Panama’s credit rating at risk – Goldman Sachs

Panama runs the risk of being downgraded in its credit rating, the investment bank Goldman Sachs warned in a recent report.

“With a negative outlook and a median rating of BBB- Panama is at risk of being downgraded due to the impact of the closure of the Cobre Panamá mine, which will likely affect the country’s economic growth and fiscal balance,” it said in an investment banking report.

Goldman Sachs recalled that the low performance of sovereign bonds began at the end of last year, after the closure of the mine.

“A pause in production will likely hurt Panama’s economic activity, as the mine’s production represented 5% of GDP and 75% of its goods exports.”

Currently, S&P rates Panama as BBB with a negative outlook (as of November 7); Moody’s downgraded the country to Baa3 with a stable outlook on October 31, and Fitch maintains a BBB rating but revised its outlook to negative on September 29.

Goldman Sachs warns that Panama is in a precarious position facing a possible downgrade of its credit rating, due to a combination of economic and political factors.

The situation is worsening with the proximity of the presidential elections, scheduled for May 5, and the uncertainty surrounding the future of the country’s mine.

Goldman Sachs highlights that a downgrade of Panama’s credit rating from investment grade to speculative grade could have negative consequences on financial markets, increasing borrowing costs and reducing investor confidence.

The investment bank warns that, although the market has already begun to discount part of this risk, volatility could increase in the coming months as the elections approach and more details about the future of the country’s economic policy become known.

Reactions
Given this report, the Chamber of Commerce, Industries, and Agriculture of Panama (Cciap) said that the presidential candidates must present specific economic proposals that allow the country to improve its fiscal situation.

“After, in the last quarter of the year, the credit rating agency Fitch Ratings will change Panama’s outlook from stable to negative, this week the opinions of this organization and the US investment bank Goldman Sachs are added, where they warn investors the country’s risk of losing its investment grade as a result of its economic prospects and fiscal balance. Beyond the fact that Panama will actually have lower growth in 2024 (3%), it is worrying that once again the alerts are raised about the country’s fiscal situation,” the union indicated.