Fiscal Law: Reform to the Social Fiscal Responsibility Law

In October 2024, Panama’s National Assembly approved Law 445, which amends the Social Fiscal Responsibility Law. This reform establishes a gradual fiscal adjustment path for Panama’s fiscal deficit, with the purpose of organizing public finances and keeping public debt at manageable levels. The reform comes at a key moment, after years of increased public spending and growing pressure on the national budget.

Fiscal Deficit Limits

4% Deficit in 2025

Beginning in January 2025, the fiscal deficit may not exceed 4% of GDP. This first stage seeks to introduce a moderate adjustment, allowing public institutions to adapt without abruptly affecting the implementation of social programs and investment projects.

Gradual Reduction Between 2026 and 2029

During the 2026–2029 period, the fiscal deficit limit will be reduced progressively. This intermediate stage requires stricter control of public spending and the strengthening of tax collection mechanisms.

1.5% Target by 2030

By the end of 2030, the maximum permitted deficit will be 1.5% of GDP. Reaching this target will require strong fiscal discipline and a sustained balance between public revenues and expenditures.

Impact and Objectives

• Financial Order: With clear limits on the fiscal deficit, the Government will be able to better plan its investments and reduce dependence on external financing.

• Debt Sustainability: Keeping the deficit under control will help maintain public debt at manageable levels and support improvements in the country’s credit rating.

• Investor Confidence: A predictable and transparent fiscal policy strengthens confidence among local and international markets.