The Legislative Assembly approved President Juan Carlos Varela’s first budget. The budget intends to take the fiscal deficit from the -4.1% of GDP expected for this year to -2% of GDP as established by the Fiscal Responsibility Law (FRL).

The budget also assumes economic growth of 6.5% in 2015, which we deem reasonable.

Inaugurated in September, Varela inherited former President Martinelli’s 2014 budget, but higher expenditure and lower revenues pushed the new administration to ask the Legislative Assembly to raise the fiscal target from -2.7% of GDP to – 4.1%.

The fiscal consolidation implied in the budget should not be difficult to achieve through an adjustment of public investment, which under the prior administration averaged 9% of GDP, and helped by a vibrant economy. In addition, the president has pledged to comply with the FRL, improve public spending efficiency and procurement, issues that were part of his electoral platform and will be key for Panama to achieve a higher rating status.

SOURCE:
Oppenheimer
Emerging Markets Sovereign Fixed Income Research
December 2, 2014