Cessation of a mine hits the economy and will increase uncertainty in 2024 in Panama

The cessation of operations of Panama Copperthe fourteenth largest copper mine in the world in terms of production and the largest in Central Americarepresents a hard blow to the country’s economy precisely at the gates of 2024, an election year and, therefore, full of uncertainty, analysts said.

The experts valued that the Panamanian economy is very inserted in the international scenario, which gives it a capacity for recovery that, however, in the current situation, will need impulses, such as a drastic reduction and reorientation of the large public spending. , improve collection and policies that attract investments that generate employment, one of the weaknesses of this country of 4.2 million inhabitants with an economy based on services.

2024, a “tight” year

“We are going to be tight next year, the first months are going to be very difficult, as always. And until the elections pass (in May) there will be no investment, that is a reality. “Electoral uncertainty is going to affect,” said the dean of the Faculty of Economics of the state University of Panama, Rolando Gordon.

In 2024 there will be “less money for the State”, Gordon said, due to less operation of the Panama Canal due to the drought, which will reduce the collection of the fiscal year by about US$200 million, budgeted at US$4,776 million.

Added to this is now the cessation of Cobre Panama operations, the inevitable consequence of the ruling issued this week by the Supreme Court of Justice that declared unconstitutional the law contract, approved by the Government on October 20, which it renewed for 20 years. exploitation by Minera Panamá, a subsidiary of the Canadian First Quantum Minerals (FQM).

The rating agency Moody’s said that the Executive was counting on Cobre Panamá “became its second largest source of income after the Panama Canal”with revenue projected at US$770 million or 0.9% of gross domestic product (GDP) in 2023 and US$375 million annually from 2024.

But without this income, he added, the Government will find it difficult to achieve “the target deficit limit of 3% of GDP” in 2023, and it is likely that “exceed the 2% ceiling in 2024.”

Impact of the mine in the present and the future

The rejection of the mining contract plunged Panama in a social crisis in the last month that left losses of US$ 1.7 billion.

The expected 2023 growth of 6% GDP has already been reset to between 4% and 5%, Dean Gordon said.

Moody’s noted for its part that “a possible negative impact on investor confidence” following the mining issue “would reduce investment”what could lead “GDP growth below the estimated trend of 4% in the coming years.”

Resiliency

Gordon highlighted that Panama has already experienced and overcome, with the difficulties of the case, this type of shocks: with the departure of the US military bases in 1999, 7,000 direct jobs and more than 20,000 indirect jobs were lost, and in that same decade, when the country entered the World Trade Organization, “The clothing market had to be opened and 10,000 jobs were lost.”

Analyst José Eugenio Stoute added that Panama’s economy is very resilient given that it is dollarized, has a powerful international banking center and other attractions. “that have nothing to do with mining.”

“Whatever it is, we will overcome it. What is it going to cost? No doubt. “A cost that is the responsibility of this Government because it has signed a horrible contract”which violated 25 articles of the Constitution, which is “a scandal”, he asserted.

What Copper Panama represents

Cobre Panama, with an investment of US$ 10,000 million that generates 40,000 direct and indirect jobs, according to FQM, is the only copper exploitation in the Central American country.

It began producing in 2019 and by 2022 it was ranked as the fourteenth largest copper mine in the world in production, according to data provided by the International Copper Study Group. Copper (ICSG).

In the first 9 months of 2023, the mine produced around 268,000 tons of copper contained in concentrates, representing 2% of global production, according to the ICSG.

The mine, which exports mainly to Asia (China, Japan, South Korea and India), according to the ICSG, is an operation that represents 4.8% of Panama’s GDP and 75% of the country’s exports, according to FQM.