The agency has kept the sovereign debt rating unchanged highlighting the stability of growth and diversification of the economy, which gives the country the ability to cope with adverse external conditions.

From the press release by Standard & Poor’s:

Panama‘s continued strong economic growth prospects, increasing economic diversification and resilience, and moderate net general government debt burden support our ratings.
The country is vulnerable to swings in global economic conditions, has
underdeveloped but growing domestic capital markets, and developing
political institutions.
We are affirming our ‘BBB/A-2’ long and short-term sovereign credit
ratings on the Republic of Panama.
The outlook on the long-term rating remains stable, reflecting our
forecast for a growing economy and improving fiscal and external
performance.

RATING ACTION
On Sept. 23, 2015, Standard & Poor’s Ratings Services affirmed its ‘BBB/A-2’
long- and short-term sovereign credit ratings on the Republic of Panama. The
rating outlook remains stable. The transfer and convertibility (T&C)
assessment is unchanged at ‘AAA’.

RATIONALE
Continued strong economic growth prospects, increasing economic
diversification and resilience, and a moderate general government debt burden
support our ratings on Panama. The ratings also take into account the
vulnerability to sharp swings in global economic conditions, an underdeveloped
but growing domestic capital market, and developing political institutions.
Panama has no independent monetary policy because it is fully dollarized and
therefore has no formal lender of last resort for the financial system.

Rapid economic growth over the last five years (an average of 9%), boosted by
significant physical infrastructure investment, is likely to increase per
capita GDP per capita to US$13,000 in 2015, 80% higher than in 2009. The
country’s economic growth rate decelerated to 6.2% in 2014, from 8.3% of 2013.
With the completion of several large infrastructure projects, we forecast that
the economy will grow at a moderately lower rate, about 6% on average, over
the next three years, with GDP per capita growth above 4% per year. The
projected growth rate reflects the increased diversification of the economy,
added economic activity following the expansion of the Panama Canal (now
almost 94% complete), a booming tourism sector, and new investment in mining.

Continued GDP growth should contribute to a stable and likely declining burden
of general government debt over the next three years. We expect that a
combination of lower capital expenditures (after a surge of government
investment in recent years) and increased revenues from the Panama Canal’s
expanded operations, coupled with a growing economy, would stabilize the gross
general government debt burden at about 35% of GDP over the next three years.
In addition, we expect that net general government debt will remain below 20%
of GDP. We expect that the increase in general government debt will remain
below 3% of GDP in the next three years and interest expenses will consume
less than 10% of revenues.

Panama’s persistent trade deficit will continue to contribute to a large
current account deficit. However, a deceleration in investment should contain
import growth, resulting in a gradual decline in the current account deficit
over the coming three years toward 7% of GDP, from an average of 10% during
2012-2014. As in previous years, we expect that inflows of foreign direct
investment should continue financing most, if not all, of the current account
deficit. Accordingly, we forecast Panama’s gross external financing needs are
likely to hover at about 100% of current account receipts and usable reserves
in next three years.

After its first year in office, the Administration of President Juan Carlos
Varela has maintained continuity in key economic policies while strengthening
the country’s public institutions. Although the Administration lacks a
majority in Congress, it has managed to reach agreements with other parties to
pass legislation. Congress has also approved the president’s nominations of a
new attorney general and government comptroller, two key posts designed to
serve as checks against public-sector corruption and mismanagement.

Continued strengthening of governmental institutions, as well as more
effective internal controls and checks and balances among branches of
government, would enhance transparency. Over the long term, a sustained
reduction in perceived corruption would favor investment and strengthen the
government’s capacity to effectively implement its policies.

As a small, open economy, Panama depends on global conditions. Although we
estimate that its banking sector has a net external asset position, it remains
exposed to an unexpected deterioration in external conditions. Panama has no
central bank or formal lender of last resort. Nor does it have a deposit
insurance system or other explicit mechanisms to provide temporary liquidity
to distressed financial institutions, which is one of its rating
vulnerabilities.

In addition, the Financial Action Task Force of the Organisation of Economic
Co-operation and Development has placed Panama on its “grey list” of countries
with a weak legal framework for preventing money laundering and terrorism
financing activities. The government has taken steps, including passing a new
law against money laundering and strengthening its enforcement capacity, and
is seeking to be removed from the list in 2016.

As a fully dollarized economy, Panama’s monetary and exchange rate policy
largely rests with the U.S. In our opinion, the likelihood of the Panamanian
government ceasing to use the U.S. dollar as its local currency is low.
Therefore, our T&C assessment is ‘AAA’, the same as that of the U.S.

OUTLOOK
The stable outlook incorporates our expectation of continuity in key economic
policies and political stability. We expect that Panama’s economy will
continue to grow at about 6% over the next three years while the government
gradually tightens fiscal policy and stabilizes its debt burden. It also
reflects our expectation of continued efforts to strengthen management of
public institutions and government transparency, as well as to address
weaknesses in the regulatory framework for financial institutions.

Over the long term, we could raise the rating if continued high GDP growth
results in a more resilient and prosperous economy with a declining general
government debt burden and diminished vulnerability to external shocks.

On the other hand, an unexpected shock to the financial system could damage
confidence in the country. Such an event, or other developments that hurt the
country’s growth prospects, could weaken its credit profile. The resulting
slower medium-term growth prospects or an eroding fiscal and debt profile
could result in a lower credit rating.