S&P Downgrades Panama's Risk Rating

Arguing that due to the pandemic the current revenues of the General Government have been significantly reduced, Standard and Poor's downgraded Panama's sovereign rating from BBB+ to BBB.

Wednesday, November 25, 2020

The increase in total debt interest payments as a proportion of the General Government's current revenues is another factor that the rating agency considered when lowering Panama's rating.

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From the statement of the Ministry of Finance of Panama:

November 24th, 2020. The risk qualifier Standard and Poor's (S&P), maintained the country's investment grade and attractiveness for investors in the midst of a difficult world scenario caused by the Covid-19 pandemic, which affects the economy and public finances. However, it downgraded Panama's sovereign rating from BBB+ to BBB.

S&P supports the decision to lower the rating by increasing total debt interest payments as a proportion of the General Government's current revenues. Due to the pandemic, current government revenues have declined significantly, increasing this indicator. Nevertheless, Panama has made inroads into the international capital markets and has attracted resources at very favorable interest rates compared to other countries.

S&P, highlights that Panama has improved its public debt profile, reducing the risk of refinancing in conjunction with the decrease in the average cost of debt to 4.1% at the end of September 2020, compared to 4.6% at the end of 2019.

Despite the current recession, Standard and Poor's indicates that the economy remains diversified and resilient. The rating is supported by the country's moderate debt burden and prudent debt management.

As the economy continues to open up, S&P expects the country's Gross Domestic Product (GDP) growth to recover by 2021 and grow at a rate of 7%, and to remain at an average growth of 5% in the following years, driven by large infrastructure projects such as Metro Line 3 and copper exports.

In addition, the stable outlook reflects the rating agency's view that a solid economic recovery in the next two years will help stabilize Panama's public finances. At the same time, she expects the government to take measures to sustain GDP growth in the long term and to address fiscal risks arising from the social security system and a reduced tax base.

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