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Good Growth Continues In Panama

by Mike Godfrey, Tax-News.com, Washington

26 December 2005


Panama’s economy grew by 5.9% in the third quarter of the year, giving year-on-year growth of 6.1% for the first 9 months of 2005. Growth was not expected to continue at this pace after real estate tax breaks were toned down.

It looks as if Panama's booming re-export business, and capacity traffic through the Panama Canal are behind the good performance. The latest trade figures from the extensive Colon Free Zone (CFZ) show that business is well up on last year.

The CFZ is at the Atlantic end of the Canal. August turnover in the CFZ, for instance, was over $1.1 billion, 25.9% up on last year. Turnover in the first eight months of 2005 was $7.45 billion, 14% up on 2004, while re-exports for the first eight months of the year stood at $3.73 billion, a 13% increase.

"The expansion of China in the commercial sector has played an important role in the recuperation of the Colon Free Zone," said the CFZ's statistics office.

The government had forecast economic growth this year of between 4.5% and 5%, below the 6.1% growth witnessed in 2004, which was partly a result of temporary real estate tax breaks. The tax breaks, which gave exemption from real estate taxes for up to 20 years, had led to a construction boom in 2004.

The tax breaks were extended into 2005, but finally came to an end in June, although tapered relief continues to be available for shorter periods on new constructions.

Fiscal austerity measures being implemented by the government, with the IMF's strong approval, including a 1% levy on CFZ turnover, had been expected to dent the economy this year.


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