WASHINGTON, USA — The executive board of the International Monetary Fund (IMF) approved Panama’s request for emergency financial assistance under the Rapid Financing Instrument (RFI) equivalent to SDR 376.8 million (about US$515 million, or 100 percent of quota) to meet the urgent balance of payment needs stemming from the outbreak of the COVID-19 pandemic.
The pandemic has significantly weakened Panama’s macroeconomic outlook for 2020 and opened a balance of payments gap estimated at about US$3.7 billion. The RFI provides timely resources to the authorities necessary to mobilize essential COVID-19-related health expenditure and support to the vulnerable population. The authorities are also seeking support from other multilateral institutions.
To absorb the macroeconomic shock, the government of Panama is appropriately requesting to surpass the fiscal deficit limit under the Social and Fiscal Responsibility Law (with legal limits becoming binding again from 2021 onwards). The authorities announced a package of fiscal measures to increase healthcare spending and boost transfers to the poor under the “Panama Solidario” program.
Following the executive board discussion, Mitsuhiro Furusawa, deputy managing director and chair, made the following statement:
“The COVID-19 pandemic has disrupted Panama’s economy and created urgent balance of payments (BOP) and fiscal financing needs. The government has resolutely implemented measures to contain and mitigate the spread of the pandemic. However, significant uncertainties remain, and the economic fallout could intensify further if containment measures have to be extended.
“To address the crisis, policies need to be accommodative. A reorientation of fiscal policy towards short-term priorities is necessary to mitigate the impact of the pandemic. A temporary relaxation of deficit limits under the Social and Fiscal Responsibility Law is appropriate. Returning to a gradual adjustment once the pandemic recedes would ensure that the public debt-to-GDP ratio remains on a sustainable path. Measures have also been taken to maintain financial sector stability, including by allowing banks to use the accumulated dynamic provisioning to improve their liquidity position and absorb the impact of potential credit losses. Policy responses and macroprudential measures would need to be recalibrated as the situation evolves.
“The IMF emergency support under the Rapid Financing Instrument will help provide much-needed resources to address BOP needs and support essential pandemic-related health expenditure. The support of other IFIs and development partners is crucial to close the remaining BOP and budgetary gaps, ease the adjustment burden, and preserve economic growth.”