Panama formally loses its investment grade

Panama has formally lost its investment grade. This Thursday, Fitch Ratings reported that it downgraded long-term issuer rating in foreign currency, moving from BBB- to BB+. However, the outlook for the rating is stable.

According to the credit rating agency, the downgrade of Panama’s rating to ‘BB+’ reflects fiscal and governance challenges that have been exacerbated by events surrounding the closure of the country’s largest mine.

It added that large fiscal deficits and poor revenue performance had fueled some of the biggest increases in public debt/GDP and peer-to-peer interest/income since 2019 before the pandemic.

“This limited the space for countercyclical policies that were already more limited in the context of dollarization and represents greater vulnerability in light of the sovereign’s strong dependence on external markets for financing“, says the report.

Fitch expects the winner of the May 2024 election to make some efforts to address these fiscal challenges.

But he warns that the expected slowdown in growth, the tense social context and party fragmentation will likely limit the space for decisive action, and it would take time to rebuild fiscal space and credibility.

Offsetting these fiscal and institutional weaknesses and supporting a stable outlook are Panama’s strong medium-term growth prospects, which Fitch currently does not expect to be significantly damaged by the mining episode, and are focused on Panama’s logistics activities and strategic assets. Channel.

High GDP per capita, low inflation and macro-financial stability based on dollarization.

Panama was on the last step of countries with an investment grade, now it is with a speculative grade.

For economist Ernesto Bazan, this is a consequence of poor management of public finances and irresponsible economic management led by Minister Héctor Alexander.