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Panama Fiscal Policy
Panama's financial stability and international credit standing
were determined not by monetary policy, but principally by fiscal
policy and balance of payments. Fiscal policy was thus more
important for Panama than for most other countries, and as a
result, public-sector deficits were especially problematic for the
government.
From 1971 through 1975, the annual average for the consolidated
public-sector deficit was 6.5 percent of GDP. That figure nearly
doubled to 12.9 percent between 1976 and 1980, at the height of
government spending on infrastructure and ambitious social
programs. In the 1980s, the figure has declined, from 10.8 percent
in 1982 to 5.8 percent in 1984 (see
table 14, Appendix A). The 1982
figure represented an aberration, brought about by the political
uncertainty and lack of fiscal restraint following Torrijos's
death. Most impressively, the deficit was reduced to 2.5 percent of
GDP in 1985, a figure even lower than the 3.5 percent targeted by
the IMF. The reduction was brought about by increased revenues,
reduced expenditures, and streamlined administration.
Data as of December 1987
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