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S&P affirms Panama on stronger growth prospects, moderating deficit

S&PGlobal Ratings on Sept. 28 affirmed the sovereign ratings of Panama on the backof strong economic growth prospects coupled with a moderate fiscal deficit andgeneral government debt burden.

The rating agencyaffirmed the country's BBB and A-2 long- and short-term sovereign creditratings on the Republic of Panama, with a stable outlook. Panama's transfer andconvertibility assessment is unchanged at AAA.

Panama'seconomy is expected to continue growing at 5.5% in 2016 and 2017, followed by 6%in the two years following, S&P said. Panama's general government deficit,meanwhile, is expected to hold at around 2% of GDP between 2016 and 2018,S&P said, given the expectation for relatively lower capital expendituresand increased transfers to the central government after the completion of thePanama Canal expansion, along with additional royalties from copper and goldproduction from new mining operations.

Meanwhile,current account deficit is expected to continue declining at a gradual pace,S&P noted. The rating agency expects Panama's deficit to hit 6.4% in 2016,and average about 6% through 2019.

However,developing political institutions and still-relevant challenges regardingtransparency in government and regulation of its financial system serve asratings constraints, S&P noted. The ratings are also weighed down by thecountry's vulnerability to sharp swings in global economic conditions.

AlthoughPanama has no independent monetary policy or a formal lender of last resort dueto the system's full dollarization, S&P views the banking sector asresilient. "Despite the increased reputational risk that momentarilyresulted in lower corresponding banking activities, we have not seen significantdistortions, as second-tier correspondent banks have substituted this externalfunding source," the rating agency stated.

S&P Global Ratings and S&P GlobalMarket Intelligence are owned by S&P Global Inc.