national

Surplus likely to drop next year

Declines in revenues and recently-approved tax cuts mean that the government probably won't have as good a year in 2008 as it did last year when it reported a surplus of $683 million.

While the government surplus was 3.5 percent of the country's gross domestic product (GDP) last year, that figure will probably fall to under 1 percent this year.

Guillermo Chapman, the former ministro de Planificación Económica, said that there are two main reasons for the surplus decline, a lower flow of income from the Panama Canal and a drop in capital gains revenue.

"We expect a significant drop in payments by the Autoridad del Canal de Panamá (ACP) to the government, from $822 million in 2007 to $632 million in 2008," he said.

The $190 million downturn is due to costs associated with the Canal expansion and the effect on traffic due to economic woes in the United States.

In terms of capital gains, Chapman said that there does not appear to be any large mergers or business deals on the horizon that would generate the amount of capital gains revenue that the country has experienced in the past.

In addition, the lowering of taxes and expansion of subsidies recently announced by President Martín Torrijos could further weaken government revenues. According to Indesa, a firm specializing in financial analysis, the country will most likely not achieve a bond upgrade in 2009 if its surplus drops by as much as has been projected.

"A surplus of only 0.8 percent goes against the trend of achieving a sustained level of investment," the firm stated.

Regionally, only Chile and Mexico have investment grade status. Panama is just under that level. Gaining

investment grade status would help the country receive preferential interest rates when issuing bonds to finance the public debt. It would also help the government refinance existing loans.