government

Government spending $1.481 billion on deficit

LA PRENSA

all ears: Legislators listen to a budget presentation yesterday by Ministro de Economía y Finanzas Héctor Alexander.1097264

The government has earmarked 1.481 billion in 2009 to pay for expenses related to the government's outstanding debt.

That revelation was made yesterday during Ministerio de Economía y Finanzas (MEF) Héctor Alexander's presentation to the Asamblea Nacional.

According to the minister, $804 million will go to interest payments while $677 million will be used to pay down the balance of the deficit.

Those payments account for 15.1 percent of the total budget, which amounts to $9.763 billion. That percentage, however, represents a marked drop as compared to the last several years.

In 2006, the government spent 25 percent of its budget on debt service. That number dropped to 19.7 percent in 2007 and 16.3 percent this year.

“When this administration began, our goal was to reduce the size of public debt as compared to the country's gross domestic product,” Alexander said.

In that respect the government has been successful, as the growing economy has decreased that percentage substantially, even though the public debt has increased under the presidency of Martín Torrijos. When he took office in 2004, the debt was 70 percent of the country's GDP. The debt is now 60 percent of the GDP, and Alexander was confident that it would be reduced to 41 percent by the end of next year.

The minister also responded to critics who said that the increase in government spending next year will cause inflation.

Alexander said that even though spending in capital projects and operational expenditures will increase by 25 percent and 14 percent respectively, it will serve to improve the infrastructure rather than increase the cost of consumer goods.

His remarks did little to offset the fears expressed by the country's business community that government spending needs to be reigned in.

“Investment in education or infrastructure will always be welcome, but the increase in operational expenditure is worrisome in an election year,” said Cámara de Comercio First Vice President Adolfo Linares. “The government should be conservative in their spending, especially in light of the current financial crisis and the increase in inflation.”

Roberto Alfaro, president of the Asociación Panameña de Ejecutivos de Empresa, said that the government should be preparing for an economic slowdown.

“If the state commits to budgets with high public spending when the economic cycle is falling, it will have to raise its amount of debt to pay for it,” he said.