The closure of Copper Panama and the social unrest of October and November aggravate the challenges according to Fitch.
The closure of Cobre Panama has reinforced downward pressure on the sovereign rating “BBB-” as it joins the existing fiscal challenges, affecting the prospects for growth in the short term and highlighting the weaknesses of governance, warned the risk qualifier Fitch this Friday.
According to the qualifier, public finances remain structurally weak, amid rising interest costs, spending pressures and weak tax revenues.
He adds that the authorities have relied on exceptional maneuvers to meet fiscal targets, and have enacted measures that could worsen rather than improve the underlying trend.
The closure of Copper Panama and the social turmoil of October and November aggravate these challenges. This has led Fitch to cut its growth projection by 2024 from 4.5 per cent to 1.5 per cent.
The 2024 budget projects an increase in revenue and authorizes a further increase in spending, which would imply a wider deficit of 5.6 per cent of GDP if implemented in its entirety, but assumes that substantial under-execution will reduce this deficit to the lower legal limit of 2%.
The original budget proposal provided for a deficit of 6.7% of theGDPBefore the underexecution, but it was revised late last year to cut spending.
Fitch argues that it is unclear whether this review will produce this review. Since the budget was already such a large underexecution, the reduction in authorized expenditure can have a limited effect on actual expenditure.
The qualifier highlights that the completion of fuel subsidies and the Vale Digital social transfer provided since the pandemic will offer significant savings of around 0.8% of GDP.
In light of developments, including the Channel drought, Fitch has raised its deficit forecast by 2024 from 4.3 per cent to 4.7 per cent of GDP. The prospects for consolidation will depend on the plans of the next government, following the May elections.
They also stress that no candidate has proposed specific tax reform plans to exceed spending compensation.
“The protests of 2022 and 2023 highlight a difficult context for corrective tax measures,” they say.
This article has been translated from the original which first appeared in Pan America