Moody's expects 10% GDP drop this year in Panama
The risk rating agency Moody's Investors Service updated Panama's credit opinion and took its estimate of the performance of the Panamanian economy to a 10% drop this year, as a result of the crisis caused by the new coronavirus.
The rating remains at Baa1, with a stable outlook. Of the three major rating agencies, Moody's is the only one that keeps the rating outlook stable, as both S&P Global Ratings and Fitch Ratings changed it from stable to negative this year, which could translate into a rating downgrade to medium. term.
For next year, the projection of a growth of 4.5% is estimated. For Moody's, the stable rating outlook reflects the expectation of stronger growth than countries with a similar rating, with the Panama Canal, Panama's role as a logistics hub and the mining sector as some of the factors that would generate this growth.
Panama would return next year to a growth path after a contraction in 2020, the first since the 1988 crisis. Moody's estimate for 2020 is the same as Bank of America and somewhat more pessimistic than 9% drop expected by the Government. Local economists such as Manuel Ferreira, director of the Center for Economic Studies of the Chamber of Commerce, Industries and Agriculture, also previously predicted that the contraction of the gross domestic product (GDP) would be between 7% and 10%.
Moody's reports the sharp falls in the monthly index of economic activity for April and May, 34.7% and 40.9%, respectively. And, because the containment measures continued, a similar result is expected for the month of June, causing a 30% contraction of the economy in the second quarter of the year.
The lower economic activity has its effects on the government's income generation. The Ministry of Economy and Finance calculates that at the end of the year the fall in income with respect to the budget will be greater than $3 billion. Moody's collects this data and estimates that the fiscal deficit of the non-financial public sector will be 7%, although if public investment rises in the second half of the year it could be closer to 9%. Similarly, the relationship between GDP and debt would go from 46.4% at the end of 2019 to 59% when this year ends. The ratio between interest payments and current income will also increase from 10.3% in 2019 to 15.4% in 2020, another of the indicators that rating agencies follow to measure the ability to pay debt.
Given this deterioration in fiscal metrics, one of Panama's relative strengths is eroded compared to countries with a similar rating, according to Moody's. As other agencies have also pointed out, stabilizing debt levels in the medium term through fiscal consolidation will be important to support the country's credit profile.
For next year, the projection of a growth of 4.5% is estimated. For Moody's, the stable rating outlook reflects the expectation of stronger growth than countries with a similar rating, with the Panama Canal, Panama's role as a logistics hub and the mining sector as some of the factors that would generate this growth.
Panama would return next year to a growth path after a contraction in 2020, the first since the 1988 crisis. Moody's estimate for 2020 is the same as Bank of America and somewhat more pessimistic than 9% drop expected by the Government. Local economists such as Manuel Ferreira, director of the Center for Economic Studies of the Chamber of Commerce, Industries and Agriculture, also previously predicted that the contraction of the gross domestic product (GDP) would be between 7% and 10%.
Moody's reports the sharp falls in the monthly index of economic activity for April and May, 34.7% and 40.9%, respectively. And, because the containment measures continued, a similar result is expected for the month of June, causing a 30% contraction of the economy in the second quarter of the year.
The lower economic activity has its effects on the government's income generation. The Ministry of Economy and Finance calculates that at the end of the year the fall in income with respect to the budget will be greater than $3 billion. Moody's collects this data and estimates that the fiscal deficit of the non-financial public sector will be 7%, although if public investment rises in the second half of the year it could be closer to 9%. Similarly, the relationship between GDP and debt would go from 46.4% at the end of 2019 to 59% when this year ends. The ratio between interest payments and current income will also increase from 10.3% in 2019 to 15.4% in 2020, another of the indicators that rating agencies follow to measure the ability to pay debt.
Given this deterioration in fiscal metrics, one of Panama's relative strengths is eroded compared to countries with a similar rating, according to Moody's. As other agencies have also pointed out, stabilizing debt levels in the medium term through fiscal consolidation will be important to support the country's credit profile.