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In its latest periodic review, Moody’s Ratings has reaffirmed Panama’s sovereign credit rating at Baa3, maintaining a negative outlook. The decision reflects a complex balance between Panama’s solid macroeconomic fundamentals and mounting fiscal vulnerabilities.
While the rating remains investment-grade, Moody’s highlights several key dynamics shaping the outlook. Panama’s resilient economic performance, supported by the strategic importance of the Panama Canal and a consistent track record of investment, continues to underpin its creditworthiness. Despite the negative shock from the closure of the Cobre Panamá mining project, the country grew 2.9% in 2024, with forecasts projecting a rebound to 4% in 2025 driven by canal activity and private-sector dynamism.
However, fiscal deterioration remains a critical concern. The public deficit widened to 7.4% of GDP in 2024, while public debt rose to 62%, underscoring the urgency for structural fiscal consolidation. Moody cautions that delays in reducing the deficit and increased sovereign borrowing costs could undermine Panama’s long-term budgetary credibility.
The government’s recent pension reform to enhance long-term sustainability was acknowledged as a positive step. However, it also implies higher short-term fiscal commitments, potentially crowding other spending priorities.
Moody urges the government to implement credible, transparent fiscal reforms that reduce deficits and reinforce investor confidence to avoid a downgrade. The Panamanian administration has reiterated its commitment to fiscal responsibility, targeting a reduction of the deficit to 4% of GDP in 2025 through more efficient spending and prioritization of key investments.
As global investors monitor emerging market risk more closely in a volatile interest rate environment, Panama’s ability to deliver on its fiscal commitments will be pivotal to preserving its investment-grade rating and sustaining capital inflows and macroeconomic stability.
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