Panama: Looking ahead, stronger growth in regional economies – particularly that of the US

Two major events marked Panama’s year on the international stage in 2016, while domestically the economy continued its strong increase as activity in a range of sectors gained momentum that is expected to carry into 2017.
Making waves

The end of June saw the opening of the $5.4bn expansion of the Panama Canal. The widened and deepened canal presently accommodates vessels of much broader beam and shortens transit times, allowing for a better flow of traffic.

The project has given rise to a new class of container ship, known as New Panamax, that have a capacity for 14,000 containers, almost three times the 5000 units carried by the major ships to transit the waterway prior to its expansion.

Although the capacity of the canal has been increased, the initial nine months of 2016 saw a 6.6% year-on-time(y-o-y) decrease in the number of transits, according to a statement by the National Institute of Statistics and Census (Instituto Nacional de Estadísticas y Censos, INEC) issued in late November.

There was as well a 3.7% y-o-y dip in the canal’s revenue in the initial three quarters of the year, according to the INEC statement, while the tonnage of cargo shipped as well fell by 3.3% – reflecting a general slowdown in the world shipping industry.

Looking ahead, stronger increase in regional economies – particularly that of the US – should lead to higher revenues and tonnage. An extra factor that is expected to boost shipping movement will be the expansion of ports along the east coast of the US to allow them to handle New Panamax container ships.

Currently, only four east coast harbours are able to berth the new generation carriers; however, ports such as Savannah, Georgia, Charleston and South Carolina are in the process of upgrading capacity. This is likely to result in higher volumes of cargo passing through the canal in fewer ships, as smaller carriers are phased out and restored by the larger vessels.

The Panama Canal Authority, which operates the waterway, estimates that there will be a 15% increase in tonnage passing through the canal in 2017. Much of the expected increase should come from larger gas carriers that before could not access the canal, inclunding from an in general increase in world trade.

Paper trail

The other event to capture international headlines was the leaking of additional than 11.5m files from the database of Panama-based offshore law firm, Mossack Fonseca, in April. The files – which became known as the Panama Papers – gave details of how multiple high-profile businesses and wealthy individuals made use of offshore tax havens.

Though much of the activity revealed in the leaked documents was not illegal, it did raise questions over the accountability and transparency of some elements of Panama’s financial sector.

While the Panama Papers saga did not reflect well on the country or its financial sector, the government’s response did. Seeking to rebuild confidence in its banking and finance sector, the government established an international panel of experts to advise on reforms aimed at improving the economy’s transparency and accountability.

The committee tabled its final statement in late November, with key recommendations being to improve transparency in its offshore business segment, tighten up regulatory structures to curb money laundering and enact legislation to ensure lawyers maintain the highest ethical standards.

Increase indicators

Throughout 2016, the economy maintained a steady rate of increase, with the IMF forecasting that GDP would expand by 5.2% by the end of the time– the same rate of increase posted at the end of the second quarter, according to data issued by the Comptroller General’s Office (CGO) in September.

Stronger earnings from the canal and increased activity in other sectors should as well drive GDP increase in 2017 and beyond, with the IMF predicting an increase of 5.8% this year and 6.1% next year.

Sectors that the CGO cited in its September statement as top contributors were construction – which has benefitted from further infrastructure investments following the upgrades to the canal – mining and quarrying, electricity supply, communications, real estate and business services.

An extra key sector that posted strong increase in 2016 was tourism, with earnings for the sector through to September up 5.6% y-o-y to $3.7bn, though visitor arrivals remained stable on the previous year at around 714,000.