Panamanian Economic Outlook Deteriorates As Protests Continue

• Fitch Solutions revised its forecast for Panamanian real GDP growth in 2023 from 6.0% to 5.5% while maintaining its below-consensus projection for a 3.0% expansion in 2024. The downward revision comes largely in response to the significant social unrest that has broken out across Panama over the past five weeks, with impromptu roadblocks severely impeding the flow of goods and disrupting activity in the service sector.
• These protests have been focused on the Cobre Panamá copper mine, with some locals concerned about the environmental impact and others taking issue with the contract that was agreed with the mine’s operator, First Quantum.
• Production at the mine – which directly accounts for around 5.0% of GDP and 1.0% of global copper output - is temporarily suspended owing to difficulties obtaining supplies amid an ongoing blockade. 
• The Supreme Court ruled on November 28, 2023, that First Quantum’s contract with the Panamanian government was unconstitutional (The court found that it violated Panamanians’ rights to life, health, and a contamination-free environment), but it is not yet clear whether production will be halted on a more permanent basis or if activity will continue as arbitration talks continue. 
• However, Fitch’s core view for now is that operations will eventually restart in 2024, given how important the mine is for both the Panamanian economy and the public finances. The government has already temporarily suspended plans to boost pensions for lower-income households due to the loss of revenues generated from the mine.
• Risks to the outlook are considerable and include the lack of clarity surrounding the future of the Cobre Panamá following the Supreme Court's ruling that the agreement between its operator First Quantum and the Panamanian government was unconstitutional, and the lack of reliable and timely economic data in Panama.

(Source: Fitch Solutions)