Fitch Downgrades Panama’s Credit Rating Amid Political and Economic Turmoil

Panama has faced significant challenges in recent years, including massive protests, political uncertainty ahead of an upcoming presidential election, and a recent downgrade of its credit rating by Fitch. These factors have led to grim economic prospects for the country.

Fitch’s downgrade of Panama’s credit rating, moving it from investment grade to speculative grade, highlights the challenges the country is currently facing. In the past, Panama’s economy was strong, with factors such as the expansion of the Panama Canal, public investment, and foreign direct investment contributing to its economic growth. However, fiscal deficits, governance issues, the closure of a large copper mine, weaker canal revenues due to a drought, and tax underperformance have painted a different picture for the country’s economy.

Critics have blamed the current government’s borrowing rate, which is the most aggressive in the country’s history. Since President Laurentino Cortizo took office in July 2019, the accumulated debt has increased significantly, mainly due to the pandemic. The government’s reliance on borrowing to mitigate revenue declines during the pandemic has caused the debt-to-GDP ratio to surge from 44.5 percent at the end of 2019 to 64.7 percent by the end of 2020. By