Panama spends 16% of its income on interest payments

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By LatAm Reports Editorial Team

Rising interest rates on debt, shrinking public revenue and fiscal rigidity will make it difficult to meet budget targets in the coming years. The perception of the candidates’ ability to fulfill their campaign promises will be a differentiating factor in these elections, the qualifier said. 

Risk qualifier Moodys did an analysis of the financial context that Panama’s next president will face, with a series of significant fiscal challenges, regardless of the election result decided on May 5, when voters elect the new president and renew the National Assembly.

One of the main problems facing the new president is the growth of fiscal problems, due to the increase in interest rates, the reduction of public revenues and fiscal rigidity.

Although the government’s fiscal deficit remained slightly below the target in 2023, this was achieved mainly through one-off measures, such as the sale of public land, which can hardly be repeated annually, the qualifier recalled.

For Moody, fiscal rigidity has become more pronounced in recent years, with the Government’s continued increase in wages and the difficulty of cutting subsidies.

Moreover, the rapid rise of the interest burden and the deterioration of social security finances contribute to this complicated picture.

In the absence of royalty income or other one-time measures, and greater bond differentials that make interest payments consume more than 16% of income, the Government will have difficulty meeting its budget target by 2024 onwards, the report stressed.

Panama spends 16% of its income on interest payments; Moodys alerts to this pressure for the next president

Another factor that aggravates the fiscal situation is the lack of proportional growth in government revenues in relation to economic activity. Despite efforts to increase tax compliance, exemptions and evasions limit tax revenue. This has led to a greater dependence of the government on transfers from the Panama Canal, which debates its days in the face of the imminent threat of having enough water for the passage of the ships.

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