LatinNews Daily - 02 April 2024

*International credit ratings agency Fitch Ratings has downgraded Panama's Long-Term Foreign Currency Issuer Default Rating (IDR) to ‘BB+’ from ‘BBB-’, which represents a loss of its investment grade. The credit ratings agency said that its decision owes to “fiscal and governance challenges that have been aggravated by the events surrounding closure of the country's largest mine” – a reference to the closure of copper mine Cobre Panamá after Panama’s supreme court struck down a contract with Canada’s First Quantum Minerals (FQM) in November 2023 for its operation. According to Fitch, “large fiscal deficits and revenue underperformance have driven some of the largest rises in government debt/GDP and interest/revenues among peers since 2019” before the coronavirus (Covid-19) pandemic. Fitch highlights that the shutdown of the mine will “significantly dent growth this year, given it represents around 5% of GDP (via direct and indirect effects) and 7% of current external receipts”. The credit ratings agency adds that this will also “deprive the government of 0.5%-of-GDP in expected annual royalties and raises the threat of a costly arbitration”. Fitch projects gross general government debt will jump to 60.7% of GDP in 2024 and expects GDP growth, which came in at 7.3% in 2023, will slow to 1.5% in 2024 due to the impact of the mine closure and “a moderate impact from the drought”. Fitch’s base case is for growth returning to 4.5% in 2025.