Moody's: steady service sector shields Panama from regional volatility

In its annual report on Panama, Moody's Investors Service said the country's investment-grade country ceiling and stable outlook are reinforced by a service sector that provides a steady source of foreign income that has served to shield the economy from the volatility observed elsewhere in the region.

Panama's Baa1 foreign-currency country ceiling for bonds is based on Panama's history of legal dollarization. The government is rated Ba1.

"Effective debt management has significantly improved the maturity profile of the public debt stock, lowering the country's refinancing risk," Moody's associate vice president Alessandra Alecci said in the report.

"Yet, ratings remain constrained by a high public sector debt ratio relative to GDP," she said, adding that Panama's foreign-currency bond ceiling assesses the risk of a disruption in the smooth functioning of the dollar payments system and that the country's long tradition of dollarization sees limited risk for such disruption.

The national assembly's recent vote to approve a planned expansion of the Panama Canal is not expected to affect the government bond ratings and "underpins a favorable medium-term growth scenario, which should further improve debt dynamics," Alecci said. "This is because, even though the potential size of additional public debt is large, the government does not intend to extend any guarantees and the project is expected to be profitable, thanks to an expected surge in investment."

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