Panama maintains Moody’s Investment-Grade Rating amid fiscal challenges
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Durrant Pate/Contributor
International credit ratings agency Moody’s has maintained its Investment-Grade Rating on the Republic of Panama while giving the orange flag to its fiscal challenges.
The Ministry of Economy and Finance (MEF) has announced that Moody’s has reaffirmed the country’s sovereign credit rating at Baa3 with a negative outlook following its latest periodic review. This rating remains unchanged from the previous assessment.
Moody’s says Panama’s rating is supported by strong economic growth, the strategic importance of the Panama Canal, and a consistent history of investment. These factors continue to reinforce the country’s macroeconomic resilience.
Despite the economic impact of the Cobre Panamá mining project closure, Panama recorded 2.9 per cent growth in 2024. Moody’s projects a recovery to four per cent in 2025, driven by increased activity in the Panama Canal and a vibrant private sector.
Positive step toward long-term fiscal sustainability
According to Moody’s, the recent pension system reforms are a positive step toward long-term fiscal sustainability. However, these reforms require higher fiscal contributions from the State, which could reduce flexibility in other areas of the national budget.
Moody’s is reporting that the negative outlook reflects concerns about the potential stagnation of fiscal consolidation and the risk of rising sovereign borrowing costs if confidence in fiscal policy is not restored. However, the rating agency indicates that the outlook could be revised to stable if the government implements credible measures to reduce the fiscal deficit and improve transparency.
In 2024, Panama’s fiscal deficit reached 7.4 per cent of Gross Domestic Product (GDP), and public debt rose to 62 per cent of GDP. These figures present significant challenges for fiscal consolidation.
While the government has shown a willingness to pursue structural reforms, including the recent pension reform, Moody’s cautioned that persistent budgetary rigidities may hinder substantial deficit reduction in the short term.
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