Financial Crime World

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Financial Institution Risk Assessment in Panama

A recent report has highlighted the strengths and weaknesses of Panama’s financial landscape, with the country boasting a robust economy, fully dollarized, and a regional banking and financial center served by excellent telecommunications. However, the report also points out several challenges that may affect corporate payment behavior and debt collection.

Business Climate Rating

Panama’s business climate rating is A4, indicating an acceptable but occasionally unstable environment. Corporate financial information can be difficult to obtain, and the institutional framework has shortcomings, which may lead to difficulties in intercompany transactions.

Economy

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Panama’s economy is expected to remain robust, with GDP growth outpacing the regional average. Tourism, which accounts for 15% of GDP, will rebound in 2022, boosted by progress made in dealing with the COVID-19 health crisis. The Panama Canal, a major contributor to the country’s economy, will also experience increased activity as world trade remains robust.

Weaknesses

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However, the report highlights several weaknesses, including:

  • High exposure to North and South American economic conditions
  • Low budget revenues
  • Gaps in education and vocational training
  • Large social and economic disparities between the canal area and the rest of the country
  • Corruption and cronyism
  • Bureaucracy

Government Investments

The government has announced significant public investments, including:

  • Infrastructure projects such as the extension of line 1 of the capital’s Metro and the construction of line 3
  • A bright expansion in mining and quarrying, driven by rising production at the Cobre Panamá copper mine

Fiscal Consolidation

Despite slow fiscal consolidation, the budget deficit will continue to narrow in 2022, driven mainly by the ongoing economic resumption and Panama Canal traffic. However, public debt remains high, with 83% of it being external through bond issuance on the market.

Challenges in Fight Against Money Laundering

The country is also facing challenges in its fight against money laundering, with the Financial Action Task Force (FATF) putting it back on its grey list in 2019. The government has adopted OECD reporting standards and criminalized tax evasion, but more needs to be done to strengthen the country’s position as a regional financial center.

Conclusion

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Overall, while Panama presents an attractive investment opportunity, financial institutions must remain vigilant of the risks and challenges facing the country, including political and economic uncertainties, corruption, and bureaucracy.