Fitch: Panamanian Economy, Policy Continuity Not at Stake Post Election

Fri Mar 14, 2014 12:18pm EDT

NEW YORK, March 14 (Fitch) Despite tight poll numbers implying any of three leading candidates could become Panama's next president on May 4, the electoral contest outcome will not introduce major risks into the economy, nor divert policy, according to a new Fitch Ratings report. 'It has been difficult for opposition candidates to differentiate themselves from the incumbent given Panama's unprecedented economic growth,' said Lucila Broide, Director in Fitch's Latin America Sovereign Group. 'Overall policy continuity - centered on the expansion of the Panama Canal and the positioning of the country as a regional logistics hub - is likely. ' 'However, further potential delays on the construction of the Panama Canal's third set of locks - the main component of the expanded canal - cannot be ruled out. This scenario would make fiscal consolidation harder for any future administration as the fiscal windfall coming from the enlarged canal will take longer to materialize.' Public debt reduction has been driven more by the country's fast growth rate rather than by a focus on fiscal consolidation. Debt to GDP fell to 38.4% in 2013 from 39.2% in 2012, representing the slowest pace of reduction since 2006 - except during the 2009 global financial crisis. With slower growth ahead, improved spending control and investment project prioritization will be a main challenge for the next administration. Reducing public investment to more sustainable levels from a record high 10% of GDP in 2013 should provide significant fiscal space. Challenges for the new administration include still significant income disparity, social security actuarial imbalance, as well as public education, corruption and security concerns. The Panamanian economy grew by an estimated 8.5% in 2013; the country could enjoy a more sustainable 6% growth over the medium term. Panama's vigorous growth has helped the country improve its credit profile over the past eight years. Panama received investment grade in 2010 and was upgraded to its current 'BBB' rating in 2011, which Fitch recently affirmed.ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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