panama to cut spending, but deficit still seen hig
Panama to cut spending, but deficit still seen high September 9, 2004 4:50pm ET (Reuters)
PANAMA CITY, Sept 9 (Reuters) - Panama's new government announced on Thursday an ambitious plan to slash spending and rein in a ballooning fiscal deficit that it said could reach 5.5 percent of gross domestic product this year.
"We're going to introduce a program to normalize public finances in order to bring the deficit under control and maybe even eliminate it in coming years," new Economy Minister Ricaurte Vasquez told reporters.
The government plans to save money by delaying payments to providers, suspending or canceling unspecified programs, and possibly laying off some state workers with temporary contracts expiring at the end of the year, Vasquez said.
President Martin Torrijos took power in Panama last week promising to take painful but necessary steps to clean up the government's finances.
High interest payments on Panama's $9 billion debt and a gaping deficit in the country's generous pension system have pushed the fiscal deficit higher this year.
Panamanian law requires the government to limit the annual fiscal budget to 2 percent of GDP, but Torrijos has accused the outgoing government of overspending before it left office.
Vasquez said he hoped the austerity plan could bring the 2004 deficit down to $685 million, but he said the 2 percent goal would still be badly missed and that the government would ask Congress for a waiver on the deficit ceiling law.
The government is also planning an overhaul of Panama's tax system to raise government revenue and close the budget gap.
Vasquez also said the government would stop counting revenues from the Panama Canal within its budget calculations, since relying on the profitable canal -- technically an independent entity within the Panamanian government -- could bring down the canal's superior credit ratings.
Panama's gross domestic product in 2003 was $12.5 billion.
