Midyear Projections

With the latest report from Moody’s that it will maintain the country's debt rating at Baa1 and with a stable outlook, and even though they estimate that the economy will contract to 10% at the end of 2020, Panama continues to receive excellent news from international markets and institutions regarding the future of our economy, much despite the country's normal naysayers, who think more political than based on real economics figures and facts on the country.

An economy is built on trust. Not everything is perfect in the country, that there is corruption, and that there are people who think they are above the law. Is there something new with this? If you open a newspaper from 1900 to 1990 and beyond (or even before the 1900s), you will find similar news. The only difference is that now we know it faster, and even almost instantly, and the other thing is that we now receive more “fake news” than before (so we have to decide what is fake and what is not), and that we can all be reporters (but not journalists).

We have already experienced this in the past five years, where a mediocre president was mercilessly attacked - mostly because of his incapacity - and instead of concentrating on moving forward, we got angry with the guy and helped destroy what we had won in the last 15 years.

What this distrust in a government creates is that private companies do not see the correct conditions for investment and decide to put up with everything until a new government comes, and we start the cycle again. Criticizing for just for the fun of it is very easy, but most critics never offer a solution or alternative to what they are criticizing.

That is why here we are dedicated to destroying instead of building, and this is our main problem. It is not the OECD, it is not the FATF's, it is not the EU, it is not Colombia with its taxes on textiles and shoes from the Free Zone, nor is it Costa Rica with its ecological tourism (where they sell to Bocas del Toro and the Canal as if it were theirs). Our problem is we Panamanians who cannot see the good (little or much), nor can we see the glass half full.

After this "catharsis", we will explain where our benefits are and why they (the foreigners and the international markets) see us with good eyes. We must remember that we are an economy based on the US $ officially since 1904, unique in Latin America and the world, and we are not a dollarized economy like El Salvador and Ecuador, and this gives us a significant advantage, which is reflected in how the international markets see us (obviously not the only thing, but it helps). Remember that our country has been issuing debt in international markets with great success, with overdemand on the paper that is issued and extremely low-interest rates. The same happened with the Banco Nacional de Panama and Banistmo issues, where they have got the same results.

We must also remember that we have our Panama Canal, which we have been managing for 20 years since its reversion to our country on December 31, 1999. This has meant additional income to the treasury, which, with everything and the pandemic, in the end for the fiscal year ending September 2020, you must provide us with a minimum of $ 1.5 billion (down from $ 1.8 billion the previous year). A good profit for a country of merely 4.5 million people.

We manage an average GDP growth above 5% in the last 20 years, growth that is based on 5 economic sectors, and not only on the Panama Canal. These sectors are led by the construction and real estate sector, trade (retail, wholesale, and the Free Zones), transportation (which includes the Panama Canal, ports, airports, land, air and maritime transport, among others), financial intermediation (led by banks, insurance companies, and the stock market), and manufacturing.

Let us analyze these sectors a bit. The construction sector is very hit, and it is not until another week that it will startup. The interesting thing is that the government raised the value of preferential houses to $ 70,000 to receive the solidarity housing bond of $ 10,000. This, in some way, could serve as an engine for the construction of this type of housing, which are the ones with the most demand in the country, and where there is still a housing deficit.

The commerce sector is another sector that is hit, and I do not see how they could recover unless unemployment drops drastically. Here, entrepreneurs must reduce costs, without cutting muscle for their operation, be innovative, work better with their internet and app sales, and make delivery their new way of delivering their products to their customers.

I like the manufacturing sector as well as the agricultural sector. And if this confinement was useful for something, it is to wake up about fresh food and its blessings. Agriculture is going to become a star of the economy (it used to be in the top 5, 20 years ago), and the new forms of distribution and sales (old-fashioned mobile sales) have revived the sector. If we can increase the hectares planted, introduce more technology and innovation to the crops, we can have a higher production per hectare, and improve costs and therefore reduce prices to consumers. And for agribusinesses many opportunities can be attacked to found new businesses, from small to large, depending on the amount of capital available.

With the Financial Intermediation sector, I have "mixed feelings", and it is that I am not clear that all banks understand the seriousness of the state of the personal economy and how fragile banks would be if they do not know what they have to do. I have seen that some banks have begun to restructure debts, lowering interest rates, and improving repayment terms. With this, they make sure that the client can pay them, without having to lose money by throwing capital at a loss. While other banks only offer the customer the moratorium, charging the high interest, and expect a miracle in December. I assure you that if you keep waiting for December, you will not get anyone to pay you and you will be in trouble trying to collect from your clients.

If banks and financial institutions can fix their future and that of their clients, this sector will be one of the best in the economy. Meanwhile, millet and soda waiting to see what happens by the end of the year.

And leave the transport sector last, which is going to be the star of the economy, without a doubt. The Canal has continued to operate quite well, and despite the transits of the Panamax’s vessels (which produce an average of $200,000 per transit), the transits of the Neo Panamax’s vessels (which produce a minimum of $500,000 per vessel and growing) have shown their faces for the sector, and with their tolls, they have maintained the income of the Panama Canal. Coupled with this, ports continue to do business, contrary to what might have been thought, and land transport has continued to work regularly, keeping our economy supplied.

To this growth, which even though it will be affected by the pandemic and will result in a decrease in GDP between 10% to 15% by 2020, we project a GDP growth of between 4% to 5% by 2021, and constant above 5% from 2022 to 2024. And accompanying these figures we will maintain a deflation of a maximum of 2% for 2020 and inflation of less than 1% between 2021 and 2024.

Our other enviable macroeconomic figure is Foreign Direct Investment, which decreased by 8.7% in 2019, down to $ 4,835.2 million, after growing substantially for the last 15 years (it was almost 10% of GDP). In fact, during the first quarter, its decrease was only 5.1%, a decrease that will be substantially greater in the second quarter, but which will tend to return to normal by the second half of 2020.

Panama has a lot of competition to attract Foreign Direct Investment, however, the government has just approved the EMMA (Multinational Manufacturing Companies) Law, a new law that creates the special regime for the establishment and operation of multinational companies for the provision of services related to the manufacturing industry, which will not only bring investment but employment and technical education for Panamanians. If the government does not forget the Colon Free Zone, the Panama Pacifico area, the Multinational Companies Law (SEM), and the City of Knowledge, we can compete worldwide with the countries of the world, especially that we continue to be considered one of the best places to retire in the world, and one of the best places to live for less than $ 2,000 a month.

There is still much information to be collected, for example, we do not have updated inflation reports, since March, we have no unemployment report for March, and all the INEC reports are somewhat out of date. I believe that the time has come for the INEC to start using technology and innovation to collect its data, through its website, to make it more interactive with the sample subjects. And on the other hand, you can also start doing an electronic 2020 Census, where each family can fill out their information, either online, through an app, or a paperless census taker is sent to their home (after the family has not have been able to do your survey electronically, and that should be the least).

2020 will not be easy. We could end up with a GDP growth of -12%, inflation of -2%, unemployment of 15%, FDI of about $ 3,500 million, an External Debt close to $ 35,000 million (and a debt / GDP ratio of 65%). But all this could be reversed by 2021 with a GDP growth of 5%, unemployment of 7%, inflation of 1%, an IDE of $ 5.5 billion, and a Debt / GDP ratio of 50%, but we must work to achieve these figures. But, as usual, we will recover from this!l recover from this!