Moody’s: Mine closure will affect Panama’s growth

Credit agency Moody’s said this Wednesday that the cancellation of the contract for the exploitation of the largest open pit copper mine in Central America in Panama, “makes it very likely” that the Central American country does not meet the deficit target this year and in 2024 and that this affects the perspective of gross domestic product (GDP) growth.

Failure Supreme Court of Justice (CSJ) which declared unconstitutional the legal contract which extended for 20 years the concession for the exploitation of the Cobre Panamá mine, which is managed by the company Mining of Panamasubsidiary of Canada’s First Quantum Minerals (FQM), may also affect “investor confidence”, the risk assessment agency indicated.

Sheet Panamanian copper It is an investment of approx 10 billion dollars which creates the eye 7,000 direct and 40,000 indirect jobsan operation that represents 4.8% of GDP and 75% of the country’s exports, according to company data.

The Law 406of the Mining Law Agreement, approved on October 20 by the unicameral parliament and the executive branch of the president Laurentino Cortizo, violated 25 articles of the Constitution of Panamaaccording to the Supreme Court decision released Tuesday, a day after it was unanimously approved by a plenary session of nine judges.

On the same Tuesday, President Cortizo announced that after the official receipt of the court verdict, the Government will begin the transition process to close the mine, Moody’s recalled.

The rating agency indicated that Cortizo Executive expects Cobre Panamá to “become its second largest source of revenue after Panama Canal“, with the expected income in 770 million dollars or 0.9% of GDP in 2023 and $375 million annually from 2024 (0.4% of GDP that year).

But “without these revenues, the government will have difficulty reaching the target deficit limit of 3% of GDP” in 2023, and the indicator is likely to “exceed the upper limit of 2% in 2024,” the rating agency said.

The cost of mining conflict

The general rejection of the mining contract plunged Panama into a serious crisis that erupted on October 23, leaving losses estimated at 1.7 billion dollars due to road blockades that interrupted the national logistics chain and affected the Central American one.

“The protests disrupted economic activity and caused more than $1.7 billion in losses, potentially reducing GDP growth by 1% in 2023,” said Moody’s, which recalled that its growth forecast for the country this year was 6%. of GDP before the crisis.

The economic fallout from the contract controversy “could affect Panama in the long term,” given the recent approval of a mining moratorium, he added.

On October 31, Moody’s downgraded Panama from Baa2 to Baa3 and changed the outlook from negative to stable, the latter based on “solid economic growth” expected in “the coming years, with annual rates in the range of 4% – 5%”, which offered key support for the country’s credit profile.

“The cancellation of the contract is negative for the government’s credit,” the rating agency said this Wednesday.