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LatinNews Daily - 04 February 2021

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In brief: Fitch downgrades Panama

* International credit ratings agency Fitch Ratings has downgraded Panama's Long-Term Foreign Currency Issuer Default Rating (IDR) from 'BBB' to 'BBB-'. According to a Fitch press release, the downgrade “reflects the severe weakening of public finances due to the economic disruption caused by the coronavirus [Covid-19] pandemic”. Fitch estimates that Panama's Non-Financial Public Sector (NFPS) deficit reached 9.6% of GDP in 2020, driven by a revenue contraction of 23% compared to 2019. Indirect taxes, including taxes on consumption and imports, were the most affected, declining by 33.7% relative to 2019. Expenditures declined by 3.1% as of the third quarter of 2020 (latest available) compared to 2019. The Fitch press release notes that the government implemented a support package worth 3% of GDP, which included health-related expenses, income transfers to vulnerable populations, and extensions to tax payment deadlines. However, capital expenditures declined as mobility restrictions delayed public infrastructure projects. Fitch estimates that central government debt rose to 68% of GDP in 2020, up from 46.4% in 2019, while general government debt (net of social security government debt holdings) reached 60.5% of GDP, surpassing the 'BBB' category median of 52.9%.