https://www.laestrella.com.pa/economia/220221/panama-mantiene-proyecciones-estables-2022

Despite the shocks caused by Covid-19, the Panamanian economy remains afloat and the figures remain stable with an upward projection at the end of 2022. This means that there will be a recovery of important items in the economy, according to Torino Economics, the subsidiary of Torino Capital Group Company, a well-known investment bank and stockbroker based in New York, in whose February 2022 Report highlights that “Panama has experienced a significant economic expansion, with an average annual growth of 6% in the last 25 years, the largest and fastest in Latin America”.

According to Luis Prato, economist and spokesman for the firm, “Panama has a risk profile that allows it to access the international financial market under favorable conditions. This represents an ideal opportunity to continue leveraging financing for development, through the promotion infrastructure and potential growth of the country.

The recent Torino Economics report addresses the main challenges facing the country to return to the path of sustained growth, after the slowdown caused by the pandemic. In this sense, it points to the mining, lumber and dairy industries as the ones with the greatest prominence and presence in the local economy. In fact, as is known, Panama has the ninth largest copper ore reserve in the world, as well as large reserves of gold, manganese and iron, while hydroelectric power supplies 63% of all electricity in the country and contributes the 26.3% of GDP, employing 18.6% of the active population.

The main industrial activities are in agribusiness, dairy, sugar refining, clothing manufacturing, petroleum products, chemicals, paper and paper products, printing, furniture and construction, a factor that constitutes a varied and diversified contribution to GDP, a good sign for the Panamanian economy. In this regard, Prato estimates that “Panama will register a growth rate of 4.6% during 2022, the highest at the regional level, where not only the greater contribution of the Canal stands out, but also the push of construction and a sector with a potential very significant: the mining activity”.

It is worth noting that the exploitation of mines and quarries represented 4% of the economy in 2020, a process that reaches maximum limits after the culmination of negotiations between the government and Minera Panamá, a subsidiary of the Canadian First Quantum Minerals, a firm that develops in Colón, the Cobre Panamá project, which after several negotiations, finally materializes with a business that is expected to produce about 300,000 tons of copper, 100,000 of gold and 2,500 of molybdenum per year. As is known, the company accepted the proposal to give the government a minimum contribution of 375 million dollars per year. Minera Panama contributes a little more than 3% to the country’s GDP.

The largest economic sector in the country is represented by services, with a 70.2% contribution to GDP and employing 67.2% of the labor force. If we put the magnifying glass into it, the transport subsector is the sector with the greatest push, since it includes the Panama Canal, which contributed more than 2,000 million dollars to the Panamanian State in 2021, among which 1,487 million stand out for surpluses, fees per transit ton and payment for services provided by the State. It is expected that, in 2022, the interoceanic route will contribute 2,497.2 million dollars to the treasury, which would be a new record.

The services sector includes the Canal, banking, tourism, logistics, activities in the Colon Free Zone (ZLC), insurance, container ports, and flagship registry. In June 2016, the country completed an expansion of the Panama Canal that allows the navigation of larger ships (Neo-Panamax ships) carrying 12,000 containers (compared to the limit of 5,000 containers under the old infrastructure).

covid and unemployment

On the other hand, Panama, like almost every country on the planet, has been seriously affected by the covid-19 pandemic. The sector that presented the most problems was the secondary sector, with a drop of 3.6% in 2020. Torino Economics estimates a recovery in 2021 of 13.7% thanks to the gradual normalization of vaccination against the pandemic. In 2022, it projects slightly less pronounced growth, close to 4.6%.

Unemployment increased 11.5% between 2019 and 2020 (going to 18.5%). Of the 873,750 formal workers in the private sector as of August 2019, 37% lost their job, 30% kept it and 33% were suspended. Of this last percentage, 21% were reactivated and regained their employment, 3% were reactivated and then terminated, while, as of October 2021, 9% remain with their contract still suspended.

Prato points out that “among the main challenges facing Panama is the strengthening of the integrity of the financial system, through full compliance with the Action Plan established by the International Financial Action Task Force”. In his opinion, the government is committed in reaching the established goals, counting on the technical assistance provided by multilateral organizations such as the IMF.

gray lists

The most worrying side is that Panama remains on the lists of the Financial Action Task Force (FATF) and the European Union (EU) due to deficiencies in the fight against money laundering. The authorities assure that in recent years there have been important legislative and technical advances in the matter but that these are being ignored.

Although the FATF believes that Panama has taken steps towards improving its anti-money laundering and anti-terrorist financing regime, the organization believes that the country must take urgent steps to fully address the remaining measures in its action plan, as all deadlines have expired.

However, Panama continues to be a country with a good environment for doing business, ranking 88th out of 190 countries in the Doing Business 2020 ranking, published by the World Bank Group, but it is estimated that the country loses approximately 2.2% of GDP for VAT evasion concept. Part of the problem lies in the low tax collection —the second lowest in Latin America— which, although complemented by an injection of around 1,700 million dollars a year on average provided by the Canal, is insufficient to cover public finances. All in all, current tax revenue for 2021 was 8.7% higher than budgeted and 14.6% compared to what was collected in 2020. In other words, current revenue accumulated as of December 2021 totaled 7,366.5 million dollars , reflecting a surplus of 590,

Regarding external debt, it totaled 32,843 million dollars for December 2021, reflecting an increase of 10%, compared to the same month of 2020, and in February 2022 it already exceeded 40,000 million dollars. The debt is mainly made up of sovereign bonds (71%) and multilateral loans (27%).