Officials in Panama are meeting rating firms this week to strengthen their commitment to fiscal and growth goals, as investors worry about the country losing its investment-grade status.
Deputy Finance Minister Jorge Almengor said on Thursday during an interview at the International Monetary Fund and World Bank meetings in Washington that Panama is gradually reducing its fiscal deficit and increasing its economic growth. He hopes that rating firms understand this.
Panama's fiscal deficit is expected to decrease to two percent of the gross domestic product this year from slightly below three percent last year, while the growth is projected to reach 2.5 percent, as per Almengor. Without the shutdown of the $10 billion Cobre Panama mine, the economy would have still grown by five percent, although this is down from over seven percent last year. International Monetary Fund (IMF) forecast, according to Almongor. Without the shutdown of the US$10 billion Cobre Panama mine, the economy would have expanded five per cent, still down from more than seven per cent last year, he added.
The concerns about the inactive mine have affected the bonds, leading traders to treat the nation’s debt as a junk-rated credit. Investors now demand more than 30 extra basis points to hold Panama notes compared to the average risk premium for BB-rated sovereign securities, according to JPMorgan Chase & Co. figures. Bonds maturing in 2036 were down 1.3 cents US to 94.3 cents US on Thursday, the lowest since late February and trailing emerging-market peers. This has left investors worried about the country’s fiscal prospects and growth outlook following a meeting with the IMF mission chief in Washington on Wednesday, according to two anonymous sources.
The meeting, attended by around 15 investors and analysts, also raised doubts about the incoming government's mandate, one of the sources added. The IMF did not respond to a request for comment about the meeting.
Investors are still awaiting clues on the actions the new administration will take to address their concerns, with the presidential election scheduled for May 5. Jose Raul Mulino is currently leading in the polls, followed by former president Martin Torrijos and attorneys Romulo Roux and Ricardo Lombana.
Fitch Ratings, the first credit assessor to downgrade Panama to junk, stated that a “tense” social backdrop would limit the next president's ability to implement necessary reforms. Some analysts believe that Moody’s Ratings and S&P Global Ratings could also downgrade the country in the second half of the year.
Almengor expressed the government's focus on compiling important projects and strategies for the upcoming administration to maintain the country's prosperity.
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- Almengor is the deputy for Hector Alexander, the Finance Minister, who is an economist trained at the University of Chicago and was a student of Milton Friedman.
— With help from Maria Elena Vizcaino, Zijia Song and Ramsey Al-Rikabi.
Bloomberg.com
Growing worry that the country might lose its investment-grade status
