Fitch downgrades Panama's rating to BB+ with stable outlook

By Ovunc Kutlu

ISTANBUL (AA) - Fitch Ratings announced that it downgraded Panama's long-term foreign currency issuer default rating to BB+ from BBB- with a stable outlook.

The rating agency said Thursday the downgrade reflects fiscal and governance challenges by the events surrounding the closure of the country's largest mine.

"In November 2023, Panama's Supreme Court overturned a contract with First Quantum Minerals for operation of the Minera Panama copper mine, following social backlash to congressional approval of the contract," it said in a statement.

Fitch said the shutdown of the mine is expected to have a significant impact on the country's economic growth this year, since it represents around 5% of its gross domestic product (GDP) and 7% of current external receipts.

The agency added that tax underperformance has been a key fiscal challenge in Panama, causing a 3 percentage points of decline in the tax/GDP ratio to 7% in the decade through 2023.

"Efforts to tackle tax evasion are underway that could help, but rate increases or cuts in exemptions might be necessary for major improvement, and would be politically difficult, in our view," it added.

Fitch said it expects Panama's economic growth to slow to 1.5% in 2024, and then rise to 4.5% in 2025, after real GDP grew 7.3% in 2023.