The voices are pronounced after the Government presented to the Assembly a bill amending the Fiscal Responsibility Act and another amending the General State Budget for fiscal validity 2025
Adjustments to Law 34 of 2008 on Fiscal Social Responsibility (LRSF) must be kept at the level of austerity and rationality, since the reality of public finances is “critical,” economists and entrepreneurs consulted by this means considered.
The specialists reacted to the presentation made by the Minister of Economy and Finance (MEF), Felipe Chapman, on the project that modifies, add and repeals articles of the LRSF, to the plenary of the National Assembly (AN), after adjusting the budget of 2025 to an amount of $26,835.2 million, of which $9.341.4 million is for investments in the education, Health, Infrastructure (Panama Metro, the fourth bridge over the Canal, the road rehabilitation plan, among other works), environment, safety and water.
The new adjustment to the 2025 budget benefited entities such as the National Assembly, which earned an increase of $10 million in the new version, from $88.6 million to $98.7 million; the Housing Ministry from $32 million to $134 million; and the Ministry of Public Works, which went from $35 million to $912 million.
Among those who suffered cuts is the Ministry of Education, which was $3,730 at $3,581; the MEF from $458 million to $446 million; and the Ministry of Agricultural Development from $365 million to $265 million.
The General State Budget and the modification of the LRSF are two related issues, since with the adoption of the Fiscal Law the Government will have to manage public finances under a cap on how much should be indebted to gross domestic product (GDP).
That is why, as part of the amendment to the LRSF, there are proposed targets, such as reducing the fiscal deficit and the growth of public debt to a level equal to or less than 50 per cent of nominal GDP within ten years, from the fiscal period of 2026.
As well as establishing that the Non-Financial Public Sector (SPNF) maintain a primary surplus, from fiscal 2028, consistent with the reduction of net debt/GDP to the established prudent level.
For cases of a state of national emergency declared by the Cabinet Council, the draft amendment to the LRSF sets a ceiling on the exception which may not exceed 1.5 per cent of the nominal GDP or the estimated cost of the state of emergency, regardless of the smaller amount.
Temistocles Rosas, president of the National College of Private Enterprise (Conep), rescued that with the new budget presented for 2025 the fiscal deficit is now 3.5 percent, versus 0.5 percent that had been established before its modification.
Therefore, he considered that – in the view of the precarious situation maintained by public finances, adjustments to the LRSF need to be made, but maintaining austerity and rationality in public spending so as not to exceed capacity, in order to prevent us from asking for pantry or changing the law every year.
For former Minister of Economy and Finance Fernando Aramburú, the modification to the LRSF has many good things, but also several questions.
Among these, he mentioned the surplus target of the primary balance sheet, which he believes should have been for 2026 and not 2027 and 2028. He also said current savings would have to be by 2025 and not by 2026.
With regard to the easing of the limits of the caps by a state of emergency, Aramburú said that it does not seem unreasonable to give a full power to a Cabinet Council that can vary in five years. I don’t think it should appear in the law that the Cabinet Council, without proper control of the Assembly or Comptroller’s Office, can vary the deficits. That seems to me to be unreasonable, the former Minister of Economy questioned.
In this context, the president of Conep agreed with Aramburú and mentioned that under the particular circumstances it should not be an excuse for the government to exceed, on the contrary, it must make rational use of public resources.
What we must bet on is improving the collection problems we have, as well as having a budget and fiscal figures that are in line with reality and rationality, the entrepreneur concluded.
Chapman confirmed that the current administration inherited a SPNF deficit of 3.96 per cent of GDP as at 30 June 2024, and an over-indebtedment of 10.2 per cent, well above the limit of 2 per cent set by the LRSF. A situation, he said, has led to the Fitch Ratings agency downgrading the country’s credit rating to a speculative degree in March 2024.
The high level of indebtedness restricts the State’s ability to invest in infrastructure and other key projects, due to the rigidity of operational expenditures, including special laws, subsidies and debt service, he concluded.
This article has been translated after first appearing in La Estrella