MEF will reduce the budget of Ministries to meet the financial target

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MEF will reduce the budget of Ministries to meet the financial target

For the Minister of Economy and Finance (MEF), Felipe Chapman, the country’s general budget should be revised with the aim of reaching the fiscal deficit target of 2% in the second half of this year.

“Government spending irresponsibly is neither prudent nor sustainable for long-term economic growth,” he said in a note released by the MEF this week.

According to MEF’s Non-Financial Public Sector (SPNF) Deficit Balance, the country’s deficit stood at 1.88% of the Gross Domestic Product (GDP) in March this year. We have to add the 800 million dollars that five ministries owe to suppliers, and the government is not in a position to pay, at this time, this could raise the percentage to 2.4%.

“The money spent by the ministers was not recognized in the budget,” said one participant in the transition meeting between current former economy and finance minister Hector Alexander and his successor. To solve the problem, it is necessary to create an unusual item and find money or go to pay off the debt. Despite the intention to pay, “the MEF cannot do it because it is not in the budget,” the person insisted.

In the first five months of 2024, the Directorate General of Revenue (DGI), based on the collection of current income and tax documents, described it as receiving $2,842.8 million, while the country recorded a deficit of $116.8 million (3.9%).

Another key point is that the general state budget ($30,690.4 million) for fiscal year 2024 was approved under the assumption that only 90% of the budget will be implemented.

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As he could find out Panama star, all these factors must be met to achieve the 2% deficit target by the end of the year; And revising the budget should result in “strong cuts to many agencies” because expected collections have not been made and significant debts remain.

For the MEF, meeting the deficit target means the country must not downgrade its risk rating at Moody’s and Standard & Poor’s.

From the MEF they noted that Minister Chapman emphasized the need to “maximize the efficiency of the limited resources available”. Therefore, reducing the budget of some ministries is one of the options being considered.

Institutions likely to be affected by the cuts: National Assembly, Ministry of Economy, Ministry of Labor and Workforce Development and Ministry of Housing and Regional Planning.

While these efforts are necessary, there is an important debate on establishing the best mechanisms to increase tax collection. “There are many sectors that don’t pay tax here, that’s what needs to be analyzed,” our sources allege, who are skeptical about the size of the cut that should be applied, because, although some assure that it should be ” strong” others believe that it is not that big. “From 2.4% “Going up to 2% is not very big, it’s a matter of companies eliminating unnecessary or non-priority costs, while reducing wages,” charged Alan Corbett, a financier and post-doctoral assistant at the Faculty of Economics at the University of Panama.

Corbett pointed out that “this government has not given up on bad things as many people believe, there are many ways to reduce the deficit, it’s just drawing or eliminating programs.”

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