Panama's Credit Rating Raised

by Leroy Baker, Tax-News.com, New York

27 February 2008

Ratings agency Standard and Poor's has raised Panama's long-term sovereign credit rating to BB+ from BB on the basis of strong economic growth and continued improvement in the government's fiscal health.

With the economy enjoying record growth - estimated at 10% in 2007 and averaging 6.5% since 2002 - S&P affirmed its 'stable' outlook for the country and its 'B' rating for the short-term sovereign credit rating.

While the Panama Canal and its multi-billion dollar expansion programme continues to be the main driver of Panama's economic growth, S&P noted that the country's economy has successfully diversified in recent years, with sectors such as tourism, port logistics, and high-end construction making a growing contribution to the overall economy.

On the fiscal front, the government expects a surplus of about 0.7% of GDP for 2007 - a significant improvement since a deficit of 5.6% was recorded in 2004. Net general government debt should drop to 33% of GDP in 2007 from 42% in 2004, according to S&P.

However, S&P analyst Roberto Sifon Arevalo cautioned that it was "critical" that a near-balanced fiscal position be maintained during the expansion of the Panama Canal, and warned that a slowdown in the United States economy during 2008 could undermine growth in Panama.