While Panama maintains a favorable debt profile, the deficit could reduce the government's ability to implement counter cyclical policies if the economy slows says ratings agency Moody's.
The agency notes that the credit risk is "relatively inflexible deficit structure characterized by persistent deficits," plus the "repeated exceptions to the limits of public spending" and "inability to react to the economic policy dollarization of the country. "
For this year, the government forecasts a deficit of 2.5%, while the legal limit was raised from 2.7% to 2.9%.
Among the positive factors that Moody's highlights is a favorable debt profile, with little refinancing risk and without exchange rate risk, a dynamic economy based on services and with a record of sustained growth, and state ownership of the Canal Panama.
Economic growth will cause the ratio of debt relative to GDP continue to decline. This year is expected to be less than 41%.
Moody's maintains Panama with perspective, so there could be an improvement in the coming months. The other two rating agencies have raised the Panama’s rating to BBB, the second level above investment grade.