Panama will grow by 2% in 2024 and has room to maintain its investment grade, affirms CAF
The Government of Panama assured credit rating agencies on January 8th that it will comply with the 3% fiscal deficit limit established for 2023.
By EFE
Panama’s economy will grow by around 2% of the gross domestic product (GDP) in 2024, facing challenges due to falling revenues caused by the crisis in the canal and the closure of a major copper mine, said Lucía Meza, the representative in the country of the Development Bank of Latin America and the Caribbean-CAF, on Thursday.
“We consider that Panama’s growth, and there is some consensus among sources studying these issues, will be around 2% this year,” Meza told EFE.
This result, much lower than the approximately 7% GDP expansion in 2023 according to Panamanian government forecasts, is due to the reduction in ship transit through the interoceanic canal due to drought, which will impact its contributions to the treasury, the representative of the regional bank indicated.
Meza explained in a meeting with journalists specializing in economics on Thursday that another factor affecting Panama’s economic growth rate this year is the closure of a large Canadian-owned open-pit copper mine, which was expected to contribute at least $375 million annually to the treasury, after a Supreme Court ruling declared the concession contract unconstitutional.
The Panamanian government announced last December a strategy for the orderly and definitive closure of the mine, whose preparation will take between 6 and 18 months at a cost of $1.5 million, and whose execution could take between 7 and 9 years with a cost of between $800 and $1,000 million. It is possible, explained the CAF representative, that in 2024 Panama “may not be able to comply with its fiscal rule because there will be a higher deficit” due to the decline in national revenues, so “the cost of borrowing could be higher and broader. (The country) will need to borrow more to cover the costs it has to pay.”
Panama’s Investment Grade However, despite this complex outlook, the Central American country has room to maintain its investment grade, Meza commented when asked about fears of losing the debt rating.
“We believe it is still possible that it will not happen, that the investment grade will be preserved, and hopefully it will be achieved. But again, that will depend on what Panama projects in terms of securities to mitigate this great economic impact it is having with these challenges, which are twofold: the reduction in ship traffic through the canal, which we know is a very important source of income for the country, and the revenues from the mine, which will no longer be possible, and the higher cost of closure,” she said.
The CAF representative in Panama reaffirmed that “the risk rating is a dynamic matrix that depends on many things, but above all on demonstrating that there will be actions to control all these challenges of the country.”
The Government of Panama guaranteed credit rating agencies on January 8th that it will comply with the 3% fiscal deficit limit established for 2023 in a law on the subject, and that for 2024 the indicator is estimated to be “2% maximum.