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Panama's National Debt and Budgets; Bond Credit Risk Ratings (Fitch/Moody/S&P)

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Panama debt continues upward surge

Like Panama's high rises, debt continues to grow

PANAMA’S Non-Financial Public Sector (NFPS) debt increased by $1.037 billion in a single month, according to the latest report from the Public Credit Department of the Ministry of Economy and Finance (MEF).
According to the report, in April 2017 the debt totaled $21,922.8 billion and, a month later, it amounted to $22,959.5 billion .
In May 2017, external public debt stood at $18,098.2 billion and domestic public debt at $4,861.3 billion, said the report.

Market instability
According to the MEF, during the fifth month of the year there was great instability in the capital markets, due to investors’ concerns about the results of the French elections, the continuing clashes between the United States and North Korea and the risks associated with the political tensions of the United States, after President Donald Trump fired the FBI director, James Comey, that affected the yields of the United States Treasury Bonds.
The rise in the rate of the US Federal Reserve for the month of June means that the cost of Panama’s public debt could be increased in the short, medium and long term.

Total debt
With the increase of the NFPS debt of the NFPS in May 2017,the new balance of the total debt of public entities and companies associated to the public sector that are known exceeds $30.059 Billion.
In addition to the debt of the NFPS, which amounted to $ 22.96 billion in May 2017, the Government has other financial commitments.

Until April 2017, national government debt due to financial commitments of institutions and companies that were separated from the NFPS amounted to $2,259 billion, accounts payable of turnkey projects were$1,130 billion and commitments to pay for sentences executed and arbitration where the State was condemned were at $93 million.
In addition, Panama Canal liabilities totaled $3,618 bllion in September 2016, according to international auditors Ernst & Young.
The Panama Canal Authority notes that the Panamanian State is not responsible for the Panama Canal debt.
For the turnkey debt , the MEF only presents accounts payable until 2019. After that Metro Line 2 and others State works will be paid through this financial mechanism.
It is also important to note reports La Estrellz that the Panama Canal has several demands that could impact its liabilities . TheGrupo Unidos por el Canal, contractor’s claims for the design and construction of the third set of locks, totaled about $3.4 billion. This means that the total debt of public entities may exceed the published figures.



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Panama's fiscal deficit reaches almost 1% in the first quarter of 2018

Thu, 05/10/2018 - 22:07

Diseño sin título (119).jpg

The fiscal deficit reached 0.9 percent of the gross domestic product (GDP) of Panama at the end of the first quarter of this year, equivalent to 569 million dollars, the Central American government reported.

The Deputy Minister of Finance, Eyda Varela de Chinchilla, explained in a press conference that the income of the Non-Financial Public Sector (SPNF) decreased by 0.6 percent, compared to the result of the first quarter of 2017, up to 2,746 million Dollars.

The total expenses of the SPNF, including the entire State (except the Panama Canal), public banks and three state-owned companies, increased by 30.1 percent compared to the same period last year and reached 3,315 million dollars, said the vice minister.

"On the other hand, the current saving was positive in 395 million dollars and financed 41% of the investments of the non-financial public sector," said Varela de Chinchilla.

Total revenues of the Central Government increased by 1.7 percent compared to the same period of the previous year, to 1,705 million dollars, while total expenses increased to 2,661 million dollars, which it is 36.7 percent more, she added.



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Panama: Public Debt Grows 13%

Between the months of April 2017 and 2018, the country's public debt rose from $21.922 million to $24.8 million, which is equivalent to an increase of 13%.

Wednesday, May 30, 2018

According to figures from the Ministry of Economy and Finance in Panama, in the first four months of the year, debt has also reported an increase, rising from $23.373 billion recorded at the beginning of January to $24.8 billion computed at the end of April, which represents a 6% increase.

At the end of the first four months of 2018, 79% of the total public debt corresponded to external debt, and the remaining 21% to internal debt.  

As of April 2018, most of the external debt corresponded to obligations to private creditors, adding up to $14.269 billion, and the remaining $5.385 million belongs to debt with public creditors.

See details of the figures. (In Spanish)



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Positive Outlook for Panama's Debt

S & P has improved Panama's outlook from stable to positive, re-affirming its BBB risk rating based on factors such as "high and consistent economic growth and a stable fiscal policy".

Wednesday, July 4, 2018

The rating granted by Standard & Poor's recognized " ... the progress made by Panama in recent years for the automatic exchange of tax information with 33 countries and changes in legal regulations to improve transparency in the financial system." 

From a statement issued by the Ministry of Economy and Finance:

The rating agency Standard & Poor's (S & P) improved Panama's outlook from stable to positive by re-affirming its BBB risk rating based on factors such as "high and consistent economic growth and a stable fiscal policy".

According to S & P, Panama's rating reflects the record growth of Gross Domestic Product, the effective formulation of sovereign policies, its cautious fiscal and debt management as well as the Government's actions to improve transparency and supervision in the financial system.

Read full statement (in Spanish).



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S&P’s Positive Outlook for Panama Debt

Post Views: 89
Standard & Poor has improved Panama’s outlook from stable to positive, re-affirming its BBB risk rating based on factors such as “high and consistent economic growth and a stable fiscal policy”.

The rating granted by S & P  recognized ” … the progress made by Panama in recent years for the automatic exchange of tax information with 33 countries and changes in legal regulations to improve transparency in the financial system,” said a Ministry of Finance statement.

