Fitch Ratings reaffirms Panama's BB+ rating with a stable outlook
Fitch Ratings has reaffirmed Panama's BB+ rating with a stable outlook, based on a high Gross Domestic Product (GDP) per capita, low inflation, and macro-financial stability supported by the country's dollarization, as well as solid medium-term growth prospects, focused on logistics activities and the Panama Canal, a key strategic asset for the Panamanian economy.
Source: Telemetro
MEF reveals that in public finances, Fitch forecasts that the Non-Financial Public Sector (NFPS) deficit will increase to 7.0% of GDP in 2024.
However, Fitch points out that the country's positive aspects are offset by several economic challenges, including:
Deficiencies in governance and public finances.
A narrow and eroded public revenue base.
High public debt and a growing interest burden.
Reliance on external markets to finance the fiscal deficit.
The report also highlights that the administration of President José Raúl Mulino, who took office on July 1, 2024, inherited several challenges, including the growing deficit in the social security system. This deficit is being addressed through an ongoing reform of the social security system (CSS), which is currently undergoing public consultation in the National Assembly.
Economic projections according to Fitch Ratings
Fitch projects that real GDP growth will slow to 2.8% in 2024, from 7.4% in 2023, due to a natural slowdown after the post-pandemic recovery, although it is noted that the impact of the mine closure was less than anticipated, and non-mining activities continue to grow in line with expectations, around 4.5%.
Regarding public finances, Fitch forecasts that the Non-Financial Public Sector (NFPS) deficit will increase to 7.0% of GDP in 2024, from 3.0% in 2023. This deficit is subject to uncertainties depending on the accounts payable that the government manages to settle this year.
Fitch also estimates that gross public debt could reach 63.5% of GDP at the end of 2024, an increase from 56.9% at the end of 2023. In addition, the interest-to-income ratio would increase to 19.1%, which affects the country's ability to maintain an investment grade rating.
Fiscal measures and government commitment
The Minister of Economy and Finance, Felipe Chapman, has reaffirmed the government's commitment to fiscal discipline, stressing that the fiscal deterioration mentioned by Fitch affects all sectors of the country. In this regard, the importance of maintaining responsible regulatory frameworks that guarantee economic stability and the well-being of the population is emphasized.
Fitch has reiterated the need to strengthen the credibility and predictability of fiscal policy, with the aim of reducing the debt-to-GDP and interest-to-income ratio in the long term, as part of a gradual fiscal consolidation to reach a deficit of 4% of GDP in 2025 and reduce it to 1.5% in 2030.