Based on the argument that there is no significant fiscal consolidation and sustained economic recovery, the rating agency decided to downgrade the government’s long-term issuer rating perspective from stable to negative.

Although the outlook was modified, Moody’s decided to maintain the long-term issuer and senior unsecured debt ratings at Baa1.

From Moody’s report:

New York, October 20, 2020 – Moody’s Investors Service, (“Moody’s”) has today changed the outlook on the Government of Panama‘s ratings to negative from stable. Moody’s has affirmed the long-term issuer and senior unsecured debt ratings at Baa1, and Panama’s senior unsecured shelf ratings at (P)Baa1.

The key driver for the change in outlook to negative is the consideration that, absent meaningful fiscal consolidation and a sustained economic recovery, the sharp deterioration in fiscal and debt metrics will continue to undermine Panama’s credit profile in the coming years. A continued rise in the government’s debt and interest burdens would bring Panama’s fiscal metrics in line with Baa peer medians, materially eroding a credit strength that supported the upgrade of Panama’s ratings to Baa1 in 2019.

The Baa1 rating incorporates the sovereign’s still-present underlying credit strengths, including trend growth in excess of 4%, which has been above that reported by most Baa-rated peers. Additionally, Panama’s ability to access market funding at relatively low borrowing costs keeps government liquidity and refinancing risks contained.

Panama’s long-term foreign-currency bond and deposit ceilings remain unchanged at A2. The short-term foreign-currency bond and deposit ceilings are unchanged at Prime-1.

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