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Bond Market News
Panama Downgraded to BBB- by S&P
November 27, 2024
Panama was downgraded by a notch to BBB- from BBB by S&P. The downgrade reflects Panama’s weakened fiscal flexibility and increased vulnerability due to a rising interest burden, which exposes the country to economic challenges. Panama faces a weak external profile and lacks monetary flexibility, as it does not have a central bank or a formal lender of last resort, limiting its financial stability. According to S&P, the Panama government is expected to gradually reduce its fiscal deficit, from 6% of GDP in 2024 to 3.3% by 2027. However, rising interest payments and weak revenue performance will strain its finances. Revenues from the Panama Canal, which represents a significant portion of government income, are expected to remain stable, though global trade dynamics and geopolitical risks may impact Canal traffic. The government’s debt is expected to grow moderately, with interest payments consuming more than 18% of revenue over the next few years. Panama’s contingent liabilities are limited, although the closure of a major copper mine in 2023 poses an uncertain financial risk, potentially adding liabilities of up to 20% of GDP.
Panama’s dollar bonds traded stable with its 7.125% 2026s at 101.9, yielding 5.41%.
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