Massive injection for Panamas economy helps stabilize credit rating

STANDARD & POOR’S Ratings Services (S&P) has affirmed its ‘BBB/A-2’ rating for Panama, declaring that the long-term rating outlook is stable. The affirmation followed the election of the new administration led by President Juan Carlos Varela.

Meanwhile the biggest ever investment in the country is quietly moving into high gear.
The S&P report says that Varela inherited a slowing economy and a deteriorating fiscal balance. He also has to deal with growing regulatory challenges to Panama’s large financial sector.
“We expect that the Varela administration will maintain Panama’s generally pro-business, pragmatic approach to economic policies, which has served it well in recent years by attracting investment and sustaining high rates of economic growth.
“We expect the government to moderately tighten fiscal policy in the next couple of years, in line with somewhat lower GDP growth prospects, resulting in a stable debt burden.”
The report also says: “We could raise the rating if continued favorable GDP growth prospects result in a more resilient and prosperous economy with a declining debt burden and diminished vulnerability to external shocks.”
With the Panama Canal expansion project nearing completion the government will be looking to major investors to take up the slack and create new and lasting job opportunities.
Minera Panama is well positioned to be a major player in ensuring this. Minera Panamá is owned by First Quantum Minerals which operates seven mines worldwide and is developing five others, including Cobre Panama in Colon, the largest project of its kind in the world, scheduled to operate in 2017.

 It will be extracting hundreds of thousands of tons of copper and gold each year for shipment from a new port, which is part of the construction project that is already boosting the country’s growth.
Its early direct and indirect impact will make a staggering contribution to the economy of $13.7 billion over the next five years.
Todd Clewett the mining company’s Panama manager is confident that Minera Panamá, whose direct development budget of $6.4 billion exceeds that of the canal expansion is one of the companies to help fulfill the expectations of Varela and S&P.

Clewett who grew up in a mining community in his native Australia points out that there will be some 2,300 jobs rising to over 7,000  during the construction  period of the mine’s power and processing plants, a port,and roadworks, bridges and infrastructure.

 When completed  there will be a permanent labor force of more than 2,000 over the 34 years anticipated life of the mine.

The company is budgeting expenditures of over $6.4 billion, during the construction period, which adds up to more than the cost of the Canal expansion and will be the biggest ever private investment in Panama’ history. $2 billion of that sum will have been spent by by the end of this year and projections show well over $4.4 billion between 2015 and end of construction. The indirect expenditures will bring the total to $13.7 billion over 5 years. From now until 2017 when the mine is scheduled to start operating, the company will be responsible for 16 percent of all construction in the country, pumping money  into Panama’s economy.

Other ancillary benefits include the feeding of surplus power from the mine’s power plant into the national grid, and the development of  training programs for employees, over 90% of who are Panamanian, and more than half from Cocle and Colon. Three schools have been built and there are  400 high school scholarships a year (some $1 million to date). Resources for electrification has  been delivered to nearly 800 rural households. Meanwhile the presence of the project in the regions has seen expansion of local businesses in Cocle and Colon.

The project promises to  more than fill the gap created by the completion of the canal expansion  in 2015, and together with the increased traffic flow through the waterway, , contribute to a growing GDP and a possible further rating upgrade.