S&P lowers Panama’s outlook to “negative” due to risk to investor confidence

The risk rating agency Standard & Poor’s (S&P) reduced from “stable” to “negative” the perspective of Panama before him “risk of potential damage to investor confidence and future private investments derived” of the crisis by a questioned mining contractThe Panamanian Government reported this Wednesday.

Blockades of roads for two weeks have caused shortages of food, fuel and serious economic damage, as well as deaths, in Panama, due to the rejection of the renewal of the 20-year extendable concession to a subsidiary of the Canadian First Quantum Minerals ( FQM) which operates the largest open pit copper mine in Central America.

Last week, the largest peaceful demonstrations in decades were recorded to demand the cessation of the project, a context in which the Executive and Parliament approved a moratorium on metal mining and left the future of the new mining law contract in the hands of the Supreme Court, which has admitted several unconstitutionality appeals against it.

“Although the rating agency maintained the investment grade for Panama”in BBB ratified last August, the new negative outlook “reflects the risk of potential damage to investor confidence and future private investments, derived from the current dispute over the contract with the company Minera Panamá,” the FQM subsidiary that operates the Cobre Panamá mine.

There is “uncertainty about the fate of the project” and the “recent moratorium on new mining projects”which “could weaken private investment and hamper the country’s long-term growth prospects, a situation that would lead Panama to a rating downgrade in the next 12 months,” said the official statement.

The rating agency “It still expects an average economic growth of 4.4% in the coming years, higher than that of comparable countries, thanks to a diversified economy and a good portfolio of projects from the public and private sectors.”

In this regard, S&P also highlights Panama’s relationship “with the United States as part of the ‘CHIPS’ program to explore the possibility of expanding the semiconductor manufacturing sector,” indicated the MEF.

The Cobre Panamá mine, which began production in 2019, is First Quantum’s largest copper exploitation and accounts for around 60% of the net asset value of the company, whose shares have fallen sharply after the start of the crisis.

The Canadian company has said that the mine is the largest private investment in Panama with nearly US$ 10,000 million, which contributes almost 5% to the Gross Domestic Product (GDP), and that it generates about 9,000 direct jobs and around 40,000 indirect.

The Executive of President Laurentino Cortizo defends that the new contract with Minera Panamá multiplies by 10 the economic contribution to the treasury, which will receive a fixed contribution of US$ 375 million annually, and that environmental surveillance is guaranteed.

On October 31, Moody’s downgraded Panama’s rating to Baa3 from Baa2 and changed the outlook from negative to stable, as a result of the absence of a “effective response” by authorities to address structural fiscal challenges.