Panama is facing an economic crossroads that requires immediate and structural decisions. Carlos Berguido, president of the Panama Banking Association, recently addressed key issues such as the Social Security Fund (CSS) crisis, rising public debt, and the country’s risk rating outlook. Despite the challenges, there are positive signs with the potential arrival of new banks in Panama, which could strengthen the country’s international image.
The Challenge of Sustainability in the CSS
The Social Security Fund is facing a complicated situation, particularly in the Disability, Old Age, and Death (IVM) program. This system, vital for Panamanians’ social security, is undergoing a structural crisis that, if not addressed, could worsen in the coming years.
Carlos Berguido explained that, in previous decades, five workers contributed to finance the pension of one retiree. However, this ratio has drastically reduced to one contributor for each retiree. This is further compounded by an increased life expectancy, meaning beneficiaries receive pensions for extended periods.
“It is unsustainable to contribute for 25 years and receive benefits for 40,” Berguido stated, highlighting that the imbalance threatens the system’s stability. He says a viable solution is only possible with parametric reforms, including raising the retirement age and increasing contribution rates.
Additionally, the expert emphasized that credit rating agencies closely monitor government decisions regarding the CSS. The sustainability of this system is not only a local concern but also has international repercussions, as it can affect the perception of the country’s economic stability.
Public Debt and Finances Under Scrutiny
Another significant issue is Panama’s public debt, which has surpassed 60% of Gross Domestic Product (GDP). Although the country still maintains its investment-grade rating, fiscal stability is at risk. “The deficit and the level of debt are aspects that the rating agencies are closely monitoring,” warned Berguido.
One of the three major rating agencies recently downgraded Panama’s credit rating, while the other two issued negative outlooks for the country’s future. According to Berguido, this situation is partly due to the approval of national budgets, including high levels of spending financed by debt without clear signs of fiscal discipline.
The impact of a potential loss of the investment-grade rating would be significant. Panama would face higher borrowing costs, making it harder to access international markets and raising local interest rates. This, in turn, could affect foreign investment and the country’s reputation as a reliable business destination.
New Banks Will Arrive in Panama: A Positive Outlook for the Financial Sector
Amid these challenges, a positive development is emerging for the financial sector: the potential arrival of three new banks in Panama. Although Berguido did not reveal specific details, he highlighted the importance of improving the country’s international image to attract investment and strengthen its financial system.
“I don’t know if their arrival is related to Panama’s removal from gray lists, but improving our international image is key,” he noted. Panama’s inclusion on lists of countries lacking in combating money laundering and terrorism financing has been a barrier in recent years. However, progress in this area has generated optimism, and the arrival of new banks in Panama is a sign of renewed confidence in the market.
The diversification of the financial sector could also bring additional benefits, such as increased competition, more accessible services for consumers, and a stronger foundation for the country’s economy. The new banks will arrive in Panama, contributing to these advancements and offering fresh perspectives.
Interconnection Between Economic Issues
Berguido stressed that the problems with the CSS and public finances should not be considered in isolation. The pension system’s unsustainability and the high level of public debt are closely intertwined, and resolving them requires a comprehensive approach.
For example, an unsustainable CSS could increase the government’s fiscal burden, limiting its ability to meet financial commitments. Likewise, a weak fiscal environment could hinder the implementation of necessary reforms in the CSS, creating a vicious cycle of economic instability.
Opportunities and the Path Forward
Despite the challenges, Berguido expressed confidence that Panama can overcome these obstacles by making timely and structural decisions. “We can’t keep postponing fundamental decisions regarding the CSS and public finances,” he stated.
In the CSS’s case, parametric reforms are an unavoidable necessity. In addition to raising the retirement age, expanding the contributor base through policies that encourage formal employment could be considered.
Regarding public finances, Berguido emphasized the importance of sending clear signals to international markets. This includes implementing responsible fiscal policies and gradually reducing the deficit.
New Banks Will Arrive in Panama: A Path to Economic Stability
Although the challenges are significant, the potential arrival of new banks and progress in exiting gray lists offer hope for Panama’s economic future. The new banks will arrive in Panama at a crucial time, helping to stabilize the financial sector. Berguido concluded by emphasizing that the sustainability of the CSS and fiscal stability are essential for the country’s economic development and maintaining international market confidence.
With the right decisions, Panama has the potential to strengthen its position as a key financial hub in the region and ensure sustainable long-term growth. As new banks will arrive in Panama, the country’s prospects appear increasingly promising.