According to S & P, Panama’s rating reflects the record growth of Gross Domestic Product, the effective formulation of sovereign policies, its cautious fiscal and debt management as well as the Government’s actions to improve transparency and supervision in the financial system.



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The High Cost of Debt

In the first semester of this year, the Panamanian government paid $30 million more in interest payments on the public debt than the amount paid in the same period last year.

Thursday, August 9, 2018

According to official figures between the first six months of 2018 and the same period in 2017, the costs of the debt increased by 6%, rising from $537 million to $567 million. 

In line with the behavior of costs, during the first half of the year the country's public debt grew by 3.6%, rising from $23.384 billion in January to $24.233 billion at the end of June.

Projections of government revenues to meet their obligations depend on the performance of the economy, in this regard Olmedo Estrada, president of the College of Economists of Panama, told Prensa.com that " ... in a more deteriorated economic environment, revenues can decrease putting more pressure on public accounts to cope with the expenses generated by the debt."

In relation to the options to reduce the costs of the debt, Estrada explained that " ... the strategy should be different. 'The alternative is to put the breaks on the debt. The government has to make an effort to save money by eliminating unproductive activities.'"

See details of the debt figures.



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Panama  public debt nears $25 billion

Transmission entities, airport and corridors not included in debt
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The balance of public debt at the end of August was $24.721 billion, up by $1.667 billion from the previous year. In the last month, the debt grew by $334.8 million, reports the Finance Ministry.

The increase in the balance of the debt means that every year the Government has to reserve more funds to pay interest. In the first half of this  year, interest and commissions amounted to $566.6 million

Most of the debt is contracted in dollars, but there is a yen issue of $500 million from 2011 Therefore, the price of the dollar and the yen affects the balance of the debt. In the month of August, the yen gained 0.7% in relation to the dollar.

Since the administration of Juan Carlos Varela began, the public debt has grown by $7,082 billion, from $17,639.5 billion in June 2014 to the current $24.721.5 billion.

The figure of the debt does not include the commitments acquired by the National Company de Autopistas (ENA), the Tocumen International Airport and the Empresa de Electric Transmission entities, which have contracted debts to pay different investment projects and have their own income.

Since Panama obtained an investment grade in 2010, it had more access to international financing. In addition, the government’s debt capacity is greater because the growth of the economy generates more income to make against the expenses associated with the debt.

The risk rating agencies, , consider that the country’s debt capacity is greater. The outlook for the rating of sovereign debt has improved. In the five years of Ricardo Martinelli’s administration, the debt grew $6.837 billion, going from $10.802 billion in June 2009 to $ 17.639 billion in June 2014.

Therefore, the current administration has already surpassed of its predecessor with 9 months to go.

The president of the College of Economists, Olmedo Estrada, said that for this year a deficit is expected in the budget that will have to be financed with debt, and the first half of 2019, so the debt “can easily go up a billion more dollars “.



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Permission for State to Take On More Debt

In Panama, the Varela administration has submitted a bill that aims to raise the limit of public debt by $900 million more than the limit currently established.

Wednesday, September 26, 2018

The Minister of Economy and Finance, Eyda Varela de Chinchilla, presented a bill to the National Assembly to amend Law 34 on Fiscal Social Responsibility and Law 38 of 2012. 

The Assembly details in a statement that the project proposes that the maximum deficit limit of the fiscal balance of the non-financial public sector be 2.0 of GDP for fiscal year 2018; 1.75% for 2019 and 2020, and 1.5% from fiscal year 2021. 

From a statement issued by the Legislature:

A bill that modifies articles of Law 34 of 2008 on Fiscal Social Responsibility and Law 38 of 2012, by means of which the Savings Fund of Panama (FAP) is created, presented to the plenary session of the National Assembly the Executive Body, through the Ministry of Economy and Finance.  

The bill modifies the numerals 5, 23, 24, 25 and 29 and repeals the numerals 4, 6 and 8 of article 7 of Law 34 of Fiscal Social Responsibility; but, in addition, to that same Law, article 10 is modified; a new article is added on 10-A; and also article 11, 13 and 14 is modified.  

Read full statement (In Spanish).



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Panama issues bonds with maturity in 2050

Sun, 10/21/2018 - 20:17


Panama issued last Friday a debt of 550 million dollars with a new global bond, with a 4.5 percent coupon and maturity in 2050, to partially finance the investment plan of this year's state budget.

The Ministry of Economy and Finance (MEF) reported in a statement that the average weighted yield of the bond was 4.915 percent and "the demand was equivalent to 2.8 times the reference amount."

"This issuance had a high participation of investors from North America, Europe, Asia and Latin America, reflecting the confidence of the international financial community in macroeconomic conditions and credit risk of he Republic," said the ministry.

The margin of the bond (spread, in the financial language) was only 155 basis points over the 30-year US Treasury Bond "despite the volatility of global markets and the recent rises in interest rates by the Federal Reserve of the United States," the statement added.

Last April, Panama underwrote a debt with another global bond for 1.2 billion dollars, with a coupon of 4.50 percent and maturity in 2050, to also finance part of the investments included in this year's budgets.

Panamanian economy expanded by 5.4 percent in 2017 and recorded a non-financial public sector deficit (NFPS) of 1.7 percent, while public debt closed at 23,373.6 million dollars, an 8.2 percent more than the previous year, according to official rates.



