Unrest In Panama To Delay Fiscal Consolidation

• Panama’s continuing national protest movement is expected to pose substantial risks to social instability as well as growth in the coming months. Following headline inflation increasing to 5.2% y-o-y in June—the highest since October 2012, with price increases for cooking oil and gasoline reaching 12.7% and 64.7%, respectively, protests broke out sporadically in early July.
• Considering this along with undelivered promises of anti-corruption reforms, the country is expected to see an increased risk of public unrest in the months ahead. Consequently, the sustained protest movement will dampen economic activity for at least several weeks, with future risks of protest remaining high. 
• In response to the public outcry, President Cortizo will increase subsidies for gasoline and basic goods like bread and cooking oil as well as higher social spending for low-income households. As a result, this will delay the country’s goal of achieving its fiscal deficit target of 4.0% in 2022 as laid out in its Fiscal Social Responsibility Law.
• Following the social instability, Fitch Solutions revised its Short and Long-Term Political Risk Indices. In the Short-Term Political Risk Index (STPRI), the ‘social stability’ sub-component was slightly revised down from 42.5 to 40.0, having been already lowered in mid-May in anticipation of further protests, bringing the headline STPRI score to 62.9 from 63.5.
• For the Long-Term Political Risk Index (LTPRI), the ‘characteristics of society’ and sub-components were lowered from 67.8 to 67.5 to account for high levels of poverty, driven primarily by a labour force with 48.3% of workers in the informal sector, where pay is low, benefits are not guaranteed and are not protected by certain labour rights and protections.

(Source: Fitch Solutions)