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Panama/World Bank: Nearly 20 Percent Increase in Tax Revenues to Boost Social Programs

May 4, 2011

Funds will modernize infrastructure and enhance safety net, reducing inequality and benefiting up to 800,000 students by 2012

WASHINGTON, May 4, 2011 – The World Bank Board of Directors approved a new US$100 million policy loan for Panama. The main purpose of this operation is to help the country consolidate the economy’s strong growth, improving tax collection, and expanding key social programs.

Panama’s economy has been a top performer in Latin America in recent years, and in order to consolidate its dynamic growth, the Administration of President Ricardo Martinelli has put forward an ambitious public investment plan that aims at modernizing the country’s public infrastructure.  The plan requires additional public revenue to which this operation will contribute by eliminating tax loopholes and exemptions while reducing tax rates.

The Central Government’s goal is to raise its tax revenue to at least 12.8 percent of Gross Domestic Product (GDP) in 2011 and 13.1 percent in 2013 – more than a two percentage point increase from the 11 percent of GDP collected in 2009.

These improvements will be tightly integrated into a more transparent and efficient government, with World Bank assistance focused on strengthening the Government’s financial management and public procurement systems.

“This operation will support key elements of our strategic plan to mobilize financial resources, while modernizing our public sector and ensuring that growth benefits all sectors of the population,” said Mahesh Khemlani, Director of Public Credit at the Ministry of Economy and Finance of Panama. “It will also help improve the efficiency and the modernization of Panama’s financial management institutions and procurement system, assuring a transparent and coordinated implementation of the Martinelli Administration’s ambitious public investment plan.”

During a meeting here last week with President Martinelli, World Bank Group President Robert B. Zoellick praised Panama’s impressive economic growth. He also noted Panamanian efforts to address recommendations made by the Organization for Economic Cooperation and Development's Global Forum on Transparency and Exchange of Information for Tax Purposes. These efforts will be further assisted by the World Bank’s new development policy loan.

“The World Bank supports Panama's efforts to consolidate economic growth. In particularly, the Bank is assisting with the government’s goals to expand social programs and improve the efficiency of the public sector through different vehicles, including lending operations such as this new US$100 million loan,” said Felipe Jaramillo, Country Director for Central America at the World Bank.

By strengthening its fiscal position, the government will be able not only to finance the public investment program but also to enhance social programs. In particular, measures supported by this new loan will help make the following three social protection programs more effective:

  • Beca Universal – A universal scholarship program for all primary and secondary public school students, potentially benefiting 800,000 by 2012.
  • 100 a los 70 -- A non-contributory pension for the elderly and poor to assist Panamanians aged 70 or older, who are not covered by a pension fund.
  • n   Red de Oportunidades – Panama’s conditional cash transfer program which channels resources to the poorest mothers, in indigenous and rural areas, to ensure that their children can go to school and receive basic health and nutrition services.

The aforementioned tax reforms and improvements in social protection are likely to benefit primarily the poorest segments of the income distribution. The Gini coefficient, a measure of income inequality, is expected to decline from 0.48 to 0.43 as a result of the implementation of the expanded social programs.

The”First Programmatic Fiscal Management and Efficiency of Expenditures Development Policy Loan” in the amount of US$100 million has a 20-year maturity period, including a 3-year grace period.



Media Contacts
In Washington DC
Marcela Sánchez-Bender
Tel : +(1) 202-473-5863
In Central America
Cesar León
Tel : +(502) 2329-8063