Panama’s government is bucking the regional trend to issue bonds, despite a fiscal deficit and a host of infrastructure projects to fund.
Finance Minister Frank de Lima told Emerging Markets yesterday that the government was not considering taking on debt this year.
“There is no need right now for bonds,” he said. “We have financing covered right now and are confident that conditions will remain the same.”
He dismissed criticisms from analysts and opposition parties in Panama that the government needed to get a handle on a fiscal deficit close to 2.1% of GDP last year.
“This needs to be kept in perspective. We have a fiscal responsibility law that sets a limit on the deficit and we have stayed below it. The debt is not being used for government expenses, but for investment that in the long run will make our economy more competitive,” he said.
De Lima said the deficits were only a snapshot of the immediate conditions and would be erased as projects underway come on line. He said the real number to look at was GDP growth and forecast that Panama would lead Latin American growth for the third consecutive year in 2013.
Growth is forecast as 8.5% this year, below the double-digit expansion of the previous two years.
“We believe that we will be the leader in growth again this year. We are always conservative when making our plans, so growth could be higher,” he said.
“This is extremely positive, given the world economy is forecast to grow by only 3%.”
The factors for growth this year will continue to be the expansion of the Panama Canal, government investment in infrastructure – including a subway system in the capital requiring $2 billion – the future development of a massive copper project and burgeoning tourism.
The canal today generates $1 billion in revenue annually for the government, but the amount will begin to increase exponentially in June 2015, when the construction of a new system of locks is completed. The government forecasts revenue from the canal at $4 billion in 2025. The government will use a significant amount of the income for a sovereign wealth fund. It was created with money already saved for a social development – around $1.4 billion – and by 2025 it should have $6.5 billion, according to De Lima.
Use of the fund is extremely limited. It can only be used with two triggers, natural disasters with damages above 0.5% of GDP or if there is a recession with growth below 2% for two consecutive quarters.
The government is extremely bullish about the perspectives for foreign direct investment, which topped $5 billion last year, due to the possibility of Cobre Panama moving ahead with its $6.2 billion copper project.
It is one of the world’s largest undeveloped copper deposits. The project, which was initially scheduled for completion in 2017, could suffer a setback over a fight between two Canadian companies to control it.
First Quantum Minerals made a move on Tuesday to finish a hostile takeover of Inmet Mining, which owns Cobre Panama. The deal is expected to close by March 21. It not only involves mine construction, but the development of a new port and electricity generation that could benefit other projects.
- Like every year, Emerging Markets daily newspaper covers the Inter-American Development Bank’s annual meeting, held in Panama in mid-March. Pick up your copy at the meeting, read the news on our website and follow us on twitter @emrgingmarkets