Finance Minister of the Year/ Americas: Hector Alexander, Minister of Finance, Panama
For Panama’s public finances, 2008 started and ended well. In February 2008, rating agency Standard & Poor’s raised the country’s sovereign credit rating to BB+, from BB, citing a budget that recorded a surplus of 2.6% of gross domestic product (GDP) in 2007, compared with a deficit of 5.6% in 2004. Government debt has fallen from 42% of GDP to 32% over the same period.
In December 2008, four multilateral financial institutions and the Japan Bank for International Co-operation signed a $2.3bn loan deal to finance the $5.25bn Panama Canal expansion project. “To be signing such a loan in such a situation on global capital markets is a real sign of international confidence in the profitability and attractiveness of the project,” says Mr Alexander.
These successes frame another remarkable achievement, the fiscal responsibility law, passed in April 2008. In preparation Mr Alexander engaged in a national dialogue to explain the need for fiscal prudence and to decide how to build public accountability into the public accounts. “There was recognition from the whole of society that healthier public finances will guarantee the government’s role in society and help create a dynamic private sector,” he says.
The law limits the budget deficit to 1% of GDP and public debt to 35% of GDP. It also contains provisions to facilitate a smooth transition between governments and greater transparency on budget management. An incoming government must present its programme of public spending and investment for its five-year term within six months of election. “This is the first time that the government will have to present such useful information by law, and it will make it possible for society to follow and monitor the execution of budget activities in years to come,” the finance minister says.
The law will be tested in 2009, with general elections in May and a global downturn curbing revenues from the Panama Canal – 22% of government income in 2007. Mr Alexander says the 2009 budget has been framed to keep within the new 1% limit, and GDP growth is estimated at an impressive 9% in 2008, despite the US recession. This legacy will help ensure that whichever party wins next year’s elections, Panama’s voters should be the ultimate winners.