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Panama Issues Debt for $550 Million

The Panamanian government issued $550 million of sovereign debt in the international market, expiring in 2050 and with an average yield of 4.92%.

Friday, October 19, 2018

According to information from the country's authorities, the resources collected will be used to partially finance the investment plan contemplated in the General State Budget for fiscal year 2018.

You may be interested "The Unstoppable Public Debt"

From the press release of the Ministry of Economy and Finance:

October 19th, 2018. The Republic of Panama entered the international capital markets with the reopening of the Global Bond which expires in 2050 for a total of US$550.0 million and a weighted average yield of 4.915%.

Despite the global market volatility, and recent interest rate hikes by the US Federal Reserve, a spread of only 155 basis points over the 30-year US Treasury benchmark was obtained, as a reference.

This issue had a high participation of investors from North America, Europe, Asia and Latin America, reflecting the confidence of the international financial community in the macroeconomic conditions and credit risk that the Republic maintains. Demand was equivalent to 2.8 times the reference value.

The operation will partially finance the investment plan contemplated in the General State Budget for fiscal year 2018.



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President of Panama will approve state budget despite changes

Sat, 11/03/2018 - 20:24


Panamanian President Juan Carlos Varela said today he will approve bill 659 that establishes the General State Budget for the fiscal period 2019, for 23,669 million dollars, despite changes introduced to exempt some public entities from inspection.

"When you govern you have to look for the common good of citizens, and in that search for the common good I feel that what is convenient for the country is the approval of the State budget," Varela told reporters at a public ceremony.

The president said this is so "even though we disagree with some issues" that occurred during the discussion for approval in the third and last reading in the National Assembly (AN, Parliament) last Wednesday, October 31.

Varela acknowledged that it was a "very strong debate, and until the last minute we were close not to approve the budget since there were issues unaceptable to the Executive."

The important thing is that we will have the State budget "that will allow the continuity of public works by 2019, and especially job creation," said Varela.

The amendments in the budget were qualified as "goals" or "legislative branch".

The ex-attorney general and independent deputy Ana Matilde Gómez was the only vote against its approval, for the change of some articles that soften or exempt controls to the AN, in the hiring of temporary personnel, and to other entities such as Social Security, sports associations and boards.

"It is not right, I think it is not right, we should not exonerate any kind of tax; on the contrary, the Assembly needs the support of the MEF (Ministry of Economy and Finance) to develop a good personnel structure", said Gómez.

The private company expressed today its concern about the modifications that, they said, "would directly benefit public entities" such as Parliament.

The National Council of Private Enterprise (CONEP) stated that the approval of bill 659, which establishes the General Budget of the State, not only includes changes in terms of legislation on public finances, but also includes rules that promote the relaxation of controls in these institutions.

The business union requested "to clarify to the nation the basis of these modifications, since they contain intentions to avoid the corresponding inspection and dispute the provisions of the Law on Public Procurement".

"We are concerned about how to seek to approve bills that allow contracting without the minimum controls the law requires for the use of public funds."

The approved budget of 23,669 million dollars, after being readjusted upon request of deputies, is the last fiscal year of the Government of President Varela, and the next administration that assumes on July 1, 2019 will be responsible for its execution.

Last July the Executive introduced a budgetary bill for 23.318 million dollars but on October 4 was returned by the Legislative Budget Committee to be redrawn up.

The approved bill provides an adjustment of 350 million dollars in addition to what was initially budgeted by the MEF.

The budget considered the adjustment approved by Law 51, which amends Law 34 on Fiscal Social Responsibility; and Law 38 of the Savings Fund of Panama (FAP), increases to 2.0 percent the fiscal deficit, close to 350 million dollars.

It was estimated with a nominal growth of 6.9 percent of gross domestic product (GDP) and 2 percent of fiscal deficit.



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Moderator comment: This news article has been cross-posted at http://www.chiriqui.life/topic/5049-panamas-economy-investment-incentives-and-future-economic-growth-outlook/?do=findComment&comment=33230 because it contains two different but related subjects.


Panama growth for 2019 projected at 5,5% as deficit hits $1.339 billion

Posted 08/02/2019
Panama’s government said on Friday, February  8 it that the economy grew by 4.2% in 2018, a year in which the fiscal deficit hit $1,339 billion 2% of gross domestic product (GDP ).

"We estimate that (the growth) is 4.2%, but we are waiting for the Comptroller's Office to give the official figure on March 1. That estimate is similar to that projected by both the World Bank and the International Monetary Fund," said  Minister of Economy and Finance, Eyda Varela de Chinchilla.

The initial projection 5.5%, but this figure was adjusted more than one percentage point by the "multiplier effect" of a long strike in the construction sector, which represents about 18% of Panamanian GDP, said the minister.

Hundreds of works projects, including mega-projects such as the second subway line in Panama City were stopped for a month between April and May due to a strike called by the country's main union to demand salary increases.

Panama's economy grew by 5.4% of GDP in 2017, up from 5% in the previous year, driven by activities related to the external sector such as the Interoceanic Canal and air and financial services.

Varela de Chinchilla said that the prospects for this year are higher, around 5.5%, because the second metro line and the new terminal of Tocumen Airport, as well as exports from a huge copper mine, are expected to enter into operation.



