Moody's Downgrades Panama's Ratings To Baa2, Changes Outlook To Stable

  • On March 17, 2021, Moody's Investors Service downgraded the Government of Panama's long-term issuer and senior unsecured debt ratings to Baa2 from Baa1. Moody's also changed the outlook to stable from negative.
  • The very material deterioration in Panama's fiscal strength driven by the severe economic shock from the pandemic was behind the downgrade. While most sovereigns have experienced some diminution in their fiscal strength, in Panama's case the erosion has been unusually large relative to rating peers.
  • The stable outlook balances Panama's high economic growth potential and relatively favorable funding conditions against the challenges the authorities will face in adopting policies to arrest the upward debt trend and ultimately support fiscal consolidation.
  • This marks the second downgrade of the sovereign since the start of the year. Last month, Fitch rating agency downgraded the sovereign to BBB- (one notch below the current Moody’s equivalent rating of Baa3), also on account of the severe weakening of public finances due to the economic disruption caused by the coronavirus pandemic.
  • Given the sharp deterioration in Panama's fiscal strength, upward rating pressure is limited. However, if Moody's were to conclude that fiscal consolidation efforts would prove insufficient to prevent a further deterioration in Panama's fiscal strength relative to its peers, this would add negative rating pressure. Additionally, if economic growth is below estimates, this could weigh on the fiscal accounts and exert further pressure on Panama's credit profile and its sovereign rating.

(Source: Moody’s Investor Service)