The rise in international oil prices is intensifying pressure on Panama's public finances at a time when the country is already facing a rigid budget, increasing subsidies, and a debt exceeding $60 billion. The price of 95-octane gasoline will increase by 11 cents per liter, and 91-octane by 10 cents per liter. Between July 2022 and January 2024, the state allocated nearly $500 million to keep the price of 91-octane gasoline and diesel frozen at $3.25 per gallon. This measure, extended through several Cabinet Council extensions, benefited over 880,000 vehicles, with a greater burden on the private sector, although it also represented key relief for commercial transport. That scheme, which ended in early 2024, now serves as a reference for the fiscal cost of market intervention in scenarios of sustained price increases. "Savings will have to come from the state's current or operational spending, as investment works or capital expenditures will not be stopped," stated an official. In the 2026 budget, which amounts to $34.9 billion, subsidies were projected at $2,486.6 million, well above the $1,747.4 million for 2025, a figure that did not contemplate the current scenario. Yesterday afternoon, the Presidency of the Republic issued a statement providing more details on the subsidy. Among public passenger transport operators are the collective, selective, school, and tourism modalities. If oil prices remain high, the country will have to decide between expanding subsidies—with the consequent impact on debt—or allowing faster adjustments in domestic prices. In previous years, the bill for fuel subsidies was extremely high. As background, Panama had already resorted to a prolonged subsidy to contain the impact of rising fuel costs. Despite the rollback, prices remain at elevated levels after surpassing $100 for the first time since July 2022 early in the week. The volatility responds to geopolitical uncertainty in the Middle East. Regarding diesel, it was reported that it will increase by 15 cents per liter starting this Friday, April 3. Per gallon, 95-octane gasoline will cost $4.77, 91-octane $4.43, and diesel $5.15. The latter, key for heavy transport and work, surpassed the $5.00 threshold. The increase comes just during Holy Week, when the movement of over 100,000 vehicles from the capital city to the interior of the country is expected. Faced with the increase in costs, the Government has opted to expand subsidies to avoid an immediate impact on consumers, especially in sensitive areas such as public and school transport. The measure authorizes the Ministry of Economy and Finance (MEF) to manage the necessary resources to stabilize the price of liquid fuels, with a budget ceiling of up to $100 million for 10 months. "The subsidy works as a containment mechanism, but it does not eliminate the problem," explains economist Eric Molino. Likewise, cargo transport, agricultural machinery, and artisanal fishing can avail themselves of the measure announced by the National Government for the temporary stabilization of the fuel price. In the meeting, government representatives addressed the concerns of transporters and explained the information they must provide to develop the platform of the National Authority for Government Innovation (AIG), designed to guarantee controls for said subsidy. It is unknown if the tariff freeze will apply to them from this Friday, as it is understood that it may take a few days to implement the benefit. Oil above $100 and high volatility. In this context, the behavior of the oil market remains key. "What it does is transfer the cost to the state," explains economist Eric Molino. This can reduce the fiscal space available for investment, limit the ability to respond to crises, and increase pressure on public debt. The Minister of Economy, Felipe Chapman, ensures that this will not affect the budget allocated for public investment. On Wednesday, the US benchmark crude (WTI) closed at $100.12 per barrel, down 1.24%. The President of the United States, Donald Trump, stated that Iran would have requested a ceasefire, conditional on the reopening of the Strait of Hormuz, a strategic route through which nearly 20% of the world's oil passes. However, Iran denied these statements, maintaining tension in the markets and uncertainty about global crude supply. Panama thus faces a complex scenario: protecting the population's purchasing power without compromising fiscal sustainability.