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Fitch Confirms Panama's Risk Rating

Because of its strong and stable macroeconomic performance, Fitch confirmed the long-term foreign currency rating at 'BBB', with a stable outlook.

Friday, February 15, 2019

For the risk qualifier, the country's macroeconomic performance has driven a sustained increase in per capita income, and it also forecasts that GDP growth will recover to 5.8% in 2019 and 5.5% in 2020, above countries with similar ratings.

You may be interested in "Risk Perception and High Financial Cost"

From the Fitch Ratings report:

Fitch Ratings-New York-13 February 2019: Fitch Ratings has affirmed Panama's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB' with a Stable Outlook. 

A full list of rating actions is at the end of this rating action commentary.

Panama's ratings are supported by its strong and stable macroeconomic performance, which has driven a sustained rise in per-capita income and reflects policies and a strategic location and asset (the Panama Canal) that underpin a high investment rate. This is counterbalanced by a relatively narrow government revenue base and an uneven track record of meeting fiscal consolidation targets that has kept the government debt burden on an upward trend. 

Macroeconomic imbalances are low in the context of high growth reflected by low inflation (0.8% in 2018) and a high current account deficit (8% of GDP in 2018) but fully funded by robust FDI inflows.

Fitch forecasts GDP growth will recover to 5.8% in 2019 and 5.5% in 2020, above similar rated countries. The 'Minera Panama' copper mine, scheduled to start operations in February, is a key driver behind economic recovery this year. Ongoing and pending infrastructure projects, including a new subway line and a fourth Canal bridge, will continue to underpin growth. A slowdown in growth to 4% in 2018 reflected a weakening of construction activity due to a month-long strike, although this sector also appears to be experiencing a secular moderation amid oversupply in some sectors. This was partly mitigated by a recovery of re-export activity in the Colon Free Zone and transit performance in the recently expanded Panama Canal.

Key near-term risk for economic activity remains a protracted trade dispute between the U.S. and China that could affect transit going through the Panama Canal and reputational risks surrounding financial transparency issues, including possible re-introduction of Panama into the Financial Action Task Force (FATF) 'grey' list in the upcoming revision. 

In Fitch's view, relaxation of near-term deficit limits under the Fiscal Responsibility Law (LRSF) hinder improvement in fiscal policy credibility. In October 2018, the government modified the LRSF to simplify its framework and ease fiscal restrictions in the context of slower growth. This change allows for higher fiscal deficits compared with the previous rule through 2021, repeating a pattern seen over the past decade of postponement of consolidation targets that has weighed on policy credibility. The previous version of the LRSF set a limit of the non-financial public sector (NFPS) deficit and allowed any shortfall in Canal transfers below the 3.5% of GDP to count as an additional "let-out" above the deficit limit. The modified LRSF sets clean limits on the NFPS deficit of 2.0% of GDP in 2018 and 2019, 1.75% in 2020 and 2021 and 1.5% thereafter. 

Panama's NFPS deficit was 2.0% of GDP in 2018, exactly in line with the modified deficit ceiling. Fiscal performance had deteriorated earlier in the year due to significant revenue underperformance, but this trend was offset late in the year by several large one-off receipts, including those from a tax amnesty applied to taxes on properties. Fitch expects the NFPS deficit will remain at 2% of GDP in 2019 and gradually fall in line with the new deficit ceilings.

The central government deficit - relevant for sovereign borrowing - was 2.8% of GDP for 2018, below 3.1% in 2017, and down from 3.9% in 2014. The deficit decline has not been enough to put debt-to-GDP on a downward path, as previously expected, despite strong economic performance. Central government debt rose to an estimated 39.2% of GDP in 2018, from 37.5% in 2017, and is expected to gradually increase in 2019 and 2020. Fitch estimates net government debt rose to 37.3% of GDP in 2018 from 35.4% in 2017, inching closer to the 40.0% legal limit. General government debt (net of the social security government debt holdings) at 34.9% is slightly below the historical 'BBB' median of 36.2% in 2018.

Government revenues have persistently fallen short of economic activity. Tax collections grew 4.3% on average in the five years through 2018, compared with nominal GDP of 7.5%. Panama's VAT rate of 7% is among the lowest in the region and investment, a key growth driver, benefits from relatively low taxes. The revenue underperformance may reflect structural issues in the tax agency as well as broader issues regarding tax evasion. The new law criminalizing tax offences could help tackling this issue, but frequent tax amnesties continue to pose a challenge toward improving tax compliance.

General elections - electing the president, local governments and 71 seats in the unicameral legislature - are scheduled to be held in Panama in May 2019. Fitch expects policy continuity from the incoming administration given the lead of candidates from well-established political parties in the latest presidential polls. The electoral campaign period is now limited to two months prior to the election date as per the electoral reform approved in 2017. Presidential candidates will be allowed to publish their campaign platform until March 4, resulting in limited visibility on the policy stance from major contenders at this time.

Reputational risks are an important issue in Panama because of its sizable international banking sector; total banking assets account for 180% of GDP. The government has made substantial progress strengthening its Anti-Money Laundering and Combatting the Financing of Terrorism (AML/CFT) framework. According to the FATF report published early 2018, the government was compliant or mostly compliant with 35 of its 40 recommendations up from only five recommendations in 2012. In early 2019, Panama's legislative assembly also approved the criminalization of tax evasion, included in the list of deficiencies signalled by the FATF. Despite technical compliance, perceived deficiencies in the implementation of the AML/CFT framework pose risks of Panama being included in the FATF's "grey list". 

