The closure of the mine increases Panama’s credit pressure

The closure of Cobra Panamá increased pressure to downgrade the country’s ‘BBB-‘ rating, it added existing tax challengeswhich affects short-term growth prospects and exposes governance weaknesses, risk rating agency Fitch warned this Friday.

According to the rating agency, public finances remain structurally weak, amid rising interest costs, spending pressures and weak tax revenues.

He adds that the foundations are in charge in exceptional maneuvers to achieve fiscal goalsand adopted measures that could worsen rather than improve the underlying trend.

The closure of Cobra Panama and social unrest in October and November exacerbate these challenges. This prompted Fitch to cut its growth projection for 2024 from 4.5% to 1.5%.

The 2024 budget foresees an increase in revenue and authorizes a further increase in spending, which would imply a wider deficit of 5.6% of GDP if fully implemented, but assumes that significant under-implementation will reduce this deficit to a legally lower limit of 2%.

The original budget proposal called for a deficit of 6.7 percent of GDP before underexecution, but it was revised late last year to reduce spending.

Fitch argues that it is not clear cHow much fiscal improvement will this review produce? Since the budget was already so under-executed, reductions in authorized spending may have a limited effect on actual spending.

The credit rating agency points out that the abolition of fuel subsidies and the Vale Digital social transfer provided against the pandemic will offer significant savings of around 0.8% of GDP.

In light of events, including the canal drought, Fitch raised its deficit forecast for 2024 from 4.3% to 4.7% of GDP. The prospects for consolidation will depend on the plans of the next government, after the elections in May.

They also emphasize that no candidate has proposed concrete plans for tax reform to prevail compensation in terms of costs.

“The protests in 2022 and 2023 highlight the difficult context for corrective fiscal measures,” they point out.