Panama accumulates $47,406 million of public debt with rising interest

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By LatAm Reports Editor

Cortizo’s is the award of being the administration with the fiercest pace of indebtedness in history.

The public debt has already reached $47,406 million. That means that in the last year Laurentino Cortizo’s government has increased financial commitments to $3.790 million in October 2023. This is reflected in the report issued by the Public Credit Directorate of the Ministry of Economy and Finance (MEF).

When Cortizo assumed the presidency, in July 2019, he received a country with a cumulative debt of $26,612 million. That is, counting from the month that he premiered his term until October of this year, the increase in debt is for the monumental figure of $20,794 million.

No government had done such a feat. Cortizo’s is the award of being the administration with the fiercest pace of indebtedness in history.

During his five years in office, Martin Torrijos increased the debt by $1.619 million; Ricardo Martinelli raised it by $6.83 billion; while Juan Carlos Varela accelerated the debt by $8.972 million.

As the administrations passed, it seemed that the debt ceiling had been reached, but Cortizo’s increase is 131.7% above the rise with which his predecessor Varela managed.

The recent MEF report indicates that considering the debt balance from September to October 2023, the month-on-month increase was $1,610 million.

Panama accumulates $47,406 million of public debt with rising interest

Justification of the recent rise

The Government explained that in October the funds from the issuance of global bonds held on 27 September 2023, amounting to $1.4 billion for the financing of the general budget of the State, were received in October.

This transaction highlights the issuance of the 2036 global bond for $1 billion, and the reopening of the $2054 global bonus for $400 million.

In addition, during the month of October, bilateral agencies disbursed $198.6 million for the Metro Line 3 project; and another $19.3 million signed with the Inter-American Development Bank, the Latin American Development Bank, CAF; and the International Bank for Reconstruction and Development for Water and Development Projects for Indigenous Peoples’ Water and Development Projects.

The ninth 2023 Treasury Letters auction was also held for $37.3 million.

The former Minister of Economy, Dulcidio De La Guardia, warns of the risk of the excessive increase in debt in an environment of uncertainty, with high interest rates, the difficulty of the government in getting income to cover expenditure and not exceed the deficit limits allowed by law.

All this generates pressure for Panama to retain the degree of investment, said De La Guardia, who summarized the situation in which Panama is in the next graph.

Panama accumulates $47,406 million of public debt with rising interest

He recalled that both in 2022 and 2023 the Government has been validated or of accounting or extraordinary (non-recurring) (non-recurring) plays, which is observed as a risk for the qualifiers in the midst of the fiscal deterioration experienced.

Last year, through a financial operation, the MEF deferred payment of $364 million in debt interest for 2022.

The measure resulted in lower interest spending and helped to square the accounts to close the financial year with a fiscal deficit within 4 per cent of gross domestic product (GDP), the limit set out in the Fiscal Social Responsibility Act.

In this 2023, current income is better than the year 2022, in large part, because of the extraordinary payment made by the Panama Canal Authority (ACP) for the purchase of land from the State for $500 million. As soon as that money entered the state accounts, it was intended for the payment of operations. The National Assembly saw the procession of officials of the different entities requesting extraordinary credits.

On the other hand, there are the $567 million that the State received from Minera Panama as a result of the obligations established in the contract law. The government has said the funds will remain in a restricted account at the National Bank of Panama, but they are income to be computed in this year’s tax accounts.

The 2024 budget will no longer have the mining revenue, after the Supreme Court’s ruling declaring the contract between Minera Panama and the state unconstitutional.

Local economists have also warned that the suspension of mining operations could trigger a sharp rise in unemployment and a sharp decline in economic activity.

This adverse scenario would be reflected in a reduction in tax collections, imposing significant restrictions on the performance of public finances. As a result, the country would be forced to seek more indebtedness to meet its financial obligations.

Panama needs to fund $49,980 million, including deficits, over the next 10 years (2024 – 2033). And an increase in the risk premium of at least 1.26% involves paying an additional $3.796 million in interest over the next 10 years, De La Guardia warned.

The increase in the risk premium would also be transferred to private financing. This would represent a $700 million-a-year increase in interest paid on local loans.

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