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Moody's upgrades Panama on improved fiscal policy framework

Moody's on March 8 upgraded its long-term foreign currency ratings on Panama, citing favorable economic prospects and the government's improved fiscal policy framework.

The rating agency raised the government of Panama's long-term foreign currency issuer rating to Baa1 from Baa2, long-term foreign currency senior unsecured debt ratings to Baa1 from Baa2, and long-term foreign currency senior unsecured shelf ratings to (P)Baa1 from (P)Baa2.

Moody's also raised Panama's long-term foreign currency bond and deposit ceilings to A2 from A3.

The outlook was revised to stable from positive, reflecting an expectation that Panama will continue to grow fast and outpace growth seen by most Baa-rated peers. The stable outlook also incorporates the rating agency's expectation that the country's fiscal metrics will decline only moderately as the government creates a track record under new fiscal rules.

Although the country's economic growth decelerated in 2018, the rating agency projects GDP growth of above 5% through 2022, compared to a Baa-category median of about 3%.

"Moody's expects that large-scale infrastructure projects will sustain the contribution of gross fixed capital formation to growth, while continued development along the Panama Canal zone related to logistics will solidify Panama's role as regional trade and financial hub, further supporting growth," the rating agency said. It also expects the government's debt burden to stabilize at or below 40% of GDP through 2020, compared to the median of 50% for Baa-rated peers.

Moody's added that Panama's new fiscal deficit target, defined in 2018, will not incorporate an upward adjustment as it did in the past. This "will make the actual fiscal targets more transparent for policymakers and market participants."