Fitch  moves Panama outlook from stable to negative

 
1,292Views 2Comments Posted 07/02/2020

The Fitch rating agency has revised negatively the perspective of Panama's debt rating. The review reflects the "marked deterioration in fiscal deficits and the significant increase in government debt levels, linked to the commitments carried out by the previous administration and by higher levels of the fiscal deficit under a modified fiscal social responsibility law."

In addition, a greater than anticipated slowdown creates additional challenges for deficit reduction. The agency maintained Panama's rating level at BBB, but the outlook goes from stable to negative, which could be the prelude to a downgrade in the rating.

 The review reflects the "marked deterioration in fiscal deficits and the significant increase in government debt levels, linked to the commitments carried out by the previous administration and higher levels of the fiscal deficit under a modified fiscal social responsibility law," said. the agency.

In addition, a greater than anticipated slowdown creates additional challenges for deficit reduction. Fitch notes, in a Thursday, February 6statement that the administration of Laurentino Cortizo revealed that in the previous government, debt accumulation and discretionary management were used to meet deficit limits. The debts carried forward, equivalent to 1.8% of the gross domestic product (GDP), were settled through the issuance of debt, and accounting will be allocated to the years in which the commitments were acquired, which will raise the deficits recorded in the previous years .

The agency recalls that the new administration raised the fiscal deficit limit to 3.5% of GDP, which qualifies as a weak starting point for planned fiscal consolidation or deficit reduction, a consequence of the "weak credibility of fiscal policy. in past administrations, an issue previously highlighted by Fitch. " Being a dollarized country and having no independent monetary policy, "improving the strength and credibility of the fiscal framework is particularly important for Panama's risk rating," the agency says. The last change in the deficit limits (from 2% to 3.5%) occurred just one year after a similar movement in 2018. "The modification of the deficit ceilings in the fiscal rule follows a pattern that lasts a decade of postponement of the objectives of consolidation and stabilization of public debt, despite high growth rates. "

 Usually, the higher the risk rating of a country, the better interest rates it gets on its debt issues. An eventual reduction in Panama's ratings could, therefore, mean that the country must pay higher interest rates.

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Comments 2

user
Karl

Cortizo is a debt baron. As a farmer he always used to wait for government payment and so his policies in the new administration. Varela was not better. Raising the debts from 2% over 3% to 3.5% is deadly for a healty economy. Extrem high unemployment rates obsiously doesn't scare even the new administration. Guys your 2. canal line doubles the income who is it ? and why do you increase the debts ? The real estate market is in a free fall could you please wake up soon ?

4 months ago
user
Panama

Panama like everybody else needs to libe within their means .the world economy is tanking reguardless of what the US wants you to believe and you can see this in the Fed buying 60 billion in T Bills every month and also pumping billions in the REPO market daily .where it says the rating is BBB thats one step above junk .so everyone including every country needs to get their house in order

4 months ago
The comments are the responsibility of each author who freely expresses his opinion and not that of Newsroom Panama.
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