Panama is at risk of having its credit rating lowered, according to a recent report by the investment bank Goldman Sachs.
The investment banking report noted that Panama is in danger of being downgraded because of the closure of the Cobre Panamá mine, which is expected to have a negative impact on the country’s economic growth and fiscal balance. Panama currently has a BBB- rating with a negative outlook.
Goldman Sachs noted that the poor performance of government bonds started towards the end of the previous year, following the mine’s closure.
A temporary halt in production is expected to have a negative impact on Panama’s economy, as the mine’s output constituted 5% of the country’s GDP and 75% of its exported goods.
At present, Panama is rated BBB with a negative outlook by S&P as of November 7. Moody’s recently downgraded the country to Baa3 with a stable outlook on October 31, while Fitch still maintains a BBB rating but changed its outlook to negative on September 29.
Goldman Sachs has issued a warning that Panama is at risk of having its credit rating downgraded due to a mix of economic and political factors, putting the country in a vulnerable position.
The situation is getting worse as the presidential elections on May 5 approach, along with the uncertainty about what will happen to the country’s mine.
Goldman Sachs points out that if Panama’s credit rating is lowered from investment grade to speculative grade, it could lead to adverse effects on financial markets. This includes higher borrowing expenses and a decline in investor trust.
The investment bank cautions that while the market has already factored in some of this risk, there is a possibility of increased volatility in the upcoming months as the elections draw near and more information about the country’s economic policy is revealed.
In response to the report, the Chamber of Commerce, Industries, and Agriculture of Panama (Cciap) stated that the presidential candidates need to put forward concrete economic plans to help the country enhance its fiscal position.
“In the final quarter of the year, Fitch Ratings will shift Panama’s outlook from stable to negative.
This week, both Fitch Ratings and investment bank Goldman Sachs have expressed concerns, warning investors about the country’s risk of losing its investment grade due to economic prospects and fiscal balance.
Although Panama is projected to have lower growth in 2024 (3%), the real concern lies in the repeated warnings about the country’s fiscal situation,” the union stated.
