The closure of the Minera Panamá copper mine has reinforced pressure for the rating agency Fitch Ratings to lower Panama's 'BBB-' sovereign rating, adding the closure of the copper mine and its impact on the economy to the challenges existing fiscal structures, which could affect short-term growth prospects and highlight weaknesses in the country's governance.

The warning came on Friday, February 16, in a note issued by Fitch, which in September 2023 revised the rating outlook downward to negative from stable. This occurred before the mine closed last December.

The negative outlook is related to the fact that public finances remain structurally weak, amid rising interest costs, higher expenses, and weak tax revenues.

Accounting ploys
“The authorities have relied on exceptional and accounting maneuvers to meet fiscal objectives,” and have enacted measures that, according to Fitch, could worsen rather than improve the situation.

These include a law to increase education spending to 7% of gross domestic product without certainty of sufficient revenue, in response to the 2022 protests.

Fitch has cut its growth projection for 2024 from 4.5% to 1.5%, the report indicates.

On the other hand, they warn that the Government reported a fiscal deficit of 3% of GDP in 2023, in line with the legal limit, however, this depended on extraordinary income such as land sales to the Panama Canal, royalties from the mine, a tax amnesty and the anticipation of some tax collections for 2024.

Furthermore, “public companies recorded an unprecedented operating surplus, the nature of which is still not entirely clear,” the report warned.

Meanwhile, the serious drought hitting Panama has alerted the country about the possibility of a significant budget deficit that could affect Canal traffic and the economy in general.

The national budget had foreseen an increase in Canal contributions, but economic projections have worsened since then.

In September 2023, the Canal had already anticipated a decrease in its budget, and the forecasts have deteriorated since then.

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