Doubts over impact of government austerity moves

Economists and rating agencies have expressed doubts about the impact of austerity measures announced by the Panama government.

The measure that drew the most attention was the start of a process to reduce the public payroll by 10% generating questions over whether it would be a reduction in the number of people or a decrease in the amount of wages paid.

The director of the National Budget, Carlos González, explained that the objective is the reduction in the monthly amount of the payroll.

He said that they took as a basis the spending of the month of April of the “affectable payroll”, that is, the one that is part of the Executive, thus leaving the National Assembly and the Judicial Branch out of the scheme.

The “affectable payroll,” González said, consists of some 220,000 officials and a monthly salary of $356 million. Thus, 10% represents $35.6 million.  The Ministry of Economy and Finance (MEF) expects between August and December 2022 a joint savings of $205 million.

Each institution will be informed of a reduction fee for their spending. This will be done through a worktable in which the MEF itself, the Presidency and the General Directorate of Administrative Careers participate.

González said that the entities will define how to achieve that quota, but that the first alternative will be through the natural rotation of personnel.

The risk rating agencies Moody’s and Fitch have recently pointed out that at this juncture the challenges to meet the deficit goal rise. On the austerity plans, Fitch believes that “it is unlikely that large and rapid savings will be realized through these measures”.