LatinNews Daily - 2 December 2024

*International credit ratings agency Moody’s Ratings has lowered Panama’s credit outlook to negative from stable, due to a “larger-than-expected deterioration of the fiscal balance in 2024 and significant hurdles to deliver rapid fiscal consolidation”. Despite noting willingness from President José Raúl Mulino’s government to address structural fiscal challenges, as evidenced by the ongoing pension reform discussions, the ratings agency warned of “underlying budgetary rigidities that could limit the authorities’ ability to materially reduce fiscal deficits and stabilise the debt metrics”, consequently undermining the credibility of fiscal policy and contributing to higher borrowing costs. Moody’s added that additional credit risks stem from potential future liabilities associated with the social security entity (Caja de Seguro Social, CSS), which Mulino is attempting to reform, as well as litigation related to the Cobre Panamá copper mine, which was closed down last year. Moody’s reaffirmed Panama’s credit rating at Baa3, the lowest investment-grade score, reflecting the expectation that Panama’s economic growth will remain strong relative to its peers. Moody’s is expecting Panama’s fiscal deficit to exceed 6% of GDP this year, while its debt-to-GDP ratio will approach 61%. This comes as another major credit ratings agency, Standard & Poor’s (S&P), downgraded Panama’s long-term sovereign credit rating to BBB- from BBB, the lowest investment grade level, on 26 November reflecting “the sovereign’s weaker flexibility that increases the vulnerability to economic and fiscal challenges ahead”.