Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed today the first review under the Precautionary and Liquidity Line (PLL) Arrangement for Panama for SDR 1.884 billion (500 percent of Panama's quota, equivalent to about US$2.7 billion) (Seepress release No. 21/19). The Panamanian authorities have not drawn on the arrangement and intend to continue treating as precautionary. The PLL serves as insurance against extreme external shocks stemming from the COVID-19 pandemic.
Panama's economy suffered a severe shock amid the global pandemic in 2020 as containment measures significantly reduced economic activity, especially tourism, while hurricane Eta and tropical storm Iota curtailed a large part of the country's agricultural production. As a result, output contracted by 17.9 percent, with the fiscal position deteriorating significantly amid revenue shortfalls and expenditure pressures.
While Panama is able to cover its external financing needs under present conditions, the PLL arrangement provides insurance against externally driven downside risks. Policy priorities under the PLL include supporting an adequate level of spending on health and social needs while boosting the post-pandemic recovery and further strengthening institutional policy frameworks, including financial integrity and data adequacy.
Panama has adopted the policies envisaged under the PLL arrangement and have adhered to the amended fiscal rule. The authorities continue to strengthen Panama's institutional frameworks, including its AML/CFT regime in accordance with the FATF action plan, its statistics reporting, multiannual budgeting and financial regulation and supervision.
Following the Executive Board discussion, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Chair, made the following statement:"
"Panama's economy contracted sharply in 2020 amidst stringent containment measures and mobility restrictions to tackle the COVID-19 pandemic, reversing over two decades of unprecedented economic expansion. The outlook for 2021 is optimistic as the country is well positioned for a considerable recovery, underpinned by a rebound in the global economy, steadfast COVID-19 vaccination program, and supportive macroeconomic policies. However, important challenges continue to persist, including a possible resurgence of the COVID-19 pandemic which would disrupt global trade and capital flows, thus adversely affecting the activity of Panama's canal and logistics sectors. In addition, the country faces important downside risks emanating from a possible lack of progress on exiting rapidly the FATF grey list.
"The two-year arrangement under the Precautionary and Liquidity Line (PLL), approved by the Executive Board on January 19, 2021 for 500 percent of quota (SDR 1.884 billion), is helping address outstanding vulnerabilities, reinforce the authorities' economic recovery efforts, and boost market confidence. The performance under the program has been strong and Panama continues to meet the PLL qualification criteria. The authorities remain resolute in implementing the strong policies under the PLL and intend to treat the arrangement as precautionary.
"The authorities are committed to recalibrating policy responses to safeguard macroeconomic and financial stability and addressing FATF's concerns to successfully exit the grey list. These include adhering to the fiscal rule to ensure debt sustainability in the medium-term, enhancing fiscal transparency, maintaining tight supervisory oversight to safeguard financial stability, and improving the financial integrity framework by expediently addressing the remaining deficiencies in the AML/CFT regulatory framework.
"The policy agenda during the PLL will focus on facilitating prompt exit from the FATF grey list, strengthening data adequacy, and preparing the economy for the post-pandemic recovery.
