Panama’s Economic Uncertainty: Fitch Downgrades Credit Rating, Rising Debt Threatens Stability

In recent years, Panama has faced a number of challenges to its economic stability. Despite maintaining a strong economy and political stability compared to neighboring countries, the country’s credit rating was recently downgraded by Fitch due to factors such as high fiscal deficits, governance issues, and tax underperformance.

In March 2010, Panama was granted an investment grade status by Fitch due in part to the expansion of the Panama Canal and foreign direct investment. However, the current economic landscape is starkly different. The closure of a copper mine and drought affecting canal revenues have led to significant challenges for the country’s economy.

By the end of 2023, Panama’s public debt had risen to $47.4 billion, which exceeded 60 percent of GDP. Critics have blamed the government’s aggressive borrowing rate, which escalated under President Laurentino Cortizo’s administration that took office in July 2019. The debt-to-GDP ratio surged from 44.5 percent at the end of 2019 to 64.7 percent by the end of 2020, with borrowing used to offset revenue declines during the pandemic.

Despite these challenges, many experts believe that Panama has strong fundamentals and can recover if it can address its debt issues and improve governance. However, there are concerns about whether the country will be able to do this before it faces another election later this year.