The shutting down of the Minera Panama copper mine has increased the urge for the rating agency Fitch Ratings to decrease Panama’s ‘BBB-‘ sovereign rating. This includes the closure of the mine and its economic repercussions, along with existing fiscal challenges, which may impact short-term economic growth and expose flaws in the country’s governance.
The pessimistic view is due to the persistent weakness in public finances, caused by increasing interest expenses, higher expenditures, and low tax revenue.
“The government has been using unusual accounting tricks to achieve financial goals,” and has implemented policies that, according to Fitch, may exacerbate rather than alleviate the situation.
One of the measures implemented in response to the 2022 protests is a law to boost education spending to 7% of the country’s gross domestic product, even though there is no guarantee of having enough revenue to support this increase.
According to the report, Fitch has revised its forecast for economic growth in 2024 down to 1.5% from the previous estimate of 4.5%.
However, they caution that in 2023 the Government reported a fiscal deficit of 3% of GDP, which was within the legal limit. This deficit was mainly attributed to exceptional income sources such as land sales to the Panama Canal, royalties from mines, a tax amnesty, and the early collection of some taxes for 2024.
Additionally, the report cautioned that public companies had achieved an unexpectedly large operating surplus, the source of which is not completely understood.
At the same time, the severe drought in Panama has raised concerns about a potential major shortfall in the budget, which could impact Canal operations and the overall economy.
The national budget had originally predicted a rise in contributions from the Canal, but economic forecasts have since deteriorated.
By September 2023, the Canal had already expected a budget decrease, but the forecasts have worsened since that time.
