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LatinNews Daily - 18 March 2021

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In brief: Moody’s downgrades Panama

* International credit ratings agency Moody’s has downgraded Panama’s long-term issuer and senior unsecured debt ratings to Baa2 from Baa1. The ratings agency cited as the key driver for its decision “the very material deterioration in Panama’s fiscal strength driven by the severe economic shock” from the coronavirus (Covid-19) pandemic. According to Moody’s “while most sovereigns have experienced some diminution in their fiscal strength, in Panama’s case the erosion has been unusually large relative to rating peers”. It notes that Panama’s GDP fell 17.9% in 2020 compared with its expectation of a 10% contraction last October, while the sharp slowdown in economic activity weighed on government revenue, which fell 21.2% last year. The fiscal deficit reached 10.1% of GDP, up from 3.1% in 2019. At US$37bn, government debt stood at 69.8% of GDP in 2020, up from 46.4% in 2019. Moody’s considers that improvements on the fiscal front will be at best “very gradual” given its expectation that the government deficit will remain relatively large at around 7.5% of GDP in 2021 and that economic output will not return to 2019 levels until late 2023.