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LatinNews Daily - 26 October 2022

In brief: Moody’s changes Panama outlook to negative

*International credit ratings agency Moody’s Investors Service has changed its outlook on the government of Panama to negative from stable. Concurrently, Moody’s affirmed the long-term issuer and senior unsecured debt ratings at Baa2, and the senior unsecured shelf ratings at (P)Baa2. In a statement Moody’s said the change reflects “rising fiscal pressures stemming from an increasingly rigid spending structure related to upward trend in wages, transfers and interest payments.” It says the government’s wage bill has been growing at a steady pace during the last decade amounting to 31% of total expenditures (6% of GDP) in 2021, up from 20% (3.9% of GDP) in 2013. It notes that spending on transfers, which include subsidies, was relatively stable in 2015-2019 at about 20% of total spending (3.3% of GDP), but has spiked since the coronavirus (Covid-19) pandemic, to 24% of spending (4.6% of GDP) in 2021. Meanwhile it highlights prospects of “persistent deterioration in the financial position of the social security’s defined benefit programme, with projections indicating its reserves will run out by 2024.” While Moody’s notes that Panama’s economic growth prospects remain favourable relative to peers and projects average real GDP growth of 4.4% during 2023-2025, it expects GDP growth in the coming years will be lower than before the pandemic.

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