Fitch revises Panama's view to negative

Fitch Ratings said it affirmed Panama's long-term foreign-currency issuer default rating at BBB and revised the outlook to negative from stable.

“The revision of Panama's outlook to negative reflects a marked deterioration in fiscal deficits and a significant increase of the government's debt burden, related to accumulation of arrears by previous administration and higher fiscal deficit targets under the modified Fiscal Responsibility Law. In addition, the recent greater-than-anticipated growth deceleration creates additional challenges for fiscal consolidation,” said Fitch in a press release.

The incoming administration indicated the prior government resorted to the accumulation of arrears and discretion in fiscal accounting practices to meet deficit targets. Arrears will be recognized on the years they were incurred and will lead to an upward revision of fiscal deficits in past years. The authorities cleared supplier arrears in 2019, estimated at 1.8% of GDP, and intend to pursue a policy of keeping payables to suppliers to a level of 90 days. An added 0.6% of GDP was disbursed to clear accounts payable to the Caja del Seguro Social, Panama's social security organization.

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