‘Panama must declare an economic emergency given the current situation’

Economist Ernesto Bazán warns that the Panamanian economy is going through one of its most complex moments in recent decades, with an increase in public debt without tangible results for the population, high unemployment and a significant drop in foreign investment. Although the risk rating agencies maintain a relatively favorable perception of the country’s payment capacity, Bazán emphasizes in El Polígrafo de The Star of Panama that this strictly financial reading does not translate into real improvements in the quality of life of the population. In contrast to market indicators, inequality, the deterioration of public services and the lack of opportunities persist, which shows a serious situation that is advancing against the clock in the country, without an effective response from the government.

The macroeconomic and microeconomic situation is one of the worst in recent decades; The indicators show it like this. The country’s debt is at 65%, the highest level in decades, unemployment is in double digits and youth unemployment is around 20%. Foreign direct investment has fallen to minimum levels in 2025. Many years ago, foreign direct investment was a double-digit indicator, now it has fallen. This change of government gave the population some air of hope (…) that the famous chen chen would arrive, but that is not happening because there is no investment, there is no employment and public finances are complicated. We have a serious structural problem.

We use the debt we are taking on to cover current expenses, because we have a payroll that is around $6 billion dollars a year. And furthermore, our second most important expense is the interest on the debt we already have, around $3.6 billion annually. Between these two items alone we are already close to $10 billion dollars, while our tax revenues are around $6 billion, and with contributions such as those from the Canal and others we reach more or less $10,000 million. We spend more than we earn, and we cover that difference with debt. It also happens to countries, like Argentina or Ecuador, and when that happens, a crisis comes. Even Argentina ended up printing money and generating inflation. In our case we can’t even print bills, so if they don’t lend us money, we wouldn’t be able to pay salaries. That is why the debt continues to grow and increasingly limits the budget, because interest takes away space from health, education, security and infrastructure. A responsible administration should reduce the deficit. In 2008 we achieved it, we had a surplus, but since then the deficit has grown and today the situation is very difficult to manage (…) we have to declare the country in an economic emergency, give a signal of urgency that this situation cannot continue and we need the support of everyone, starting with the rulers.

Drastically, not gradually, reduce unnecessary expenses: reduce travel, state advertising, reduce expenses on unnecessary consultancies, all travel expenses or all expenses that may be dispensable. Suspend or eliminate tax exemptions for those who do not need those exemptions and, obviously, improve collection. The government itself has to accept that we are in a difficult situation and set an example.

I think not. For the markets, fiscal responsibility matters; they worry when expenses are transferred to reduce the deficit without making it real. Although the law set 4%, moving payments to 2026 only improves the number. The markets see this and demand clear signs of debt discipline and control.

The minister said that this was due to the outflow of dividends, the distribution that companies make. But an investor, when he sees a good deal, reinvests because he trusts that the money will pay off. The problem is that Panama is not transmitting confidence. With public finances in the red and growing debt, the investor thinks that taxes could rise in the future, so he prefers to go to other more stable countries such as Costa Rica or Colombia. That perception of risk scares away investment. Without investment there is no employment, because employment depends on the arrival of investments, both foreign and local. The Panamanian investor also perceives the same and may postpone their projects due to lack of confidence.

I understand that Panamanians can say that, that they do not feel that there is growth, that their economy is not better, but that is because GDP growth is not an indicator of well-being. What is GDP? It is the sum of everything that is produced, that is like saying that we are selling more. But if we are selling more with more unemployment, it means that it is the companies that are selling, some companies, not all, a small group of companies is selling more and probably making more profits (…) the citizen is not seeing that this translates into well-being. There is a tremendous lack of employment opportunities, the health systems are quite deteriorated, the Panamanian goes to the hospital, cannot find an appointment, nor a bed, nor medicine.

It is often thought that if we grow, inequality should be reduced, and the truth is that the figures do not necessarily show this. We are one of the countries with the greatest inequality in Latin America and even in the world (…) and that has to do with two important elements: one is employment opportunities, especially qualified employment that allows socioeconomic advancement, and the other important element is education. We have to make a self-criticism as a country, it is not just about this government administration. In the last 30 years we have grown, but we have not developed.

There is a long history of non-compliance in recent years, with changes since the Assembly. The deficit, which should have been low, has been modified and exceeded. Although this year it seems to be closer to 4%, part of the improvement is due to the fact that expenses were transferred from the last quarter to 2026, I estimate between $2,000 and $2,500 million dollars. If that amount is adjusted, the real deficit approaches 6%. Credit rating agencies see these factors, along with the debt-to-GDP ratio, as signs of risk and loss of transparency, which can affect confidence and the country’s ratings.

I think we have a good model, focused on services with a territorial tax regime and a strong currency, although the dollar has been weaker lately. We still have connectivity and an international banking center, we must maintain those characteristics. What I think is that the model has been mishandled, that’s where the problem lies. The country is like a patient in intensive care that must first be stabilized and then fully recovered. We have shown that we can have good indicators and, with them, assume good debt, such as that allocated to public transportation, health, education, infrastructure and roads. Debt is not bad in itself; It depends on the use. It’s like a person taking on debt to buy a house, which is positive. On the other hand, going into debt for unnecessary or temporary expenses is bad debt.

Certainly the rise in oil prices and geopolitical tensions do not only affect Panama, what economists call external shocks. That catches us at a bad time and ill-prepared and ill-prepared. We have to enter into austerity, improve public finances, be more responsible to be less exposed to these phenomena. If we had a fiscal surplus, we could allocate it to a stabilization fund that precisely absorbs the external consequences. Currently, if we want to create that fund, you would have to take out debt to inject it, something that is not recommended.

The OECD is like a club of 38 countries, mostly European, along with powers such as the United States, Canada, Japan, South Korea and Australia, and some Latin American countries such as Chile, Mexico, among others in the process of joining. These countries concentrate about 80% of the world’s GDP, which is why they are called the “rich country club.” Entering the OECD implies meeting objectives in fiscal matters, transparency, governance, environment and education. My main concern is the tax issue. The OECD measures tax pressure, that is, State income as a percentage of GDP. The average is 35%, in Latin America 20%, and Panama is at 11.6%, one of the lowest in the region. When a country seeks entry, they will probably recommend increasing that pressure, which in practice means raising taxes or creating new taxes. This, added to a high fiscal deficit, can lead to the conclusion that the tax burden must be increased. That is not good news for Panama, because companies and citizens already feel tax pressure. Furthermore, these processes are long: Costa Rica took more than a decade between interest, evaluation and accession. Therefore, although it is not a bad idea to join the OECD, I think it is not the right time. Today the priorities should be to clean up public finances, reactivate the economy and invest in social issues before starting that process.