Overall banking system liquidity remains high and well above minimum requirements, reflecting conservative policies in the absence of a lender of last resort. A USD500 million liquidity facility being created by the Banco Nacional de Panama, while small in size, will provide some additional support. Credit growth has moderated reflecting weaker demand in key sectors, particularly construction, and supply-side restraint amid slower deposit growth (Bank's main funding source) and higher Basel III capital requirements. 

Fitch's proprietary SRM assigns Panama a score equivalent to a rating of 'BBB' on the Long-Term Foreign-Currency (LT FC) IDR scale. 

Fitch's sovereign rating committee adjusted the output from the SRM to arrive at the final LT FC IDR by applying its QO, relative to rated peers, as follows:

- Macro: -1 notch, to reflect uneven track record of fiscal consolidation at the central government level that has hindered improvement in policy credibility and kept debt metrics on an upward path, a key consideration given absence of monetary policy. 

- Public Finances: +1 notch, to reflect that the SRM classifies public debt as fully denominated in foreign currency due to Panama's use of the U.S. dollar, but the century-old and well entrenched dollarization regime fully mitigates FX risk on the sovereign balance sheet. 

Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.


The Stable Outlook reflects Fitch's assessment that upside and downside risks to the rating are currently balanced. The main factors that, individually or collectively, could lead to a positive rating action are:
--Improvement in fiscal policy credibility leading to a decrease of fiscal deficits and reduction of the debt burden over time;
--Sustained improvements in tax collection that enhances fiscal policy flexibility. 

The main factors that, individually or collectively, could lead to a negative rating action are:
--Fiscal deterioration leading to weakening in public debt dynamics;
--Deterioration in medium-term growth prospects.

-Fitch base case assumes that the expanded canal will continue to perform as expected, with no meaningful deviations from current projections due to external or technical factors. 

-The global economy performs largely in line with Fitch's Global Economic Outlook (December 2018).



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Panama public  debt nears $26 billion

Posted 04/03/2019
Panama's public debt on as January 31 was $25.602 billion, an increase of $2.218 billion compared to the same month last year. Compared with 5 years ago, when the public debt reached $18. 212 billion, there is an increase of $7.39 billion. In January, $143 million was allocated to the interest generated by global bonds, the country's main debt instrument.


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Panama's Risk Rating Improves

Arguing that the outlook remains more positive in the medium term, Moody's upgraded its foreign currency long-term issuer rating from Baa2 to Baa1.

Monday, March 11, 2019

For the rating agency, Panama will continue to grow quickly, surpassing the growth achieved by the majority of qualified pairs in Baa.

You may be interested in "Risk Perception and High Financial Cost"

From Moody's statement:

New York, March 08, 2019 -- Moody's Investors Service ("Moody's") has today upgraded the Government of Panama's foreign-currency long-term issuer rating to Baa1 from Baa2. Moody's has also upgraded the foreign-currency long-term senior unsecured debt ratings to Baa1 from Baa2, as well as the foreign-currency long-term senior unsecured shelf ratings to (P)Baa1 from (P)Baa2.

The outlook has been changed to stable from positive.

The key drivers for today's rating action are the following:
1. Panama's economic growth and fiscal metrics exceed that of most Baa-rated peers and prospects remain more favorable over the medium term;
2. The government has strengthened its fiscal policy framework.
The stable outlook reflects Moody's expectation that Panama will continue to grow fast, outpacing growth achieved by most Baa-rated peers. The outlook also incorporates Moody's expectations that Panama's fiscal metrics will only register a moderate decline as the government builds a track record under the new fiscal rules.
Moody's has also raised the foreign-currency long-term bond and deposit ceilings to A2 from A3. The foreign-currency short-term bond and deposit ceilings remain unchanged at Prime-1 (P-1).


In Moody's view, Panama's growth outlook over the coming years will remain robust, following a deceleration in 2018 to 3.7%. Moody's projects GDP growth above 5% through 2022 -- compared to a Baa-category median of about 3%. Panama's economic dynamism will remain tied to investment and activities related to the Canal and the logistics sector. Over the coming years, Moody's expects that large-scale infrastructure projects will sustain the contribution of gross fixed capital formation to growth, while continued development along the Panama Canal zone related to logistics will solidify Panama's role as regional trade and financial hub, further supporting growth. Moody's notes that the Panamanian economy is the third fastest growing within the Baa category, after India (Baa2 stable) and the Philippines (Baa2 stable).

On the fiscal side, Moody's expects that the government debt burden will stabilize at or below 40% of GDP through 2020. After remaining broadly stable around 37% during 2015-17, the debt-to-GDP ratio rose to an estimated 39.5% last year. Moody's notes that despite growth deceleration in 2018, the authorities maintained the central government deficit flat relative to 2017, while complying with the non-financial public sector deficit target. Moody's expects that as growth recovers in 2019, the new administration -- which will take office in July 2019 -- will continue reducing the fiscal deficit over the coming years in line with targets set in the fiscal responsibility law, a condition that will contribute to stabilizing the debt-to-GDP ratio. At around 40% of GDP in 2019, the government debt burden will continue to compare favorably to the median of 50% for Baa-rated peers. Moreover, Moody's expects debt affordability -- measured as interest payments-to-revenue -- to remain broadly in line with the median for Baa-rated peers, even though Panama's tax revenue base is smaller than that of similarly-rated sovereigns.


