Moody’s: Panama’s GDP will grow 2.5% in 2024 affected by strong deceleration

The gross domestic product (GDP) of Panama “will probably grow 2.5% in 2024”which translates into a “strong deceleration” compared to the 7.3% expansion that the indicator registered in 2023, the risk rating agency said this Monday Moody’s.

“The closure of the mine Copper Panama will affect economic activity in 2024 and weaken business and consumer confidence. Furthermore, the presidential elections in May and the drought affecting the Panama Canal “They increase uncertainty, which translates into lower business volumes for banks,” Moody’s added in a report.

The Cobre Panamá deposit, operated by the Canadian company First Quantum Minerals and which came to represent the 2% of the world’s production of that mineral, has been paralyzed since the end of 2023 following a ruling by the Panamanian Supreme Court that declared unconstitutional the concession contract for the mine, whose activity accounted for almost 5% of the GDP of Panama, a country that may face multimillion-dollar international arbitrations for this decision.

The interoceanic canal has been facing a severe drought since last year that has forced it to reduce the daily transit of ships, currently 27 although it reached 22 (November 2023) – when the optimal is 36 – which is expected cause annual toll revenues from the road to fall by up to US$800 million, according to official calculations.

These factors, to which the social security crisis and the rise in the cost of debt can be added, mean that Panama’s economy faces “fiscal challenges amid the growing rigidity of spending and a greater interest burden in 2024 in forward”, according to the rating agency.

Last October, 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 the authorities to address the structural fiscal challenges that have “increased over time” in the Central American country.

In this context, there are alerts about the possibility that Panama will lose its investment grade in the coming months.

Panama’s dollarized economy grew by 10.8% in 2022 and a 15.3% in 2021, leaving behind the debacle due to the pandemic, which collapsed the GDP in 2020 by 17.9%. Between 1993 and 2018 it was the fastest growing economy in Latin America, with an average of 5.9% annually, according to data from the International Monetary Fund (IMF).