Fitch Upbeat On Panama’s Economic Prospects

by Mike Godfrey, Tax-News.com, Washington

19 November 2004

International ratings agency Fitch Ratings has assigned a long term foreign currency rating of ‘BB+’ to Panama’s US$600 million bond issue, whilst also affirming a ‘Stable’ outlook.

“Dollarization, a stable financial system and the government's considerable financial and land assets support the sovereign's ratings,” Fitch said in a statement accompanying the announcement.

The firm added that the benefits of dollarization have resulted in a long history of monetary and price stability unseen in other emerging markets, whilst also limiting the probability of spiralling public debt, or a balance of payment crisis which could otherwise have been brought on by a forced devaluation of the currency.

After Panama’s gross domestic product grew by 4.1% in 2003, Fitch forecast economic growth to hit 6% this year, driven by the construction sector (which the firm noted has been encouraged by tax incentives), the Colon Free Trade Zone and the Panama Canal.

The actions and stated intentions of the recently-elected government of President Martin Torrijos are also a cause for optimism according to Fitch.

During his first year in office, the new leader intends to tackle three major economic reforms, including fiscal reform, social security reform and expansion of the Panama canal.

“If successful, this could be positive for creditworthiness trends,” predicted Fitch.

However, the ratings agency deemed it unlikely that Panama will achieve promotion to the next investment grade in the foreseeable future due to recent “fiscal slippage” and its high level of debt.

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