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Panama will strengthen fiscal policy and increase transparency

A $200 million IDB loan will support the implementation of a modern fiscal policy framework based on best international practices

Panama will reform its tax administration and improve its public expenditure management with a $200 million loan approved by the Inter-American Development Bank (IDB).

The program will support reforms to improve the country’s medium- and long-term investment program, budget sustainability, treasury management, deepen local public debt markets, and modernize financial accounting in the public sector. This operation, the first of four policy-based loans, will be disbursed in a single tranche.

With this operation, the country is expected to implement the approved tax reform legislation introduced in 2010, paving the way for an increase in tax revenues and improvement in the quality and equity of the tax system. The reform includes the modernization of international taxation policy; creation of a Tax Appeals Tribunal; design of a large taxpayer unit in the General Revenue Department; and approval of regulations to deploy fiscal printers.

The program will also support the consolidation of public finance management. The new system, which will follow prudential and transparency criteria set by the Social and Fiscal Responsibility Law, will integrate processes, including investment programming, budgetary management, cash management, public debt management, and government accounting.

This project is expected to help Panama:

  • maintain a stable macroeconomic policy framework;
  • increase tax revenue and improve equity of the tax system
  • provide greater international tax transparency and coordination;
  • modernize the tax inspection, auditing, and collection processes
  • strengthen monitoring and evaluation of the 5-year government investment plan to create a Single Treasury Account
  • adopt a multiyear result-based budgetary management process;
  • deepen domestic public debt markets;
  • create an automatic, on-line public accounting system

The program is the result of the long-standing support the IDB has provided Panama to continuously improve its public financial management, a process that has been led by the Ministry of Economy and Finance.

The IDB loan is for a 20-year term, with a 5-year grace period and an interest rate based on LIBOR.

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