Panama to stick to economic targets despite budget backtrack, minister says

By Kylie Madry and Elida Moreno

PANAMA CITY (Reuters) - Panama will stick to its economic forecasts for next year even though the government withdrew its budget proposal after pushback from Congress, Economy and Finance Minister Felipe Chapman told Reuters.

"Our economic projections are not going to change," Chapman said in an interview on Friday. "We'll keep working on a budget based on an estimate of... real gross domestic product growth of 3%."

The previous proposal was to slash spending by some 15%. The minister said he did not yet know if the new budget would consider a similar cut.

Chapman went back to the drawing board last week after Congress' budget committee expressed concerns about the bill, particularly a forecast for a higher deficit than what is allowed under an existing framework.

The ministry will submit a proposal to reform the framework – the fiscal and social responsibility law – on Monday, Chapman said.

"That law does not take into account exogenous factors that could alter the ability to comply with it," he said, citing examples such as the pandemic or a recent drought, which has impacted operations at the Panama Canal, one of the world's busiest trade corridors.

The reform will "take those elements of flexibility into account and raise the ceiling (on the deficit) with the idea that it would come down progressively," Chapman said.

The government will present a five-year fiscal plan by the end of the year targeting a "soft landing," he said.

BUY-IN FROM INVESTORS

Investors are starting to show confidence in Panama's commitment to reducing its debt, Chapman said. The yield on one-year treasury bills auctioned this month yielded 6.07% on average, down 33 basis points from the August and September auctions, the finance ministry has said.

Chapman said that during a recent trip to New York, he met with ratings agencies, bondholders and banks, who, unsolicited, offered credit lines "in the billions of dollars." He declined to offer more detail.

Fitch cut Panama's sovereign rating to junk in March, but the minister said he felt "optimistic" as conversations were progressing with agencies.

Chapman said external threats were his main concern for Panama's economy, while he was "more worried about it not raining."

The minister said efforts were ongoing to account for future droughts hitting the Panama Canal, with a plan to dam the nearby Rio Indio as the surest long-term option.

In the short term, the canal could pump water from the Bayano Lake, Chapman said, though he acknowledged it was "not ideal."

The government is close to signing a deal with independent experts who will present their recommendations on what to do with copper concentrate mined from the now-shuttered First Quantum copper mine, by the end of this year or at the beginning of next year, Chapman said.

Panama's Supreme Court declared First Quantum's contract with the country unconstitutional last year amid protests over its environmental impact and complaints about the amount of royalties coming in from the mine. The ruling forced the key mine to close down.

Chapman said the government was open to letting the mine export what it had already mined but that no date had been set.

Any agreement would have to take into account public sentiment, Chapman conceded, as a recent newspaper poll showed two in three Panamanians against restarting operations at the mine to later close it.

Any future deal with First Quantum would likely require larger royalty fees to win over citizens, he said.

(Reporting by Kylie Madry in Mexico City and Elida Moreno in Panama City; Editing by Aida Pelaez-Fernandez and William Mallard)