The expansion of the Panama Canal, scheduled to open on June 26 after eight years of construction, should be supportive of the country’s ‘BBB’ sovereign rating, according to a new Fitch Ratings report. Fitch expects the expansion to have a favorable impact on macroeconomic performance, public finances and external accounts.

Since taking control 15 years ago, Panama has transformed the Canal into a profitable asset. The waterway’s expansion will bolster its importance as an engine for Panama’s dynamic economy through its direct contribution to economic activity and even larger spill-overs into the logistics sector. While higher fiscal transfers from the Canal will help reduce Panama’s budget deficit, the current fiscal framework was set up in anticipation of a larger boost, and social pressures to spend some of the windfall exist.

Fitch affirmed Panama’s rating at ‘BBB’ with a Stable Outlook in February 2016. Since its upgrade to ‘BBB’ in 2011, Panama’s rating has been supported by its economic outperformance but constrained by the persistence of fiscal deficits that have lifted the debt burden despite robust growth in recent years. The Canal expansion represents an opportunity for the sovereign to address these fiscal issues, as well as reinforce the economic dynamism underpinning the rating.

The full special report, ‘Panama: Canal Expansion Poised to Boost Sovereign’ provides a more detailed description of the Canal expansion and potential implications Fitch believes it could have on sovereign credit metrics. The report is available at ‘www.fitchratings.com‘.

Additional information is available at www.fitchratings.com.