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Fitch Ratings
The upgrades reflect a sustained improvement in public finances, underpinned by recent tax reforms, and the economy's resilience to the global financial crisis and associated recession. Although economic growth decelerated to 2.4% in 2009 from 10.7% in 2008, it was one of the strongest rates of growth in Latin America and among 'BBB' rated peers. Similarly, fiscal deterioration was moderate, especially by international standards while Panama's general government debt/GDP ratio stabilized around 45%. The Positive Outlook reflects the expectation that government debt/GDP ratio will further decline as the growth accelerates and fiscal discipline is maintained despite an ambitious public investment program.
Although Panama's gross public debt ratios remain high relative to 'BBB' peers, official dollarization, a favorable amortization profile and the government's considerable financial and land assets offset this weakness. Fiscal consolidation and vigorous growth reduced the government debt to GDP ratio to an estimated 45% last year, from a peak of 70% in 2004. Under conservative assumptions of a 1% of GDP fiscal deficit and average growth of 5%, Panama's government debt/GDP ratio will converge with the current 10-year 'BBB' category median of 35% by 2014 at the latest. Furthermore, net government debt, at 29% of GDP, is in line with the 10-year 'BBB' median. Given the moderate debt burden and Fitch's expectation that the non-financial public sector will maintain a deficit of close to 1% of GDP, the government's financing needs remain manageable at an estimated 2.6% of GDP this year, among the lowest of 'BBB' rated sovereigns and further supporting creditworthiness.
While the net sovereign external debt to current account receipts ratio remains high at 22.5% compared with a 10-year peer median of -8.1% in 2009, this partly reflects Panama's monetary regime whereby the authorities do not technically maintain international reserves. However, the overall level of foreign indebtedness of the economy is very low - net debt is equivalent to less than 2% of GDP, substantially less than the 10-year 'BBB' median of around 10%.
Evidence that the economy can sustain high growth without internal or external imbalances emerging would underpin confidence in sovereign creditworthiness, as would further measures to improve the management of public finances, including greater fiscal and funding flexibility. Successful execution of the government's public investment program, including the Panama Canal expansion project, without endangering Panama's favorable debt dynamics would also be positive for creditworthiness. By contrast, Fitch could revise the Outlook to Stable if unexpected fiscal deterioration beyond the scope of the Fiscal Responsibility Law or the realization of contingent liabilities lead to a sustained deterioration in the government's debt dynamics.
Source: Fitch Ratings Centroamerica
More on this topic
March 2010
Panama has joined the privileged group of Latin American countries ranked as investment grade, which includes Brazil, Mexico, Chile and Peru.
Fitch Ratings has upgraded the Republic of Panama's long-term foreign currency and local currency Issuer Default Ratings (IDRs) to 'BBB-' from 'BB+'.
July 2009
Fitch Ratings has affirmed Guatemala's local and foreign currency Issuer Default Ratings (IDRs) at 'BB+'. The Rating Outlooks on both ratings are Stable.
Guatemala's track record of macroeconomic stability, low public and external debt burdens, as well as the government's solid commercial debt repayment history continue to support the sovereign's ratings.
March 2011
Fitch upgraded Foreign currency IDR to 'BB+' from 'BB'; Country ceiling to 'BBB-' from 'BB+'; Local currency IDR affirmed at 'BB+'; and Short-term IDR affirmed at 'B'. The Rating Outlook is Stable.
From the Fitch Report:
"The upgrade reflects Costa Rica's better than expected economic resilience during the global credit crisis, steadily improving macroeconomic stability underpinned by lower inflation and higher international liquidity as well as the country's relatively modest external indebtedness.
September 2010
Fitch Ratings has recently confirmed that the country's local and foreign currency risk classification as 'BB', with Outlook Negative.
El Salvador's main credit weaknesses include its comparatively slow GDP growth, a narrow income base and rigid fiscal policy, particularly apparent in the light of the country's vulnerability to the US economic slowdown and corresponding drop in capital movement.
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