S&P Revises Panama’s Credit Rating To Stable

by Mike Godfrey, Tax-News.com, Washington

22 February 2005

Ratings agency Standard & Poor's announced on Friday that it has revised its outlook on Panama’s long-term sovereign credit rating to 'stable' from 'negative,' whilst also affirming its 'BB' long-term sovereign credit rating.

According to S&P credit analyst Lisa Schineller, the stable outlooks reflect anticipated improvement in the government’s fiscal deficit and debt situation following passage of the recent fiscal reform package, which introduced a tax on company revenues, in addition to a levy on firms doing business in the Colon Free Trade Zone.

"President Martín Torrijos and his economic team recognize that fiscal reform was and is necessary to stem the increase in Panama's debt burden and strengthen creditworthiness," observed Ms Schineller.

"The government has demonstrated a firm commitment to reduce fiscal imbalances by advancing a politically aggressive tax reform to reduce loopholes in Panama's tax regime, while at the same time reducing government expenditure over the next few years," she added.

S&P expects that Panama’s fiscal reforms will reduce the general government deficit to 2% of gross domestic product by 2006, down from almost 5.5% in 2004.

"Stronger-than-expected results of reform could generate positive implications for creditworthiness,” Ms Schineller continued.

“The stable outlook also assumes that any expansion of the Panama Canal, which would enhance economic opportunities in Panama, will be managed in a fiscally prudent manner that imposes little pressure on government finances," she concluded.

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