New York, October 31, 2012 -- Moody's Investors Service has upgraded the Government of Panama's
bond rating to Baa2 from Baa3. The outlook has been revised to
stable from positive.
The upgrade reflects the following key drivers:
1) Panama's ongoing economic dynamism and positive medium-term
growth prospects; and
2) Continuing improvements in its debt metrics.
Panama's economy has grown at an average rate of 7.3%
during the past ten years, the highest rate of growth in Latin America
and among the highest in the world. Despite weakening external
conditions, Panama continued to show remarkable economic dynamism
in the first half of 2012 when GDP increased at an annualized rate of
10.6%, roughly the same pace it registered during
2011. Though recent growth rates are not sustainable, medium-term
growth prospects remain strong thanks to the expansion of the Panama Canal,
the Martinelli administration's ambitious infrastructure investment plans,
and the recent ratification of the free trade agreement by the U.S.
Congress. Together, these developments should improve Panama's
position as a global logistics hub. Panama's economy will
also benefit from a massive new copper and gold mining project.
As a result of strong economic growth, debt to GDP fell from a peak
of 70% of GDP in 2004 to 41.5% in 2011, just
slightly above the median for Baa-rated sovereigns of 38%.
The pace of improvement in the government's debt metrics has slowed
considerably since 2008 as the government's fiscal performance has
slipped on the back of a significant increase in capital expenditures.
However, debt/GDP has continued to improve gradually and is forecasted
to fall below 40% in 2012. Furthermore, while the
recent fiscal trend has been negative, deficits remain moderate
compared to many of Panama's rating peers (as well as more highly
rated countries), particularly in the context of the country's strong
economic growth.
Panama's National Assembly recently approved an increase the deficit
ceilings in Panama's fiscal rule at the same time that it voted
to create a new sovereign wealth fund. Although not credit negative,
the increase in the deficit ceiling significantly lessens the degree to
which both the fiscal rule and the fund might have been credit positive.
In conjunction with the upgrade to Panama's government bond rating,
Moody's has also unified its foreign currency bond and deposit country
ceilings at A3 and withdrawn its local currency ceilings.
The stable outlook is based on Moody's expectation that growth in
Panama will remain solid (if not quite as stellar as in the past two years).
It also reflects the likelihood that the pace of further improvements
in Panama's debt metrics will continue to slow unless the government
demonstrates significantly greater fiscal discipline than it has done
in recent years. The rating could see further upward pressure if
the current infrastructure investments sustain the economy's growth
momentum and the government reverses the recent deterioration in its fiscal
performance. If its fiscal performance continues to deteriorate,
however, and the economy suffers a sharper than expected slowdown,
the rating could face downward pressure.
The principal methodology used in this rating was Sovereign Bond Ratings
published in September 2008. Please see the Credit Policy page
on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
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this announcement provides relevant regulatory disclosures in relation
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are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
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the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Aaron Freedman
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Bart Oosterveld
MD - Sovereign Risk
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's upgrades Panama to Baa2
