RSS
Moody Investor service, in its annual report on Panama, says its BAA1 investment grade rating for the foreign country ceiling and stable rating outlook are supported by a service sector that provides 80% of the nation’s GDP. The rating agency's report, "Panama: Global Credit Research," is a yearly update to the markets.
The sector includes the Panama Canal, the Colon Free Trade Zone and the International banking sector of Panama. Panama is the only Latin American country with split ratings. The country has a rating for Government bonds that is non-investment grade BA1, also with a stable outlook.
"The service sector provides a steady and reliable source of foreign income and has helped shield the Panamanian economy from the volatility typical of other Latin American countries," said Moody's Vice President Mauro Leos, author of the report.
The proficient debt management system of Panama has reduced the outstanding debt stock and improved the debt profile through various debt swaps and buyback operations. The report also says that the Fiscal Responsibility Law should help establish an improved fiscal stance over time. The Fiscal Responsibility Laws’ principles enjoy strong political and social support and this is expected to favor continued fiscal restraint. Panama benefits from the fact that there are no exchange controls for the local currency Balboa against the US dollar and the currency constantly stays on par with the American dollar.
The moderate refinancing needs for this year through 2005 will translate into reduced credit risks, which will make Panama less vulnerable to volatile conditions in international credit markets. Credit challenges for Panama include stagnant nominal GDP growth, and a ratio of public debt to GDP in excess of 70% of GDP. An inflexible budget structure that incorporates predetermined nominal increases in current expenditures and a still-pending pension system reform represent factors that, if not addressed, could put downward pressure on the government's credit rating.
