Mining conflict worries economic growth

The conflict between the Government and First Quantum Minerals has escalated uncertainty about the growth and current account deficit of the Panamanian economy, according to a report by Fitch Ratings, a risk assessment agency.

According to the rating agency, Panama has met its fiscal deficit forecast for 2022. but meeting increasingly restrictive targets will be challenging in the absence of a clear consolidation strategy, to which is added the conflict in the mining issue.

Fitch Ratings’ perspective is that the dispute will be resolved this year, which would increase tax collections with $375 million to be processed from the contribution that Cobre Panamá would make, consolidating it as the second taxpayer company in the treasury, after Canal de Panama.

Indeed, Fitch expects the one-time revenue from the sale of government land to the Panama Canal ($550 million) to improve the fiscal balance for 2023.

However, he points out that the premise about the mining company is uncertain, “due to the lack of information about the negotiations”.

The rating agency pointed out that reaching the fiscal deficit of 3.93%, according to preliminary data released on February 15, this was possible because Panama made a planned adjustment to the gross domestic product (GDP) reading from 2007 to 2018.

The deficit of the non-financial public sector (NFPS) in 2022 was reduced to 3.4 billion USD, and the debt 1.5% to 58.6% of GDP, when in 2020, a year without productivity due to the pandemic, it reached 68%.

On the other hand, a “cash flow swap”, a transaction that serves to protect against risk and optimize returns, executed with a commercial bank, reduced the government’s interest payments.

The last representative of the government to speak on this topic was personally the president Laurentino Cortizo, over the weekend, during a visit to Veraguas, from where he stated that talks with First Quantum Minerals were in the “last stretch” to reach an agreement, as if trying to calm the uncertainty that exists in all sectors over this conflict.

The president admitted that the current situation creates uncertainty, but reminded that it is on his shoulders to guarantee that the contract is positive for the country.

For consultant René Quevedo, with this report Fitch reiterates its confidence in the country, but clearly warns of aspects that must be improved in the short term in order to maintain it.

And the aspects that need to be improved are the definition of a clear fiscal consolidation strategy, and that the negotiations between Minera Panama and the Government end with the signing of a new contract.

Otherwise, Quevedo is optimistic because, unlike Moody’s and Standard & Poor’s, Fitch has kept the outlook for Panama’s sovereign debt stable.

“In its report dated January 28, 2022, the rating agency raised the stated outlook from Negative to Stable, giving Canal revenues and mining exports a leading role in economic growth and consolidation of public finances,” he stated.