Expenditure associated with public debt has grown in recent years, hand in hand with greater contracting of loans and bond issues in the capital markets.
In 2021, the debt service was $4,869 million. Of that total, $3,250 million correspond to capital payments, while $1,619 million were used to cover interest and commissions.
In 2020, a year earlier, the expense in interest and commissions had been $1,460 million and in 2019 $1,284 million, according to information from the Public Financing Directorate of the Ministry of Economy and Finance (MEF).
Panama has shown in recent years the degree of investment and being a dollarized economy and has been able to access the market to capture debt on favorable terms.
The weighted average cost of the country’s debt portfolio was 3.89% at the end of December, reflecting a decrease of 14 basis points compared to the end of December 2020, according to Public Financing.
However, the balance of the debt has followed a notable upward trend in recent years to stand at the end of 2021 at $40,487.86 million.
A year earlier, in December 2020, the balance of the non-financial public sector debt was $36,959.9 million; and at the end of 2019, before the pandemic, of $31,018.5 million.
The increase in debt is directly linked to the fiscal deficits accumulated by the Government in recent years.
The economist Ernesto Bazán told this newspaper that if instead of deficits, the country had fiscal surpluses, not only would it not need to take on more debt, but it could have a surplus to pay it off, thus reducing future interest payments and generating savings. for the country. A discipline that has not been had in this administration, but neither in the two that preceded it, he complemented it.
The payment of interest is unavoidable for the countries and therefore has to be considered in the national budgets.
Bazán pointed out that as interest spending grows, there are fewer resources to meet the country’s needs in health, security, education or infrastructure such as roads or bridges, to name a few examples.
Greater public investment would also affect a better performance of the economy.
The inflationary trend that the world is experiencing is expected to translate into an increase in interest rates, a movement that has already been taking place in the markets since last year.
In that scenario, financing costs will most likely continue to rise.
Both in 2022 and in the following years, the country is expected to continue running fiscal deficits, although lower than those registered in 2020 and 2021.
The Fiscal Social Responsibility Law sets a limit of 4% of gross domestic product, a ceiling that will be gradually reduced to 1.5% in 2025.
Therefore, the country will have to go to the markets to obtain the funds to cover the deficits and also to face the refinancing of maturing issues.
A scenario of increased rates could raise financing costs and lead, in the future, to higher interest expenses.
For the economist, one of the recipes to contain interest spending is to resume fiscal discipline, returning to balances with surpluses or low deficits.
In addition, he focused on the type of spending that is made, since when the deficit is used to finance public investment, then the economy reactivates and has a multiplier effect on employment and consumption, something that does not happen in the same measure when the purpose of the funds is operating or operating expenses.
