Concerns Expressed Over Government Accounting Changes In Panama

by Mike Godfrey, Tax-News.com, Washington

19 February 2003

Concerns have been raised about accounting changes recently adopted by Panama government in the run-up to the May 2004 elections.

Reporting this week, the Panama News revealed that although by law the government's annual operating deficit must not exceed 2% of GNP, low revenues and high spending have meant that the Panamanian authorities are heading for a 4% deficit this year.

The Moscoso administration has already enacted a tax increase, and the austerity measures which would be necessary to bring Panama's books back into balance would undoubtedly prove to be highly unpopular. However, according to a report in the Panama News, the solution that the government has decided upon has caused outrage throughout the jurisdiction.

The news service revealed that: 'Minister of Economy and Finance Noberto Delgado released government statistics that included the finances of the Panama Canal Authority (PCA), which runs at a profit. By commingling the canal's revenues and expenditures with the national government's, a 4% deficit gets reduced to 2%.'

This move has caused consternation among the PCA's board of directors, which on February 12 passed a resolution stressing the need to 'preserve the canal's financial autonomy'.

International observers, meanwhile, were mystified, with representatives of bodies such as the IMF stressing that the accounting changes will not affect their assessment of the country's economic condition.

Speaking to La Prensa newspaper, Fitch analyst, Theresa Paez revealed that the company will probably downgrade Panama's credit rating in its forthcoming report.

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