Panama Inches Towards S&P High Grade

S&P has revised the outlook on Panama’s BB+ rating to positive from stable following fiscal reform and resilience to global crisis. “The positive outlook reflects Panama’s solid growth prospects as well as an improving fiscal outlook that could strengthen the sovereign’s credit profile sufficiently to merit an investment-grade rating,” says S&P analyst Roberto Sifon Arevalo. Tax reform is expected to boost revenues by about 0.75% of GDP and S&P notes commitment to improve revenue generating capacity in order to sustain an ambitious program of public investment without incurring large fiscal deficits. The agency also highlights the fact that Panama is one of the few countries in the region to enjoy positive GDP growth this year, likely around 2.3%. It expects GDP growth to rise to around 4.5% in 2010 and sees support from the canal expansion. The general government deficit is expected to be 2.2% of GDP in 2009 and may decline to 1.8% of GDP in 2010, says S&P. This is expected to contribute to a public sector deficit of 1.8% of GDP in 2009 and 1.4% in 2010, below the maximum 2.5% allowed. S&P predicts general government debt will remain at 40% of GDP in 2009 and 2010.