Republic of Panama Fiscal Performance Third Quarter 2017 Dulcidio De La Guardia Minister of Economy and Finance Iván Zarak Vice Minister of Economy Eyda Varela de Chinchilla Vice Minister of Finance November 2017
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Contents: 1 Macroeconomic Overview 2 Fiscal Performance 3 Debt Profile 4 Recent Events 3
Contents: 1 Macroeconomic Overview 2 Fiscal Performance 3 Debt Profile 4 Final Remarks 4
1 Macroeconomic Overview Panama s growth continues to be supported by a well diversified economy and is seen when compared to regional peers. GDP growth, as of August 2017 (%) Inflation(%) 5.8% 5.9 5.7 5.2% 3.5 4.0 2.6 Increase driven by biennial adjustment of the minimum wage leading to increase in unit labor costs in 2016 August I SEM 2016 August I SEM 2017 2017 Price controls scheme of President Varela comes into effect, helping to slow the rate of CPI growth 0.2 0.7 0.8 2010 2011 2012 2013 2014 2015 2016 sep-17 Source: INEC Source: INEC Real GDP Growth Expected as of October 2017 FDI Growth ( 2014-2016) US$million FDI Growth 2Q (2015-2016) US$million 2,845 4,458 4,494 5,225 2,589 2,689 1,315 +5.8 % 5.3% 3.9% 2.7% 2.1% 1,1 2014 2015 2016 IQ IQ 2015 2016 2017 2016 I Trim I IQ Q 2017 2016 I Q 2017 I Trim Source: IMF Source: INEC 5
3 1 Competitive Macroeconomic Advanteges Overview According to the World Economic Forum (WEF), Panama is ranked 11 out of 137 countries in macroeconomic environment. Total Poverty (USD MM) 21,809 9,467 Panama BBB Median Total Poverty (%) 26.2 25.8 23.0 22.1 Source: World Economic Forum 2017-2018 Open Unemployment (%) 2013 2014 2015 2016 Extreme Poverty (%) Panamá Argentina Costa Rica Colombia Brasil 4.6 9.3 9.6 8.7 12.6 11.1 11.0 10.3 9.9 Source: DAES 2013 2014 2015 2016
1 Macroeconomic Overview The fiscal year 2017 was a record year for the Panama Canal. It received a record 403.8 million tons of cargo, the largest amount of annual tonnage ever transited in its 103-year history. Fiscal Year 2017 13,548 vessels Transited through the Panama Canal 403.8 million Cargo tonnage record August 2016 August 2017 19.3% 23.7% Panama Canal Economic Indicators August YoY 6.0% Source: ACP -7.0% -4.4% -10.6% Transit Panama Canal Revenues Cargo Volume 7
1 Macroeconomic Overview The 2018 Goverment Budget is part of an environment of economic growth of the country and meets the déficit limit of 0.5%. Law 72 of November 13, 2017: USD 23.8 Billion 2018 Goverment Budget USD 9.5 Billion 2018 Investment Budget 4th Bridge Over the Panama Canal Government Budget by Sector Development of Social Services Financial Services General Services Infrastructure Development Development and Promotion of Production Other 46.8% 13.3% 14.2% 11.0% 2.4% 12.3%
1 Macroeconomic Overview Selected economic indicators as of August 2017 National Banking System Internal Deposits 2.9% Loan Portfolio 1.3% Net Profit 17.4% Average Liquidity Index 60.7% Energy Delivered Generation 1.0% Power Supply 1.5% Power Demand 1.5% Consumption Industrial Tourist Expenditures 0.6% Chicken Production 2.1% Number of Visitors 0.4% Milk Production 2.5% Car Sales -13.1% Soft Drinks -9.0% Source: INEC 9
Contents: 1 Macroeconomic Overview 2 Fiscal Performance 3 Debt Profile 4 Final Remarks 10
