Panama Achieves Historic Reduction in Fiscal Deficit

Panama's Minister of Economy and Finance, Felipe Chapman, announced a significant improvement in the country's fiscal health. The historic reduction in the deficit to 3.68% is equivalent to $2,069 million. To achieve this, the Central Government reduced its spending by nearly 6%, not through an austerity policy, but through a progressive approach with a goal to bring public finances to a balance by the end of the decade. The Fiscal Lottery also contributed successfully, increasing from $70 to $90 million in one month, along with an increase in the ITBMS tax because people are requesting their invoices. The Minister of Economy also mentioned a reduction in accounts payable by over $900 million in one year. Tax revenues grew by 9% in 2025, with a 14.4% increase in direct taxes. This balance is already reflected in the lower government interest rate and a reduction in the country's risk premium by more than 54%. On the other hand, there was a 6.5% increase in revenue by applying discipline in tax collection and incorporating technology to improve revenue collection. According to the report on the MEF website (www.mef.gob.pa), the government's current savings moved from a deficit of -1.18% of GDP in 2024 to a surplus of 0.04% in 2025. The minister explained that this achievement translates into a reduction in the cost of financing for the State, which accelerates economic growth and then leads to a reduction in interest rates for Panamanians. The Government complied with the Social Fiscal Responsibility Law (LRSF) and closed 2025 with a fiscal deficit below 4%, which was applauded by national authorities. The announcement was made by the Minister of Economy and Finance (MEF), Felipe Chapman, in Penonomé, where the Cabinet Council met this Thursday. "Confidence is being restored and showing the seriousness and responsibility of the Government," highlighted the minister. He added that the savings being generated are almost $475 million, which covers almost half of the subsidy for the Social Security Fund (CSS) pensions. On the other hand, the average weighted cost of debt (CPP) fell to 4.97%, generating savings of $475 million in interest, and for the first time in two years, the CPP is below 5%. "This positive turnaround responds to the growth of current revenues above the expansion of spending, strengthening the State's structural fiscal position," the document reports. Despite these reductions, more than 80% of public spending has been allocated to health, education, and protection for the lowest-income and most vulnerable groups. "Many were asking where the money was going to come from; here we are showing where the money is coming from to meet that commitment," Chapman stressed.