A report from the IMF this week gives Panama two thumbs up. This report is a result of a "consultation with Panama". Panama needs this kind of positive report in order to get funding for the canal expansion.
Although last year they devoted a full paragraph to the canal expansion and the need to watch carefully the costs there was little mention of the canal in it this years report. Here is the excerpt from 2007 consultation.
"Directors welcomed the efforts of the authorities in managing the domestic impact of the canal expansion project, so that it does not create financial or economic imbalances. Directors supported, in particular, the authorities' intention to monitor implementation carefully and coordinate closely expenditure and borrowing strategies of the government and the PCA. They noted the need to remain vigilant, maintain adequate contingency reserves, and take action if expansion costs exceed projections or if domestic demand pressures build up. Directors recommended continued transparent bidding and procurement practices during the canal expansion."
Here is the one liner about the expansion in this years report.
"The Canal expansion is shifting into higher gear and remains within budget."
The only concern they raise is that of inflation and the affect it has on the economy and especially the poor. They recommend more spending in that area and less spending in others. You can read the whole report here or just the highlights below.
Excerpts from this latest report; The strong economic performance of the last few years continues, despite the deteriorating global environment. Panama was one of the fastest growing economies in the world in 2007 with real growth rising to 11.2 percent, following an average growth rate of nearly 8 percent in 2004-06.
Construction soared, and the well developed financial center quickly responded to new opportunities and has attracted significant new investment. At the same time, employment expanded significantly, leading to a decline in unemployment to an unprecedented low level.
Like in the rest of the region, inflation has sharply accelerated, reaching almost 9 percent in May, after averaging about 1½ percent in the last twenty years. Although the surge in inflation is mainly due to higher global food and fuel prices and distortions in the agricultural sector, core inflation (excluding food and fuel) is rising as well reflecting the buoyant economic growth and the emergence of some capacity constraints.
The public finances have remarkably strengthened. The overall balance of the nonfinancial public sector (NFPS), excluding the Panama Canal Authority (PCA), turned from a deficit of about 5 percent of GDP in 2004 into a surplus of 3.5 percent of GDP in 2007, despite a major increase in capital spending in 2007.
The strong fiscal performance combined with the fast pace of growth has led to a rapid decline in the public debt ratio. A new Fiscal Responsibility Law (FRL) that sets a deficit limit of 1 percent of GDP for the NFPS, excluding the PCA, and a debt target of 40 percent of GDP by 2015 was approved by the National Assembly in early May and should help sustain the improvements in public finances.
Directors commended the authorities for the strengthening of the public finances, noting the remarkable turnaround in the nonfinancial public sector balance excluding the Panama Canal Authority, notwithstanding a significant increase in capital expenditures. The strong fiscal performance and rapid economic growth has led to a falling public debt ratio and an improvement in Panama's credit ratings.
Directors observed that Panama's financial market has not been adversely affected by the global financial turmoil, and commended the authorities for stepping up the monitoring of banks' asset quality, liquidity, and risk management. They noted that capital adequacy and financial ratios remain strong and that the dynamic financial sector is expanding rapidly, reflecting foreign investment, consolidation, and regional integration. Directors welcomed the enactment of the new Bank Law, which will strengthen the national supervisory framework and should help enforce regional supervisory provisions. Nevertheless, Directors stressed the need for vigilance, in light of the easing monetary conditions against the background of a rapidly growing economy, a booming housing market, and volatile global financial markets.