2 Fiscal Performance The NFPS results showed an income of US$ 8,323 million, expenses of US$9,752 million and a deficit of US$1,430 million, or 2.4% of GDP. 55% of SNPF Expenditures increase was due to personal services special laws for teachers, doctors and security personnel. Deficit Personal Services by Category Sept 2016 Sept 2017 (USD mm) Main Investment Projects of the NFPS as of Sept17 93 38 mm 104 mm 46 58 87 mm 27 mm 20 Source: MEF Education Security Health Judicial 128 mm 19 mm
Contents: 1 Macroeconomic Overview 2 Fiscal Performance 3 Debt Profile 4 Final Remarks 12
3 Debt Profile 29 Sep 2017 Changes outlook on Panama to positive from stable; Baa2 rating affirmed Source: MEF 13
3 Debt Profile Prudent debt management has helped achieve favorable debt cost trends Net Debt in $US million and as a percentage of GDP 22,000 21,602 21,602 40.0% 21,000 39.0% 20,222 37.8% 38.0% 20,000 19,000 18,231 36.4% 37.0% 36.0% 18,000 35.1% 35.0% 17,000 34.5% 34.0% 16,000 33.0% 2014 2015 2016 2016 (Real) (Projected) (Forcasted) Total Debt Net Debt/GDP Source: MEF Central Government Debt Interest as of Sep17 (US$millions) 408 116 404 1Q 2Q 3Q Interest Weighted average cost of debt (%) 5.6% 5.3% 5.1% 4.8% 4.8% 4.8% 2012 2013 2014 2015 2016 sep-17 while protected from a tightening global interest rate environment by a solid debt structure and composition, as reflected by low EMBIG spreads Debt composition by rate as of Sep17 (% of total) 350 Quarterly Comparison of Global EMBIG with Panama and Latin American peers July 2017 September 2017 EMBIG EMBIG PANAMA EMBIG COLOMBIA EMBIG PERU EMBIG MEXICO Fixed 17.2% 300 250 Floating 82.8% 200 150 Source: MEF Source: Bloomberg 100 30/6/17 15/7/17 30/7/17 14/8/17 29/8/17 13/9/17 28/9/17 14
Yield (%) (US$ million 3 Debt Profile Panama has developed a successful market makers programs, which has a positive assessment by multilateral agencies and credit rating agencies, enhancing our status as a country with investment grade Local Market Issuances 1835 (USD MM) Secondary Market (USD MM) TACC:74% 1,266.9 853 466 1317 994 387 323 1364 525 100 1092 471 425 427 Since the launching of the Market Maker Program the Republic has issued approximately US$4,781 billion in the local market, excluding the T. Bills. 665 1005 290 715 1363 2010 2011 2012 2013 2014 2015 2016 Sep. 2017 T. Bills T.Notes T.Bonds Total 699 318 346 680 352 60 268 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 762.9 767.6 620.9 533.3 572.39 312.2 26.2 2010 2011 2012 2013 2014 2015 2016 sep-17 Panama Yield Curves vs UST 2026 2028 2024 2047 2053 2023 2036 2029 2025 2027 2020 0 3 6 9 12 15 18 21 24 27 30 33 36 39 External Curve Local Curve UST Tenor (years) Source: MEF 15
1 Macroeconomic Overview 2 Fiscal Performance 3 Debt Profile 4 Final Remarks 16
4 Final Remarks 1 Panama has fifteen years of sustained macroeconomic momentum supported by a strong track-record of economic growth, fiscal performance and debt management. 2 Panama s diversified economy and low inflation continue to support strong economic growth with 5.8% growth as of August 2017. 3 Prudent debt management has helped achieved a constant weighted average cost of debt of 4.8% from 2015 to September 2017. 4 5 Great fiscal performance as of September 2017, the Central Government revenues increased 1.6%, collecting 83 million dollars more compared to previous years. The implementation of various initiatives under the development of the domestic capital market, has allowed to close the spread among both curves of government debt securities. 17