Panama’s Ministry of Economy and Finance reported a significant improvement in the nation’s fiscal health for the year 2025. The country closed the fiscal year with a Fiscal Deficit of 3.68 percent of its Gross Domestic Product (GDP), marking a sharp reduction from the previous year’s figure.
This result represents a nearly 40 percent improvement compared to 2024. The 2024 fiscal deficit had reached 7.35 percent of GDP, equivalent to $6.416 billion. The 2025 performance not only beat the government’s own target of 4 percent but also surpassed projections from financial markets and risk rating agencies, which had anticipated a deficit of at least 4.4 percent.
Officials Cite Growth Amid Fiscal Correction
Economy and Finance Minister Felipe Chapman emphasized that the fiscal correction was achieved without stalling economic activity. He stated that public investment and priority social spending were maintained throughout the year. Panama’s economy grew close to 4.0 percent in 2025, outperforming the regional average.
“The correction of the imbalance was achieved without slowing economic activity or sacrificing public investment or priority social spending,” said Minister Felipe Chapman. [Translated from Spanish]
Growth drivers included the transportation and logistics, financial services, commerce, and construction sectors. Authorities noted this resilience occurred despite a volatile international environment and the implementation of structural reforms like the pension system overhaul.
Revenue Gains and Spending Discipline
A dual strategy of increased revenue collection and controlled spending underpinned the fiscal consolidation. Public revenues grew by 6.9 percent, fueled by a 9.0 percent rise in tax collection. Direct taxes saw a particularly strong increase of 14.4 percent. The ministry attributed this performance to a more modern tax administration using advanced technology and risk-based audits.
On the expenditure side, Central Government spending fell by almost 6 percent. Total non-financial public sector spending dropped 5.3 percent. Officials insist these cuts did not affect essential public services. More than 80 percent of public expenditure remained directed toward health, education, and social protection programs.
Capital investment spending actually reached $3.631 billion. These funds were channeled into road infrastructure, health, potable water, transportation, education, and strategic projects. The government’s current savings balance also turned positive, reaching a surplus of 0.04 percent of GDP. This shift means the state began financing its operations with its own resources rather than relying solely on new debt.
Public Debt and Future Implications
Despite the improved deficit, Panama’s total Public Debt stock increased slightly. It closed December 2025 at $59.349 billion, up $444.7 million from the previous year. The fiscal progress, however, positively influenced debt metrics. The country’s risk premium fell by over 54 percent.
The weighted average effective interest rate on public debt dropped to 4.97 percent. These improved conditions generated estimated savings of $475 million in interest payments. That amount is nearly half the annual subsidy received by the Social Security Fund’s pension system. The government also slashed its accounts payable by more than $900 million, a 46 percent reduction that improved liquidity for suppliers, especially small and medium-sized enterprises.
The recent fiscal tightening follows a period of significant debt accumulation. From December 2019 to December 2024, public debt grew by $22.718 billion, a 73 percent increase in just five years. The current administration’s goal is to stabilize this trajectory while fostering economic growth. Managing the ongoing fiscal deficit remains a central challenge for the gobierno central as it looks toward the 2026 budget.