The US$24,000 million Budget in the Midst of a Pandemic

It was not until the middle of the month that the Official Gazette published Law 176 of 2020 on the General Budget of the Nation for the year 2021, so that we have been able to finish this article, which is already 3 weeks late. And it is that the National Assembly has just approved the budget of US$24,162 million for the year 2021, a year in which although I think that we will recover somehow, I do not agree to establish a budget for this magnitude instead of playing it "safe" and see what happens next year.

I am clear that it is a political decision to continue thinking that the State is a political piñata, in some cases, and to be in denial about the scope of the virus in the economy, but this decision can radically affect us for the future and our claims to maintain Panama. as one of the 27 countries in the world with investment grade.

We are going to analyze this budget, from the macroeconomic point of view, without getting into the Ministries and Entities budget, since the analysis by ministry/entity would take us much more time and we would not have all the information to make an accurate analysis. Now, let's look at the income side. Taxes are mainly made up of Income Tax and ITBMS (Value Added Tax - VAT). The Income Tax for 2020 to be paid in 2021 is going to be catastrophic since after 7 months of confinement I see it difficult for any company to declare profits. In other words, when the problem in 2020 for taxpayers was cash flow, in 2021 it will be the losses in 2020 due to the closure of the economy for more than 7 months. In the VAT there could be better news since we are going to have more sales in 2021 and therefore more taxes to be collected (since this is paid immediately). Until the month of September, direct income was down 31.1%.

The fall in tax revenues could reach 40% (by 2021, since we must remember that although the VAT recovers, the income tax will be very poor due to the number of companies that closed, and those that had losses in 2020 and that is paid in 2021), so on the income side we will not reach the budget under any circumstances, and even with a growth of 4.5% of GDP (we must remember that we would come from a GDP of US$58,000 and we would increase to US$61,000 approximately by 2021). In the non-taxation income is the Panama Canal, which although it establishes an income to the state of US$1,700 million, is equal to 2020 and 2019, so it will not have a greater impact on income. Until the month of September 2020 the indirect income was down 25.2%.

As you can see, the path of the budget on the income side is uphill, and I see it very difficult that it can be balanced without a large increment in debt, so the MEF (Ministry of Economics and Finance), responsibly, should lower expenditures so that the level of indebtedness is not greater, and we do not fall into major problems. And despite the fact that I have always preached that Panama does not have major debt problems, that does not mean that I agree with indiscriminate indebtedness and especially when the current moment claims for other things. The issue is how we reduce non-essential expenses that allow us to reach the correct number and try to alleviate the burden of debt.

The first thing would be to review the state payroll. That is, any payroll that does not have related people and that can be considered as “botellas” (officials who receive a salary without having a job or without going to work). Here we have “undisclosed” payrolls from all over the place, and according to my calculations there can be, at least, about 50,000 officials that can be quantified at around US$50 million a month and US$650 million a year, at least. In the same way, we can remove all the consultants, and non-essential professional services (and this is quite subjective, so they should eliminate all of them at least by 2021) - the vast majority, who have good salaries and who could be another US$500 million a year.

As an emergency measure and even healthy measure, we should cut all trips abroad throughout 2021. The pandemic has proven that you can attend any event through the internet, without any problem and without missing anything. In this way, we can save travel expenses, hotel expenses, and general expenses for a full year.

2021 is going to be a difficult year, and we must cut back on another interesting area: rents/lease. Here we have many ministries and entities, which are renting/leasing space, and even more space than they really need and at prices that are ridiculously off the market. Moreover, the government has many empty buildings, which with a little love can be easily renovated. And as an additional measure, send as many people as possible to telecommute (not necessarily 100% of the time), but enough to save more on space. With teleworking, we can also save electricity, telephone, and space costs, in addition to giving officials greater responsibility and empowerment for their position.

In the same way, all parties, receptions, lunches, dinners, and the like should be canceled in all entities, ministries, and branches. And this is only the "tip of the iceberg", and I am sure that there are many officials who have more ideas on how to save in their entities.

A transportation entity could be created, which functions as the ACP (Panama Canal Authority - PCA) Transportation Division, which would have all the government cars, all the drivers and all the security detail and that every time an official needs to move, this entity will send the requested transportation leaves it at his/her meeting or visit and then they will pick him/her back when the official calls again. This would be a UBERGOB, which could even work with a similar app platform. This process has worked in the ACP since the times of the “gringos” were in charge of the Canal and it has continued to function, avoiding bureaucracy, keeping the cars properly maintained, and managing resources efficiently (author, staff, etc.). And the best part is that it allows us to avoid additional expenses, repair the cars and maintain them and thus save more money for the state.

Now let's look at some statistics for the budget issue. We have done an analysis of the budget situation during the five-year terms of past presidents Martin Torrijos, Ricardo Martinelli, Juan C. Varela , and Nito Cortizo, and we have seen a few trends. For example, the Budget/GDP ratio had remained for almost 15 years within 35%, and in recent years, it has risen to 40%. That is, expecting a GDP of $ 61,000 by 2021, the maximum, according to this reason, that the 2021 budget should be would be approximately US$21,500, about US$2,500 below what was approved.