Last year the government reformed the Social and Fiscal Responsibility Law that had been in place since 2008 and whose performance had been mixed. During the first phase (2009-14), fiscal deficit targets where constantly modified. At a later stage (2015-17), the rules' mechanics became overly complex and introduced an inherent deficit bias by allowing upward adjustments to the deficit targets.

Following changes made in 2018, the fiscal deficit target defined in the new rules will not incorporate an upward adjustment as it did in the past. This will facilitate in-year monitoring of fiscal performance relative to targets, but more importantly it will make the actual fiscal targets more transparent for policymakers and market participants.
While the fiscal deficit target will continue to be set at the non-financial public sector (NFPS) level, a new rule introduced a ceiling for nominal growth of central government current expenditures -- excluding expenditures on health, pensions and interest payments -- that cannot exceed potential growth plus inflation. Central government expenditures are important because the central government deficit drives Panama's borrowing needs and consequently debt accumulation. Containing current expenditures, which have been rising in recent years, will create room for the government to deliver on the deficit targets while maintaining relatively high levels of capital spending. Moreover, Moody's expects the creation of an independent fiscal council to provide increased oversight over the budget process and its execution, thus supporting fiscal discipline.

The mechanism that leads to the accumulation of assets in the sovereign wealth fund (Fondo de Ahorro de Panama, FAP) was also modified. Under previous rules, because the conditions to make transfers to the FAP were unrealistic, no transfers of additional resources to the fund occurred, leading to a decline in FAP's assets relative to GDP and to the government's debt stock. The revised framework, which incorporates lower thresholds for Canal transfers to the government, will potentially allow resources to flow to the FAP.


The stable outlook reflects Moody's expectation that economic growth will remain supportive of Panama's credit profile and that it will be stronger than that of peers. Domestic factors, related to continued investment and the expansion of the mining sector, will provide the basis for this strong growth. Meanwhile, Panama is somewhat exposed to external risks stemming from the ongoing trade dispute between the US and China. Thus, Moody's considers that risks to Panama's growth outlook are balanced.
The stable outlook also incorporates Moody's expectation that debt ratios will remain stable over the coming years as the government complies with the new fiscal rules. Moody's baseline scenario considers that the next administration will likely implement a tax reform to maintain social spending and investment, while also complying with the fiscal rules. Additionally, Moody's expects that Panama's debt metrics will continue to compare favorably to its Baa peers.


The rating could be upgraded should the government develop a strong track record of compliance with the new fiscal rules, demonstrating fiscal discipline, which would support policy credibility and lead to a material decline in debt ratios. Continued efforts to strengthen Panama's revenue raising capabilities would also be positive for Panama's credit profile. Additional upward momentum would emerge if the authorities proactively address potential contingent liabilities related to the social security system.

Alternatively, the rating could be downgraded if: (i) insufficient fiscal consolidation leads to continued deterioration in debt metrics; (ii) the government is unable to meet non-financial public sector deficit ceilings set forth in the fiscal rule; (iii) a weakening of government revenue, or the materialization of contingent liabilities lead to wider fiscal deficits and debt accumulation that translates into higher government debt ratios.


GDP per capita (PPP basis, US$): 25,405 (2017 Actual) (also known as Per Capita Income)
Real GDP growth (% change): 5.4% (2017 Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 0.5% (2017 Actual)
Gen. Gov. Financial Balance/GDP: -1.9% (2017 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -7.9% (2017 Actual) (also known as External Balance)
External debt/GDP: 26.8% (2017 Actual; Non-financial public sector only)
Level of economic development: Moderate level of economic resilience
Default history: No default events (on bonds or loans) have been recorded since 1983.

On 06 March 2019, a rating committee was called to discuss the rating of the Panama, Government of. The main points raised during the discussion were: An analysis of this issuer, relative to its peers, indicates that a repositioning of its rating would be appropriate. The issuer's institutional strength/framework, have increased. Other views raised included: The issuer's economic fundamentals, including its economic strength, have not materially changed. The issuer's fiscal or financial strength, including its debt profile, has not materially changed.

The principal methodology used in these ratings was Sovereign Bond Ratings published in November 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.



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Public debt climbed 70%during Varela reign


Posted 20/04/2019

WHOEVER   takes over the reins of power in Panama after the May 5 election will be faced with a public debt that has increased by 70 %  under the presidency of Juan Carlos Varela, according to a report published by TVN News.

 to March 2019, public debt in the Non-Financial Public Sector totaled $23.673 billion according to figures from the Ministry of Economy and Finance (MEF).

On June 30, 2014, one day before Varela took office, the public debt was $13. 931 billion meaning that during his administration the debt climbed  $9.742 billion an increase of 70%.

The Gross Domestic Product of the country reported annual growth of 3.7% in 2018, according to  the Comptroller General The MEF had forecast a 5.2% growth f

The IMF  forecasts a 6% growth in the Panamanian economy for  2019, while The Latin American Finance Committee (Cepal) estimates a growth of 5.6%.

The country will experience a crucial impact on its economic model with the mining giant Cobre Panama. According to the Mining Chamber of Panama, the project will generate about $2 billion a year in copper exports.

