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The Government of Panama has presented a long-term fiscal strategy aimed at gradually reducing public debt and narrowing the fiscal deficit, with the goal of reinforcing macroeconomic stability and investor confidence.
The plan was outlined by Acting Minister of Economy and Finance, Fausto Fernández, during his presentation at the 10th International Financial Summit, titled “Panama’s Economic and Fiscal Outlook: Challenges and Opportunities.”
Fernández emphasized that the administration is committed to fiscal discipline, transparency, and the efficient allocation of public resources, noting that the new roadmap will play a critical role in restoring credibility and sustainability to public finances.
Debt Reduction Targets Through 2040
According to official projections, Panama aims to reduce its public debt to 50% of GDP by 2035, and further to 40% by 2040—a significant structural improvement over current levels.
Parallel to this, the Non-Financial Public Sector (NFPS) deficit, which is forecast at 4% of GDP in 2025, is expected to decline progressively to 1.5% by 2030.
“Our objective is to restore a sustainable fiscal path that not only stabilizes public finances but also strengthens investor and public trust,” Fernández stated.
Comprehensive Tax Reform Without Raising Rates
A centerpiece of the fiscal roadmap is a planned tax system reform, described by Fernández as structural and modernizing—but not revenue-increasing.
“We are not talking about raising taxes. That is not the focus,” he emphasized.
Instead, the reform seeks to update Panama’s outdated tax code, originally enacted in the 1970s, to reflect the realities of a digital and service-oriented economy.
Key features of the proposed reform include:
- Inclusion of digital services and cross-border e-commerce within the tax base
- Phased implementation, starting with short-term adjustments and evolving into a broader medium- and long-term framework
- No introduction of new taxes, but rather a more equitable and modern application of existing rules
Fernández described the reform as functional and progressive, noting the need to adapt legal frameworks to modern economic activity such as cloud computing platforms and gig-economy models.
Five Pillars of Fiscal Sustainability
The broader fiscal policy is built on five guiding principles:
- Transparency in fiscal governance
- Efficiency and prudence in public spending
- A clearly articulated fiscal policy framework
- Strengthening financial credibility domestically and internationally
- Preserving Panama’s investment-grade credit rating
Fernández also acknowledged key challenges to implementation, particularly the need to control government expenditure—with a focus on reducing the oversized public payroll and streamlining payments to state suppliers.
“Fiscal sustainability is not just an economic goal—it is a promise of long-term well-being for future generations,” the minister concluded.
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