Ratings agency gives Panama a negative outlook

The risk rating agency Standard & Poor’s (S&P) maintained the risk rating for Panama at BBB but revised the outlook from stable to negative.

The negative outlook, according to the rating agency, reflects the risk of potential damage to investor confidence and future private investments, as a result of the rejection of the contract between the Panamanian State and Minera Panamá.

The strong opposition to the mining contract has generated uncertainty about the fate of the project, whose future is now in the hands of the Supreme Court, where there are up to eight unconstitutionality lawsuits against Law 406 of 2023, which adopted the contract with Minera Panamá. It has also led to a recent moratorium on new metal mining projects. This development could weaken private investment and hamper the country’s long-term growth prospects, a situation that would lead Panama to a rating downgrade in the next 12 months, S&P said.

However, this is not the only factor that intervenes in the rating agency’s perspective. In fact, it adds to other elements that also generate uncertainty.

S&P’s forecasts incorporate the impact on government revenues due to the possible cancellation of the contract with Minera Panamá, as well as possible shortfalls in dividends from the Panama Canal Authority (ACP), due to the impact of the drought on revenues.

On the other hand, the enormous crisis of the exclusively defined benefit Disability, Old Age, and Death (IVM) subsystem of the Social Security Fund (CSS) is unresolved.

“The risk of potentially lower economic growth could exacerbate the deterioration of the finances of the Social Security Fund of Panama. The reserves (from the exclusively defined benefit program) will be exhausted in 2025″, according to Government calculations, resulting in increasing government transfers over time of tax reform.

Panama’s institutional profile incorporates the consolidation of democracy.

That is, they expect the country’s main political parties to share a consensus on key economic policies. “We expect broad policy continuity after the national elections in May next year when current President Laurentino Cortizo ends his five-year term.”