Caribbean & Central America - October 2017 (ISSN 1741-4458)

Moody’s upgrade: The government led by President Juan Carlos Varela is hailing the recent decision by the international credit ratings agency Moody’s Investor Service to change its outlook on Panama to positive from stable. In a statement released on 29 September, Moody’s “affirmed the Government of Panama’s issuer rating and senior unsecured bonds at Baa2 and senior unsecured shelf at (P)Baa2”. It cited two key drivers: “1) Moody’s expectation that the debt trend will improve over the coming years supported by fiscal consolidation and compliance with the fiscal rule; 2) Panama’s GDP growth rate continues to outperform peers, supporting its economic strength.”

The Moody’s statement points out that the Varela government has reduced the non-financial public sector deficit to 1.9% in 2016 from 3.2% in 2014. It also notes that despite strong economic growth and favourable financing conditions, the debt/GDP ratio rose to 39.1% in 2016 from 35.0% in 2013 although the credit ratings agency expects that, “as authorities deepen their fiscal consolidation efforts, the central government deficit will narrow over the coming years supporting a decline in the government debt ratio. Part of the deficit reduction will be driven by the higher transfers from the Panama Canal Authority (ACP) that we expect will average 2.5% of GDP in 2017-20 compared with 1.8% in 2016.”

Moody’s also notes that GDP expanded at an average annual rate of 7.3% from 2007-2016 and it expects that the Panamanian economy will continue to report strong economic growth over the medium term, averaging 5.7% from 2017-2021.

Fourth bridge: On 4 October Panama’s public works ministry (MOP) officially received four proposals for the design and construction of a fourth bridge over the Panama Canal, the biggest infrastructure project since the US$5.2bn Panama Canal expansion was completed in 2016. The proposals came from: Dragados Sucursal Panamá, SA, part of Spain’s ACS Group; Consorcio Panamá Cuarto (comprising China Communications Construction Company Ltd and China Harbour Engineering Company Ltd); Consorcio Astaldi – DAELIM (comprising Italy’s Astaldi SPA and South Korea’s DAELIM Industrial Co., Ltd); and Consorcio Cuarto Puente CSCEC – CREC (comprising China State Construction Engineering Corporation Ltd / China Railway Group Limited).

Competitiveness Report: The most recent World Economic Forum (WEF)’s Global Competitiveness Report 2017-2018, published on 29 September and which assesses the competitiveness of 137 economies, showed Panama dropping eight places in its position since the previous year, to rank 50. This is behind Costa Rica (47, up from 50) but ahead of Guatemala (84, down from 78 the previous year), Nicaragua (93 up from 103), Honduras (96, down from 88), and El Salvador (109, down from 105). Regarding the most problematic factors for doing business in Panama, the WEF report cites “inefficient government bureaucracy” followed by “corruption” and then “inadequately educated workforce”.

FDI up: According to the most recent (August 2017) report by the United Nations Economic Commission for Latin America & the Caribbean (Eclac), foreign direct investment (FDI) to Panama rose 15.9% to US$5.21bn in 2016, a record after four consecutive years of increases, following the upward trend that began in the mid-2000s. While noting that no sectoral data are available for 2016, the Eclac report states that based on past performance, investment in Panama is clearly concentrated in the services sector, which received 91% of inflows on average between 2013 and 2015, primarily in the areas of commerce, financial services, telecommunications and media, and transport. According to the same report, in 2015, the most recent year for which data by origin are available, the US and Colombia were the main sources of investment in Panama, accounting for 23% and 19% respectively, followed by the European Union, with 13%, and South Africa, with 7%.

• GDP up

Panama’s Economy & Finance Minister Dulcidio De La Guardia has reported that Panama’s GDP grew by 5.8% in the first half of the year – an improvement on the same period last year, when GDP growth was 5.2%. The most recent forecast (August 2017) from the United Nations Economic Commission for Latin America and the Caribbean (Eclac) predicts GDP growth of 5.6% for Panama in 2017 – the highest in Latin America and up from the 4.9% registered in 2016.