Martinelli spending legacy strain on economy

Martinelli spending legacy strain on economy
THE FINANCIAL strain on Panama’s economy, left by the outgoing Martinelli administration tighter than originally visualized, exacerbated by spending in the last six months exceeding income.

The public debt was reported to be around $ 18 billion by the end of this year, plus commitments payable to turnkey contracts for more than $ 4billion the government added extra credits in the first half of the year, and according to sources in the incoming administration, they did not always have financial backing reports La Prensa.
Furthermore, the macro-fiscal projections for the next five years, the Ministry of Economy and Finance (MEF) proposed an adjustments scheme for the fiscal deficit that, in practice, could lead to increased indebtedness for the country.
The new director of Public Policy at the MEF, Gustavo Valderrama, told La Prensa that “it is not that the country is not capable of achieving additional debt, because it is, but there is a Fiscal Responsibility Law that must be met. For this year 2014, and according to figures that are facing the incoming government they will have an important task: finding savings to achieve the 2.7% fiscal deficit.”

Increased pressure could come because of the adoption of extraordinary loans in recent months by the Martinelli government. “We have seen that the government has used extraordinary credits for about $500 million by those who had no financial justification to commit that extra amount when current state revenues are slightly below budget. Specifically, in the first quarter, current income did not cover the $200.4 million budget.” The incoming administration believes there was little respect for the Fiscal Responsibility Act (LRSF) by the team under the command of former Minister Frank De Lima. “We fear that it is in breach of an LRSF article that says that in the last six months of government, expenditure can only be 50% of the budget, and it cannot commit to spending money it does not have, Valderrama said.

Compliance with fiscal targets this year (the law sets a deficit limit of 2.7% of GDP) will depend on the level of budget execution and the ability to generate savings by the incoming administration, said the director of Public Policy
The most difficult years to meet the commitments made by the government of Ricardo Martinelli will be 2014 and 2015. The level of spending for next year, which in the medium term fiscal framework for 2015-2019, submitted by the MEF in April, lists the fiscal deficit for 2015 at $.931 billion, equivalent to 3.7% gross domestic product (GDP), and therefore would be above the limit established for that year LRSF (2%).
However, the MEF introduced its projections to balance the books adjustment using a space generated by a Panama Canal contributions of less than 3.5% of GDP.
The legal basis is the law that created the Panama Savings Fund in 2012., which in turn changed the Social Fiscal Responsibility Act, so that when the Canal contributions are less than 3.5% of GDP the difference to 3.5% deficit is subtracted from the fund to obtain the adjusted fiscal balance.
This formula, which was not publicly explained by former Minister De Lima, allowed the country “to go into debt for that surplus”