ECONOMY

More debt for the country

06-18-2009 | REUTERS

The State’s budget is under tremendous strain and having a deficit is inevitable according to the new deputy Minister of Economy

Panama Star PANAMA. The deficit in the State’s budget since 2005 and a plan that will allow the government to borrow more could thwart President-elect Ricardo Martinelli’s hopes of achieving a certain level of investment.

Martinelli, who will be inaugurated on July 1, promised during his presidential campaign the construction of a metro system that will cost $1 billion, more investment in social housing and pensions for poor elderly people.

Those commitments could add additional strain to the country’s budget, as Panama is feeling the effects of the economic slowdown that impacts the collection of taxes.

The construction industry which was the fueled of the Panamanian economy is slowing down.

It is expected that it would grow around three percent this year the worst figure since 2002 and way below the seven percent growth contemplated by the legislators when they approved the budget.

“I think we are going to have a deficit,” said the appointed deputy minister of Economy, Frank de Lima.

With the support of Martinelli, the departing President Martin Torrijos proposed last week that the legislators increase the limits of the deficit to three percent of the Gross Domestic Product (GDP), instead of the present parameter of one percent.

JPMorgan expects the equivalent of 1.5 percent of the GDP.

The qualifying agency Standard and Poor said that the plan to allow a bigger deficit deepens the concerns around the Martinelli’s government which could lose its fiscal discipline, and could in turn increase the internal debt

"I have been concerned since last year,” said Roberto Sifon, a business analyst with regards to the small surplus registered in 2008, when the economy grew nine percent.

“What is going to happen when you only grow three percent? To maintain the present fiscal rules is very important to maintain the country in the current scale of qualifications,” he said.

De Lima said that the government’s income during the first three months of the year is what was expected, but a slowdown could hit the economy during the second semester.

“We are going to do whatever is necessary to maintain a normal economic growth and the levels of employment,” said De Lima.

“If we need to increase the debt, then it is something that we will do,” said De Lima.

The Torrijos administration had registered a surplus for the last three years.