Moody’s prunes Panama ratings

Moody's Investors Service said it downgraded Panama's long-term issuer and senior unsecured ratings to Baa3 from Baa2 and the senior unsecured shelf rating to (P)Baa3 from (P)Baa2. The agency also changed the outlook to stable from negative.

The downgrade reflects the view “about Panama's lack of an effective policy response to structural fiscal challenges that have been rising over time, a condition that denotes weak governance and reduced fiscal policy effectiveness, a governance-related element under Moody's analytical framework. Moody's considers these pressures will persist leading to a deterioration of Panama's overall fiscal strength with the authorities' practice of relying on one-off revenue measures proving insufficient to reverse underlying trends,” the agency said in a press release.

The stable outlook reflects the expectation that strong economic growth prospects will continue, enabling Panama's debt burden to remain aligned with that of its rating peers. “Additionally, Panama continues to benefit from moderate-to-low susceptibility to event risk, which reflects in part the role of dollarization that mitigates the potential of sudden changes in its key credit metrics,” Moody’s said.

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