Fitch Ratings Raises Panama’s Debt Rating to BBB

Thursday, June 2, 2011 - 13:32

June 2, 2011

Fitch Ratings Raises Panama’s Debt Rating to BBB

London-Fitch Ratings lifted Panama's investment-grade debt rating another notch, saying the country's rating upgrade reflects Panama’s solid economic growth, spurred by the massive investment in its canal expansion project and strong foreign direct investment trends.

According to the rating agency, the country's ongoing expansion of the Panama Canal is part of a highly favorable investment cycle that will help support the overall economy. The massive project remains on track and within budget, an accomplishment that could give the country added fiscal resources as soon as 2015.

Fitch now rates Panama at a solid investment- grade of BBB and ranks the country’s outlook as stable. The ratings agency pointed to Panama's stable banking system and overall political consensus around the main thrust of the country's macroeconomic policies as positive influences on the country’s “Stable” outlook rating.

Shelly Shetty, Head of Latin America Sovereigns for Fitch, stated, “Panama’s growth momentum has outshined that of most of its rating peers, and this trend is expected to continue.” Panama’s GDP growth in 2010 was 7.5%, and Fitch projects a robust 7% expansion in years 2011 and 2012.

Vigorous growth in the economy, the implementation of two tax reforms over the past year, and the sharp reduction in sovereign debt in recent years have given the government the ability to finance an ambitious $13.5 billion public investment program. The positive trend in the country’s growth has also resulted in the improvement in per capita income.

Fitch expects general government debt as a percent of GDP to continue to decrease, allowing Panama to meet its fiscal deficit target of 2% of GDP this year.

Looking forward, Fitch believes that the improvement in fiscal flexibility, the continued adherence to fiscal targets, a sizable reduction in government debt, and efficient management of the Canal’s enhanced revenues in the future would have a positive impact on Panama’s creditworthiness.