This 2004 Article IV Consultation for Panama reports that the medium-term outlook is encouraging, assuming implementation of the authorities’ fiscal program, which should put the public debt ratio on a steadily declining path. The banking system experienced a substantial recovery in 2003–04, and the financial system remains essentially sound, with favorable performance indicators and a strong regulatory framework. An expansion of the Panama Canal at an estimated cost of more than 30 percent of GDP could, if approved in a national referendum, have a far-reaching impact on the economy’s growth prospects.

Abstract

This 2004 Article IV Consultation for Panama reports that the medium-term outlook is encouraging, assuming implementation of the authorities’ fiscal program, which should put the public debt ratio on a steadily declining path. The banking system experienced a substantial recovery in 2003–04, and the financial system remains essentially sound, with favorable performance indicators and a strong regulatory framework. An expansion of the Panama Canal at an estimated cost of more than 30 percent of GDP could, if approved in a national referendum, have a far-reaching impact on the economy’s growth prospects.

March 23, 2005

This statement contains information that has become available since the staff report was issued on March 9, 2005. The information does not change the thrust of the staff appraisal.

1. Real GDP grew 6.2 percent in 2004, according to preliminary data, slightly above the staff estimate presented in the staff report (6 percent).

2. Consumer price inflation during 2004 was 1.5 percent, compared with the staff estimate of 2 percent.

3. The unemployment rate for 2004 (based on household survey data for August) was 11.8 percent, down from 13.5 percent in 2002.

4. The deficit of the nonfinancial public sector in 2004 was in line with the staff report estimate (5 percent of GDP, excluding the Panama Canal Authority). Expenditure on a cash basis was about 0.4 percentage point of GDP higher than estimated, reflecting substantial progress in reducing the outstanding stock of payables near the end of 2004. Revenue exceeded the staff’s estimate also by 0.4 percentage point of GDP, owing to increased transfers from the Canal Authority to the central government of canal fees and dividends. The nonfinancial public sector deficit, including the Canal Authority, was 4 percent of GDP.

5. Staff is reviewing the coherence of preliminary data on the 2004 balance of payments, which suggests that the current account may have substantially exceeded the level estimated in the staff report. In particular, according to the preliminary data, the Colon Free Zone, which provides transshipment services, registered a large drop in net exports in 2004, despite a rapid growth of income.

Panama: Staff Report for the 2004 Article IV Consultation
Author: International Monetary Fund