trade flows over the last decade render the current methodology to estimate volume indices obsolete. Oil imports and service exports may have been underestimated. Quarterly data are available with a delay of about one quarter, and are subject to revisions thereafter. Revised estimates in key trade and investment data may result in substantial revisions of the current account of the balance of payments. These revisions may reflect improvements in coverage, but they also suggest that there is room for improvement in quality control procedures. Data on outward FDI and repatriation of profits and dividends from these investments are only collected from the financial private sector, implying that the current account deficit and the International Investment Position (IIP) are likely being overestimated, due to the lack of coverage of outward FDI of the nonfinancial private sector. Official statistics may also underestimate inward portfolio investment. The authorities conducted Coordinated Direct Investment Survey (CDIS) and Coordinated Portfolio Investment Survey (CPIS) to improve external sector data quality in the context of CAPTAC Regional Harmonization Project of External Sector Statistics (RHPESS). Quarterly IIP data have been compiled since 2002, and annual data are available since 1998. TA has also been provided on the definition, compilation and dissemination of international reserves.
DATA STANDARDS AND QUALITY
Panama has participated in the Fund’s General Data Dissemination System (GDDS) since December 2000, but the metadata needs to be updated. A data ROSC was published in October 2006. Following an SDDS assessment mission conducted by STA in April 2011, and in November 2013, the authorities have a work program aimed at meeting the requirements for Panama’s subscription to the SDDS. An action plan has been prepared and followed up by subsequent missions.
Panama: Table of Common Indicators Required for Surveillance(As of March 31, 2016)
Date of latest ObservationDate ReceivedFrequency of Data6Frequency of Reporting6Frequency of Publication6Memo Items:
Data Quality-Methodological Soundness7Data Quality-Accuracy and Reliability8
Exchange Rates3/20163/2016DDD
International Reserve Assets and Reserve Liabilities of the Monetary Authorities12/20153/2016MMM
Reserve/Base MoneyNANANANANA
Broad Money12/20153/2016MMM
National Bank of Panama Balance Sheet1/20163/2016MMA
Consolidated Balance Sheet of the Banking System12/20153/2016MMM
Interest Rates 13/20163/2016MMM
Consumer Price Index2/20163/2016MMMO, LNO, LO, LOLO. LO. LO. O, LO
Revenue, Expenditure, Balance and Composition of Financing2 - General Government312/20152/2016QQQLO, LNO, LO, OO, LO, LO, LO, LO
Revenue, Expenditure, Balance and Composition of Financing2-Central Government12/20152/2016QQQ
Stocks of Central Government and Central Government-Guaranteed Debt42/20163/2016MMM
External Current Account Balance12/20153/2016QQQLO, LO, O, LOLO, O LO, LO, LNO
Exports and Imports of Goods1/20163/2016MMM
GDP/GNP12/20153/2016QQQO, O, O, LOLO, LO, LNO, LO, LNO
Gross External Debt12/20153/2016QQQ
International Investment Position512/20153/2016QQQ

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents, including of offshore bank.

Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).

Reflects the assessment provided in the data ROSC, published in October 2006 based on the findings of the mission that took place during February 7–23, 2006. For the dataset corresponding to the variable in each row, the assessment indicates whether international standards concerning (respectively) concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), or not observed (NO).

Same as footnote 7, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents, including of offshore bank.

Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).

Reflects the assessment provided in the data ROSC, published in October 2006 based on the findings of the mission that took place during February 7–23, 2006. For the dataset corresponding to the variable in each row, the assessment indicates whether international standards concerning (respectively) concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), or not observed (NO).

Same as footnote 7, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

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