For decades, Panama has enjoyed relative economic prosperity and political stability compared to its neighbors. But after years of simmering popular discontent that culminated in massive protests in the past two years, and amid political uncertainty ahead of an upcoming presidential election, its economic prospects look grim.
Fitch’s recent downgrade of Panama’s credit rating, shifting its status from investment grade to speculative grade, underscores the significant challenges the country faces. Back in March 2010, when Panama’s economy was robust, Fitch was the first credit rating agency to grant it investment grade status. Key factors contributing to its economic strength at the time included the expansion of the Panama Canal, significant public investment, and strong foreign direct investment flows. But today, fiscal deficits, governance issues, the closure of a large copper mine, weaker canal revenues due to a drought and tax underperformance paint a starkly different picture.
By the end of 2023, public debt had surged to $47.4 billion, exceeding 60 percent of GDP. Critics have pointed the finger at the current government’s borrowing rate, the most aggressive in the country’s history. When President Laurentino Cortizo took office in July 2019, accumulated debt stood at $26 billion. This was in large part due to the pandemic, throughout which Cortizo’s administration faced scrutiny for relying on borrowing to mitigate the decline in revenues. At the close of 2019, the debt-to-GDP ratio stood at 44.5 percent. By the end of 2020, this ratio had surged by 20 percentage points, reaching 64.7 percent of GDP.