Caribbean & Central America - February 2011 (ISSN 1741-4458)

Local economists now expect Panama's economy to grow strongly over the next four years, with foreign direct investment of at least US$20bn over this period. Optimists expect GDP growth of 9.2% this year, 13% in 2012, 11% in 2013 and then a slump to 4.9% in 2014. Such fast rates of growth are likely to create bottlenecks, especially in the labour market, which in turn may lead to higher-than-expected inflation. The other big inflation risk is that oil prices will rise.

The bulls reckon that inflation this year will be 3.8% rising to 4.5% in 2012 before falling back to under 4% thereafter. Even so this is high for Panama where inflation averaged 1.3% between 1997 and 2006. The strong growth should transform public finances. Debt as percentage of GDP should fall from 44% in 2010 to 30% in 2014. Debt in cash terms is around US$11bn.

The government is not as bullish. The deputy economy minister, Frank De Lima, forecasts GDP growth this year of 7.5%, bringing GDP to US$26.7bn. The government is also forecasting growth of only 7% between 2011 and 2015. De Lima is also committed to keeping the fiscal deficit under 2% of GDP.