The investment bank also projected possible “negative” rating shares by Moodys and Standard & Poor’s in the next two months
Barclays investment bank downgraded Panama’s rating to a lower position, after it raised credit to the weight of the market last month (Underweight a Market Weight), news media reports.
The reduction took place in the midst of discussions on the general budget of the State for fiscal year 2025 and its various modifications.
In a report to its “negative investors,” Barclays stressed – the deteriorating fiscal landscape, legislative difficulties for the new administration and a higher interest rate environment.
The investment bank also projected possible “negative” rating actions by the rating agencies Moodys and Standard & Poors (S&P) over the next two months. At the end of March Fitch Ratings degraded Panama’s credit rating to stable .BB, highlighting the impact of the closure of the mine and debt.
In its report, Barclays highlighted that Panama’s bonds were sold on Monday among the worst in emerging markets and, on the contrary, recommended buying bonds from the Dominican Republic in 2049 and Suriname in 2033, while considering those in El Salvador as expensive.
The bank made this assessment after last October 25, the Minister of Economy and Finance (MEF), Felipe Chapman, announced the increase of the budget by 2025 by 12.2%, raising it to $30.1 billion.
In that sense, the bank said that the approval of a “conservative” budget, by the MEF, has been a problematic one, with the proposed spending increasing to $30.1 billion.
At the same time, Barclays stressed that Panama’s fiscal deficit has worsened – reaching 6.4% of GDP until August, with a 3.4% fall in tax revenues. And a deficit of 4.8 per cent is projected by 2024, although some investors fear it will exceed 6 per cent.
He mentioned that Panama has secured funding through a $1 billion loan from JPMorgan and other mechanisms, allowing it to avoid issuing bonds in 2024, but this could have future penalties, for a rating drop for example.
The report highlights that Panama’s bonds are being traded at broad margins, and Moodys or S&P’s rating shares are expected to negatively affect their value. Barclays recommended selling Panama bonds 2036 to 6.875%.
The proposal of the General Budget of the State for 2025 was presented to the plenary of the National Assembly by the head of the MEF, Felipe Chapman, on October 7, for $26,084 million, but was withdrawn and rose by $751.2 million, remaining in its second presentation at $26.835 million, and after other recommendations of the Legislative finally, in a third attempt, the minister swearing $30,111 million, which represents an adjustment of $3.276 million. The amount is 15.4 % more or $4.027 million in addition to the Executive’s initial proposal ($26,084 million).
With the latter amendment, Chapman stressed to the representatives of the Budget Committee of the National Assembly on 25 October that the recommendations received during the fiscal hearings were carefully evaluated and incorporated into the project, stating that despite the increase implied by this budget remains lower than that for fiscal year 2024. He also stressed that the budget follows a “conservative, prudent and accountable” approach to achieving the proposed objectives by 2025.
Comparing the first budget of the Mulino administration, with the current (2024) and last of the administration of the former president, Laurentino Cortizo Cohen, the variation is lower at just 1.88 % or $579 million less, to total $30,690 million, as indicated in Law 418 of December 29, 2023, which dictates the General Budget of the State for fiscal validity 2024.
This article has been translated after first appearing in La Estrella