IMF projects Panama’s GDP to decline to 2.5% in 2024

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By LatAm Reports Editor

The International Monetary Fund (IMF) projects that Panama’s gross domestic product (GDP) growth will decrease to 2.5% in 2024, well below 7.5% in 2023, due to the closure after strong protests by Minera Panama, a large subsidiary copper mine of the Canadian First Quantum Minerals (FQM).

As a result of the closure of the mine, GDP growth is projected to decrease to 2.5% in 2024, before gradually improving in the medium term,” the IMF said in a statement released Monday.

These conclusions on Panama’s economy come after an official visit to the Central American country by IMF officials.

The Final Declaration of the 2024 Article IV Consultation Mission stresses that the slowdown is not expected to be widespread, but reflects the closure of Minera Panama, which contributed, directly and indirectly, to about 5 per cent of Panama’s GDP.

Minera Panama, a subsidiary of FQM, is currently paralyzed and under a plan of maintenance and care, after the Supreme Court of Justice of that country declared in November that the contract to renew the concession was unconstitutional, after the largest wave of street protests in decades.

Central America’s largest open-pit copper mine accounted for 4.8% of GDP and 75% of Panama’s exports, according to data from the company, which began exporting that mineral in 2019. In addition, it had about 7,000 workers, of which about 2,100 have benefited from a voluntary Retreat plan.

Leaving the mine’s operations, according to the IMF, also implies the permanent loss of around 0.6% of GDP in tax revenues and 7.5% of exports of goods and services.

In addition, the agency expects inflation to remain low by the end of 2024, in the order of 2.2% year-on-year and about 2% in the years to come.

Although it estimates that in the medium term, GDP is expected to grow 4%, while the current account deficit is projected at around 2% of GDP.

The IMF added that short-term economic prospects are subject to a high degree of uncertainty and the scale of risks is inclined downwards.

These downward risks include the loss of investment [a matter of concern about the fiscal situation in Panama], which would raise Panama’s external borrowing costs and increase refinancing risks.

These downward risks also include new social unrest and more sequelae due to the closure of the mining company, in addition, the IMF says, that if the severe drought that hits the Panama Canal lasts longer than expected, it could reduce the Canal’s income – and its contributions to the Government.

In the medium term, mining arbitration claims represent a significant risk to public finances, the note highlights.

Last February, the Panamanian Government approved a plan for the orderly closure of the copper mine, which includes an audit to identify the environmental situation of the mine, environmental risks and mitigation measures and the creation of a panel of experts, among others.

Authorities had already announced last December that such a closure plan would take between 6 and 18 months to produce at a cost of $1.5 million and whose execution could take between 7 and 9 years at a cost of between $800 million and $1 billion. 

This article has been translated from the original which first appeared in Prensa