*Panama’s President José Raúl Mulino has welcomed the 12 November decision by international credit ratings agency Moody’s to affirm Panama’s long-term rating at Baa3 – within investment grade. However, Moody’s did not change the outlook, which was changed to negative in November 2024, due to “significant fiscal deterioration that year and the identified risks to the Mulino administration’s proposed fiscal consolidation initiatives”. In a statement, Moody’s attributed its decision to maintain the negative outlook to the fact that “ongoing risks for the fiscal consolidation process persist, primarily due to budgetary rigidities and low revenue collection”. It states that “budgetary rigidities stem from lingering pension pressures, legislation mandating that education expenditures account for 7% of GDP, laws dictating salary increases, and persistent inefficiencies in subsidy allocation”. It adds that “spending constraints are further exacerbated by Panama’s narrow government revenue base, driven by tax exemptions and widespread evasion”, noting that “tax income steadily declined to less than 7% of GDP in 2024 from 11% in 2010”. However, Moody’s highlights that contingent liability risks that might have otherwise adversely affected Panama’s fiscal position have been mitigated due to a pension reform promulgated in March 2025 and an agreement reached with companies linked to the Cobre Panamá mining project, which was shuttered in 2023. Moody’s notes that whilst companies linked to the project began litigation with claims totalling about US$27bn (exceeding 25% of Panama’s GDP), these proceedings have been suspended after the Mulino administration had reached agreements with these parties.
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