But the additional problem will be to be able to generate the necessary income so that the budget could be met without incurring too much debt. For this, we go to the Tax Revenue / GDP ratio that has remained at 10%, and that we project it at almost half, mainly since we did not do business in Panama for 7 months in 2020 and we do not see the generation of profits possible to generate the necessary tax income (mainly ISLR, which is what we will declare in March 2021 and that we will pay that same year) and we do not see a very high number (neither in a natural person nor in a legal person).

And this translates into a negative growth of current income that is the bulk of the budget and that could take an absolute decrease of more than $ 3,500 by 2021, so it is necessary to adjust that approved budget, if we do not want our debt reaches $ 60,000 million and this almost on par with the GDP of that year.

If we cannot generate more income then we have no choice but to lower expenses - current and capital. There are things that I agree that we should not touch, for the moment - the real payroll, since lowering it at this time would mean driving more people to join the unemployed in the country. And remember that I am one of those who advocates lowering our number of public servants from 275,000 to at least 200,000 (and removing all the bottles and consultants).

Nor could we touch the amount of the subsidies, since there we would be creating another additional problem, which is what we must avoid. But if we should review them so that this aid is really reaching those who really need it.

And much less can we remove interest, since these are contracted and we must keep paying them to maintain our risk rating, on the one hand, and to continue going to the capital markets to improve the cost of debt and its conditions.

Our analysis was based on the macro framework of it, and not on looking at the institutions. When you make any type of budget, the important thing is to know what the target number you are looking for is, especially when what you are looking for is to maintain a “balance of income and expenses. In the event that there is no balance in it, what you are looking for is to do what is necessary to achieve it without the debt getting out of hand.

In a year of total uncertainty after a catastrophic one, the important thing is to keep expenses and debts under control, since we are sure that income will not improve. So, the government must find a number that is consistent with the most likely reality for 2021. An increase in GDP of 4.5% would put us at something like $ 60 to 61 billion dollars, and the budget should not be more than 35% of GDP (this is the macroeconomic reality of Panama in the last 15 years).

Hence my number from $ 20.5 to $ 21.5 billion is the sum that should have been sought. This requires a task force to seek savings in operational expenses, without cutting the real payroll (without bottles), in the amount of between $ 1,500 to $ 2,500 million and thus be able to maintain some investment in infrastructure, necessary for the country to move forward.

The executive must move forward with the Metro line 3 project (this gives the quality of life to the people of Western Panama and will revive the housing projects in that region), which once they separate it from the 4th bridge by the Canal, the latter is no longer essential (even though we do not know for sure how the subway would cross from one bank to another of the Canal (tunnel under the channel of the Canal, most likely). The other thing that I like as it generates A lot of employment is doing small works throughout the country, although this requires a lot of control (monetary and project), which allows small and medium-sized companies in each area to have jobs and to create jobs for the same region.

Two projects of the Martinelli administration that are quite advanced and that would also generate a large amount of employment and improvements to the population can be brought back to life: the Hospital City on the one hand that should generate employment and should not cost much to finish and put it to walk and the complete project of the Cold Chain, since the markets of the cities are really what remains to be finished and they would generate movement in the agricultural sector as well, and thus bring cheap food to the population.

We have to finish fixing the arrangements for the Via Transístmica under Line 1 of the metro, finish the stations in Aeropuerto, Villa Zaita, and if possible I really like the continuation of line 2 to the El Dorado Shopping Center (it allows you to students to be able to access the universities located in the Dead Tomb very easily). They are relatively easy projects, with much to offer the population, not so expensive and quite fast.

The government (either central and/or municipal must pass a law to create incentives for parking near metro stations. This would allow massive use of it, and that those who have their car and leave them in one of these Parking costs little to do so (monthly contracts for example) This creates investment, generates employment and gives citizens quality of life, without the government investing anything.

You have to go out and sell Panama en masse. We continue to be present in all the specialized magazines of the world - investments, tourism, retirees, real estate, etc. Panama has much to offer and we must seek investors from the world. And now, you don't even have to travel for this, but you have to have prepared, bilingual people who know how to sell to the country.

As you can see, there are many things that can be done without having to borrow so much money to generate employment. You have to think outside the box, you have to have trained people and good officials, leave out the vivacious people and bottles and think about the future of the country. This is the moment to put a stop to the debauchery of the state, with good ideas and goodwill and EXECUTION.

Sorry Nito, but $ 24,000 was not the budget figure. This will generate an increase in net debt of $ 4.2 billion, instead of $ 1,500 if you lower the budget amount by about $ 3.5 billion. I remind you that one must wrap up as far as the blanket will give, and in this case, we are leaving our feet unclothed!