 Food Basket
According to figures from the MEF, the cost of the basic family basket in Panama and San Miguelito was $306.08  in January 2018. The institution calculates that without the control of prices, the figure would have been of $354.79.

Economists and businessmen have spoken out against price control, claiming that pointing out that it generates distortions in the market.


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Panama Issues $1 Billion in Debt

The Panamanian government issued debt securities in the local market at a 3.75% interest rate, with a seven-year term.

Monday, April 22, 2019

It is the first time that international investors agree to the purchase of a treasury note Baa1/BBB/BBB issued under Panamanian Law and listed on the Panama Stock Exchange, using the Euroclear platform, informed the Ministry of Economy and Finance (MEF), in a statement.

From the MEF statement:

April 2019. The Republic of Panama issued a security allotting $1 billion, an amount that has no effect on the debt balance and represents less than thirty percent (30%) of the programmed needs for the year.

This incursion of the Republic in the capital markets marks a milestone in the structuring of the Sovereign Title, being the first time that international investors access the purchase of a note of the Baa1/BBB/BBB treasury issued under Panamanian Law and listed on the Panama Stock Exchange, using the Euroclear platform. The issuance process involved participation with purchase orders from more than 100 international funds.

By executing this transaction, the Ministry of Economy and Finance (MEF) promotes the development of the local capital market, which represents a mitigation of the risk of adverse events in the international market, an action that both international organizations and risk rating agencies have positively valued.

Eyda Varela de Chinchilla, Minister of Economy and Finance, said that "demand exceeded more than twice the amount invested, reflecting investor confidence in the soundness of the Panamanian economy driven by the recent rise in investment grade rating Moody´s.  Additionally, this action demonstrates the commitment of the MEF to boost the dynamism of the Panama Stock Exchange since this transaction represents a 21% growth in the balance of government securities.

The transaction closed with a 3.75% interest rate coupon, a 7-year term and a margin over the U.S. Treasury of 140 basis points.



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Finance Ministry income projections  off by 24,9%


Posted 28/05/2019

Panama’s outgoing Finance Ministry (MEF)  came up $526 million or 24.9%  short in its projections of revenue in the first quarter of 2019.

It had budgeted that it would raise $2,112 billion in current revenues. but ended up with $1.585.9 billion.

The Ministry pointed out that the fall is explained by the fact that in the first quarter of each year the income tax corresponding to the results of the previous year is paid and it was  2018 was a year of an economic slowdown.

Questioned about the effect that the results would have on the spending capacity of the incoming administration, the MEF said that a higher income is expected for the coming months.


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2.5 billion bond issues to pay debts, finance investments


Hector Alexander.

Posted 11/07/2019

Bond issues authorized by the Cabinet Council on Tuesday.  will be used partly to meet commitments for maturing debt and partly to finance investments and the general budget of the State says Panama’s Minister of Economy and Finance, Hector Alexander.

The Cabinet authorized the  Ministry to issue bonds for up to  $2.5 billion for the remainder of the year, to open a line of credit with the  National Bank of Panama  (BNP) for  $500  million and to sign a $150  million loan with the Inter-American Development agency.

Not all of the funds will end up swelling the public debt at the end of the year. For example, the line of credit with the BNP, a resource usually used by the Executive, is repaid before the end of the year and, therefore, will not be included in the balance sheet of the non-financial public sector at the end of the year says the Minister

In addition, about  $1  billion of bond issues will be used to refinance debt, and in that case, it is not added to the balance of the State's commitments.

Alexander, speaking at the IV International Financial Summit, said that an inventory is being made of the debts owed to state suppliers, as well as to the agricultural, industrial and banking sectors, and that the intention is to catch up with the existing commitments as of December 31, 2018.

On the projection of the fiscal deficit at the end of the year, estimated at 2.6% of GDP by the last administration, the minister said that the diagnosis is still being made, and that when it is done it will be handled appropriately.



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Panama $2 billion bond  issue oversubscribed in record time


Posted 18/07/2019

A $2 billion Panama bond issue at a very low rate, was snapped up on Wednesday, July 17 with the bidders proposing to the Panamanian delegation that traveled to New York, $11,000 billion, 5.5 times more than what was required.

The country can now afford to pay to suppliers and unions of teachers and educators, as well as other sectors that have outstanding accounts, says the vice-minister of Economy, David Saied.

He added that in an unprecedented issue in the history of the Republic, the lowest rate of a 10-year bond and the lowest rate of a 40-year bond has been achieved, which constitutes a benefit for the state’s finances.

Saied said that with these resources, the new administration will be able to initiate the payment of the accounts owed to suppliers to reactivate the economy and employment, and also to do justice to thousands of people. The negotiated volume is 5.5 times more than what Panama needed.

The transaction demonstrates the confidence of international markets in the actions of the new administration, in terms of fiscal accounts, and will also allow dealing with pending accounts for payments to Panamanians who are owed wages, vacations and other accounts.



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Panama Issues $2 Billion in the International Market

For the business sector, the issuance of $2 billion in bonds by the government is positive, since "it allowed the country to quote, for the first time in history, a bond for more than 20 years with an interest rate below 4%.

Thursday, July 18, 2019

On July 17, the Panamanian government was able to issue bonds for $1.25 billion with a 3.160% interest rate and maturity in 10 years (2030), and others for $750 million with a 3.870% rate and maturity in 40 years (2060).

