On December 9th 1997 the International Monetary Fund formally approved a SDR120m ($162m) extended fund facility (EFF) to support the government's medium-term economic reform programme over the three years 1998-2000. Panama's previous agreement with the IMF matured in March last year. The objectives of the programme were defined in the press release accompanying the award as to "deepen and broaden structural reforms within the context of continued prudent fiscal policy and low inflation, with the objective of promoting sustainable output and employment growth and reducing poverty" -- the familiar formulation.
The main macroeconomic targets are set out in the table below. In the event the GDP and inflation figures in 1997 were rather better than these projections (see The economy). A significant feature is the acceptance of fiscal deficits through 1997-99. This reflects the initial costs involved in privatisation and pension reform. The hope is that continuing restraint in current spending and the implementation of comprehensive tax reform in late 1999, as well as civil service reform, will allow the budget to return to a modest surplus in 2000. Throughout the period the current- account deficit, expressed as a ratio of GDP, is expected to be running well above the levels of the recent past, because of the import demand generated by rising investment.
Actual and target economic indicators 1996(a) 1997(b) 1998(b) 1999(b) 2000(b) Real GDP growth (%) 2.6 3.4 4.1 4.5 4.8 Consumer price inflation 2.3 1.4 1.7 1.6 1.6 (%; year-end) Fiscal balance ( % of GDP) 0.4 0.7 0.7 0.5 0.6 Current-account balance (% -1.6 -2.9 -3.5 -3.6 -2.4 of GDP) (a) Actual. (b) Projection. Source: IMF Survey.
In a confirmation of the support of the Bretton Woods institutions, the World Bank is to extend a $60m structural adjustment loan, the third such to Panama.