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Panama Fiscal April 2020

Panama: Government announces fiscal response to coronavirus pandemic fallout

In the face of the growing coronavirus pandemic, the government raised USD 2.5 billion in global debt markets on 26 March to help fund a sizeable response to the economic impact of the public health crisis. This, coupled with a USD 515 million emergency loan from the IMF, brings funds equivalent to approximately 5.0% of GDP at the government’s disposal. The proposed fiscal measures include increased healthcare spending, such as on the purchasing of supplies and test kits; relief payments to small businesses and informal workers; tax deferrals and unemployment benefits.

The measures will go some way to covering a sizeable balance of payments gap, although will likely prove insufficient to avoid a contraction in economic activity this year. The suspension of non-essential commercial activities in late March and a mandatory nationwide quarantine are likely to significantly hamper domestic activity in the first half of the year. Additionally, already-sizeable twin deficits will be weighed on further by additional borrowing, with a potential credit rating downgrade a key risk.

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