Loss of investment rating ‘not a surprise’

The decision of the rating agency Fitch to downgrade Panama’s debt to BB+, which means the loss of investment grade, did not surprise the market, nor did the economists who warned of this danger and who are again demanding, this time, that the Government that will take office next July will be commitment to fiscal discipline.

In a recent report, Fitch downgraded Panama to BB+ from BBB- and gave it a stable outlook, the latter given the country’s “solid medium-term growth prospects” focused “on Panama’s logistics activities and strategic assets.” , Interoceanic Channel.

Just as Fitch was the first agency to assign an investment grade to Panama, which happened in March 2010 thanks to a positive trend in credit metrics since 2005, it claimed at the time, it is now also the first to withdraw it, citing “fiscal and management challenges” exacerbated by the social context that led to the closure of a large copper mine.

An unsurprising outcome in Panama
Panamanian economist and professor Felipe Argote assured EFE that Fitch’s decision “doesn’t come as a surprise”, because a few weeks ago the government issued bonds for 3,000 million dollars at a rate of 7.98 percent, at the beginning of Laurentin Cortiz’s presidential term, in July 2019. .this coupon was 3.19% and 3.8% on the $2 billion global bond mission.

“What this tells you is that the market has already decided that Panama is not investment grade. What the rating agency is doing is simply confirming what the market has already decided,” the savvy economist and businessman added.

The dean of the Faculty of Economics at the State University of Panama, Rolando Gordón, told EFE that in this five-year period “public finances have been very poorly managed”, with an increase in the debt which is already close to 50 billion dollars. when 2019 closed at $24,223.2 million, as one of the biggest issues.

The authorities “did not dare to make the necessary reforms” in the context of low tax collection, unemployment “which remains high” and the social security crisis, the dean said.

“Now we need to see what the other rating agencies say,” S&P and Moody’s, which also assigned an investment grade rating to Panama in May and June 2010, though Fitch “will most likely follow,” Gordon explained.

Effects of loss of investment and desired savings

A government elected on May 5 “is going to have a lot of economic difficulties and needs to act quickly before it loses public confidence,” said Gordon, who agrees with other economists that among the effects of the loss of investment grade are an increase in the cost of money for country and the decline of foreign investment.

The Panamanian bank will certainly “be very cautious because (interest rates) are already high. And it’s a winning bank, so it’s not going to suddenly kill the goose that lays the golden eggs” with more increases that will impact credit more. , he added.

Economist Felipe Chapman told “Noticias de 180 Minutos” that the next government will have to make difficult and unpopular decisions very early to change course.

“The state urgently needs decisions on savings, great fiscal discipline, which means much more efficient payment of taxes,” as well as a review of subsidies and spending, he concluded.

Fitch noted in its report that it “expects that most of the likely winners” of the May 5 general election “will make some efforts to address” fiscal challenges, although it clarifies that the expected slowdown in growth, a tense social context and party fragmentation may limit “the margin for assertive action “.