This issuance was made during the first days of Cortizo's administration, who assumed in a context of economic slowdown in Panama, since in 2018 the country's Gross Domestic Product reported a 3.7% year-on-year growth, far from the increases of 11.3% and 9.8%, reported in 2011 and 2012, respectively.

From the CCIAP statement:

The Chamber of Commerce, Industries and Agriculture of Panama (CCIAP) welcomes the response of the international market to the issuance of sovereign bonds for the historic sum of US$2 billion, which were oversubscribed in a proportion of five times the amount to issue. In addition, this issue has a very competitive interest rate.

For the guild it is positive that the strong demand for the bonds issued allowed Panama for the first time in history to quote a bond for more than 20 years with an interest rate below 4.0%.

Read full statement (In Spanish).



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OPINION: Mortgaging Panama’s future

Posted 07/08/2019

In the current five-year period, of the administration of President Laurentino Cortizo, almost 11 billion dollars of Panamanian public debt are due. That is equivalent to 40% of the public debt of the State. These obligations will have to be renewed or refinanced in some way in the coming years. Ideally, the new government should continue with its "austerity with efficiency" policy, and begin to reduce the weight of public debt in relation to our economy and the government's fiscal revenues. In past administrations, new debt was contracted very lightly. It was used to pay cost overruns and fancy projects. They used accounting tricks to remove from the official account financial commitments of state-owned companies and the illusion remains that the actuarial deficit of the Social Security Fund is not part of the debt. The distant future to which all debts could be sent, without affecting the present, has ceased to exist. We Panamanians have great economic and social challenges that must be resolved with the resources we have, without continuing to mortgage future generations. Today we still have time to control our debt, and put our house in order.- LA PRENSA, Aug 7



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Public Debt Increases to 10%

Between June of last year and the same month of 2019, the government's debt in Panama increased from $24.233 million to $26.612 million, an increase explained by the increase in domestic debt.

Monday, August 26, 2019

The Ministry of Economy and Finance informed that within the external debt service, the payment of capital to Multilateral Organizations for $35.6 million and $15.7 million to Banking Entities stands out.

The report states that "... The total public debt balance decreased by US$578.4 million (-2.1%) with respect to the balance registered at the close of May 2019, highlighting the disbursement of US$140.0 million corresponding to the twelfth section of Treasury Bonds 2024 with coupon of 4.95%; US$40.0 million corresponding to the fifth auction of the year of Treasury Bills for a 6-month term and a weighted average yield of 2.52%; and US$48.5 million corresponding to the sixth auction of the year of Treasury Bills for a 12-month term and a weighted average yield of 2.60%.

On the other hand, the Multilateral Organizations disbursed US$168.7 million in June, highlighting US$150.0 million in the Program to Strengthen Policies for the Development of Air Transport and Urban Mobility in Panama; US$11.0 million in the Bilingual Panama Program; US$5.8 million in the Program for the Expansion and Modernization of Educational Infrastructure and US$1.9 million in the Project for the Restoration of Watersheds subscribed with the Latin American Development Bank (CAF). In addition, ING Cese Facility disbursed US$34.6 million in the Project for Line 1 of the Panama Subway 70 Wagons.

At the end of June, yields on the most liquid international debt securities in the Republic of Panama showed an average decrease of 27 basis points (bps) compared to the previous month, while local instruments recorded an average decrease of 36 bps.

See full report.


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Fiscal deficit  more than double legal limit


Hector Alexander

Posted 11/09/2019

Minister of Economy and Finance, Héctor Alexander told the National Assembly Budget Committee chaired by PRD deputy Benicio Robinson on  Wednesday that the fiscal deficit levels exceed more than double what the fiscal social responsibility law allows.

In addition, there are obligations payable as of December 31, 2018, for approximately $1.248 billion, without considering the accounts payable to the Social Security Fund (CSS), the amount of which is being reconciled with the entity. 

In addition, contributions from the Panama Canal Authority (ACP) for $1,844 billion are expected.

Bill No. 90, which contains the budget for 2020 presented by the Executive, totals $23.316 billion, an increase of 4.7% over the "adjusted" budget for 2019.

This is the first budget prepared by the administration of Laurentino Cortizo, who took office on July 1.



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Panama’s big-spending party is over

Posted 13/10/2019

After a decade of partying with public finances, which included pharaonic budgets, megaprojects with addenda and an exaggerated growth of the payroll of public servants, both in quantity and in salaries, it was time to pay the bills.

The Minister of Economy of the new government has applied a containment of public spending for $1.483 billion for this year and seeks that the fiscal deficit authorized by the law of fiscal social responsibility can amount to 3.5% of gross domestic product. Historically, governments have opted to modify this law to meet the budget and thus fulfill their political commitments, instead of managing income and expenses according to legal margins. Some seem not to understand the seriousness of the facts. According to the National Assembly Budget Commission, State entities that have paraded before the  Commission have asked for $2 billion above what is recommended by the MEF. The country's option is not to continue spending without criteria and, appointing co-supporters with high salaries, but to govern with responsibility and diligence. If we continue like this, the weight of the public debt will become the anchor that stops Panama's growth and causes problems similar to those of the Latin American neighborhood. It is clear that the party is over and now it is time to collect the broken dishes. LA PRENSA. Oct. 13



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