IMF Finds Panama Economy Booming Amid Global Slowdown

by Ulrika Lomas, for LawAndTax-News.com, Brussels

01 September 2008

Despite the deteriorating global economic environment, Panama was one of the fastest growing economies in the world last year, according to the International Monetary Fund (IMF).

Panama's GDP grew by 11.2% in 2007, following average growth rate of nearly 8% in 2004-06, the IMF has reported following its latest Article IV assessment of the country's economy.

According to Fund, economic growth has been driven by Panama's large service sector including the canal, ports, and the Colon Free Zone, which has strongly benefited from expansion in regional and international trade.

The report also noted that Panama's well-developed financial centre has quickly responded to new opportunities and has attracted significant new investment.

On the fiscal front, the IMF stated that the public finances have strengthened "remarkably," helped by the adoption by the government of a new Fiscal Responsibility Law (FRL) that sets a deficit limit of 1% of GDP. As a result of this drive towards fiscal responsibility, the overall balance of the non-financial public sector (NFPS), excluding the Panama Canal Authority (PCA), turned from a deficit of about 5% of GDP in 2004 into a surplus of 3.5% of GDP in 2007, despite a major increase in capital spending in 2007.

Meanwhile, expansion of the banking sector has been spurred by foreign investment, consolidation, and regional integration while the ongoing global financial turbulence does not appear to have impacted the sector or the rest of the economy, the report stated.

While the impact of high oil prices and the slowing down of the US economy will inevitably have an impact on the Panamanian economy next year, the IMF predicts that economic growth will still be in the region of 8%.

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