Panama on Upgrade Review

Moody’s has placed Panama’s Ba1 foreign currency government bond rating on review for possible upgrade, taking it closer to reaching investment grade, in response to the country’s significantly improved fiscal and debt positions over the past several years and of a structural upward shift in economic growth. Together with the Panama Canal expansion, intentions to undertake an ambitious infrastructure development program are likely to sustain growth rates in the next few years, says Moody’s. The new administration has announced plans to spend around $14bn over the next five years, or the equivalent of 7.0% of GDP annually, with the aim of further developing Panama’s role as a logistics hub and of diversifying the economy. Moody’s also highlights Panama’s ability to survive the global financial crisis. “Even though GDP growth declined sharply last year, it remained in positive territory at around 3%, according to preliminary estimates,” it says, adding that there was no significant deterioration in government debt metrics. The fiscal deficit came in at just 1.0% of GDP in 2009, well below the 2.5% of GDP limit established by the Fiscal Responsibility Law. S&P and Fitch also have Panama’s ratings just one notch under investment grade with positive outlooks.