Panama-External Debt

One of the major legacies of the Torrijos government was a large external debt. In the 1970s, the government relied increasingly on loans, essentially from abroad, to finance capital investments. The external public debt increased from US$150 million at the beginning of 1970 to US$774 million at the end of 1975. External factors, such as the rise in oil price, were partly to blame for the larger debt. By the end of 1978, Panama's external debt was nearly US$1.9 billion, about 80 percent of GDP--one of the highest ratios in the world.

In 1985 the external debt reached US$3.6 billion, or 73.5 percent of GDP, which on a per capita basis (US$1,636) was one of the largest in the world (see table 18, Appendix A). Most of the debt (US$3.27 billion) was long-term in its maturity structure; US$2.13 billion was owed to private creditors and US$1.14 billion to official creditors (US$741 million to multilateral agencies and US$403 million to bilateral sources).

Despite the high level of debt, the debt burden, as measured by the ratio of total interest to GDP, fell from 8.0 percent in 1982 to 6.6 percent in 1985. Several factors helped Panama lower its debt burden. These included the drop in world oil prices and the decline in the average interest rate from a high of 11.4 percent in 1982 to 8.5 percent in 1985. In 1983 the government implemented an economic adjustment program, which, from 1982 to 1985, slowed the annual rate of foreign debt accumulation from 16.4 percent to 6.7 percent and cut the private creditors' share of long-term debt from 72 percent to 65 percent.

Panama has rescheduled its loans from international bank creditors in 1983, 1985, and 1987. In September 1985, the Paris Club (a financial consortium of Western financiers and governments) also agreed to restructure US$19 million in principal repayments. An estimated US$1.2 billion was due between 1987 and 1990. Although the debt was still high in per capita terms, the lowered debt burden enhanced the country's chances of successfully rescheduling its loans.

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The World Bank's Panama: Structural Change and Growth Prospects (1985) is an in-depth analysis of Panama's economy, with an emphasis on policy formulation. For comparative studies, see John Weeks's The Economies of Central America and issues of the Economist Intelligence Unit's Country Profile: Nicaragua, Costa Rica, and Panama. For annual updates of economic activity in Panama, see the Inter-American Development Bank's Economic and Social Progress in Latin America, the International Monetary Fund's Balance of Payments Statistics Yearbooks, and the World Bank's World Development Reports. (For further information and complete citations, see Bibliography.)

Data as of December 1987