Fitch lowers Panama’s outlook to Negative

The risk rating agency Fitch Ratings reported s Friday, September 29, that it lowered Panama’s outlook from Stable to Negative.

They explain that the government has relied on accounting maneuvers and one-time measures to reduce the fiscal deficit.

It points out that fuel and electricity subsidies put pressure on the fiscal deficit for 2023 and that the planned increase in spending for 2024 would increase the risk that the debt will continue to increase and warn that the imbalance in the Caja’s defined benefit pension subsystem Social Security is a medium-term risk.

Fitch also mentioned the impact of the mining contract. It noted that the government expects to receive $770 million in royalties from the contract, but that Assembly approval appears doubtful following popular pressure.

These royalties had been contemplated to improve the reserves of the pension system and provide funds for new benefits and infrastructure.

On the other hand, Fitch highlighted Panama’s robust post-pandemic economic growth and anticipates it to be 6.5% by 2023.

For the rating agency, another factor is electoral uncertainty, mentioning that former president Ricardo Martinelli is considered eligible to be president despite having been sentenced to 10 years for money laundering since his appeal is in process.