|Additionally, two important institutional arrangements in the fiscal arena are the Social Fiscal Responsibility Law (SFRL) and a sovereign wealth fund (Fondo de Ahorro de Panama, or FAP), although they have had a limited and somewhat questionable track-record. Over the past few years, authorities have repeatedly circumvented the deficit ceiling defined by the SFRL through a series of waivers and changes.
While we recognize that policy flexibility is required to respond to special conditions, the frequency of changes and waivers to the fiscal rule reaffirms our view that Panama's fiscal arrangements lack credibility and, consequently, fail to enhance policy predictability. Until the government establishes a track record of strict adherence to the terms of these fiscal controls, they will provide limited credit enhancement. Moreover, we do not expect the sovereign wealth fund to generate significant net savings.....................................Full Article: Source