Fitch Ratings has downgraded Panamas credit rating to BB+, removing its investment grade status due to the closure of a major copper mine last year.This event heightened fiscal worries and could dampen growth prospects.
The nations rating now matches that of Vietnam, Colombia, and Serbia.Morgan Stanleys Emma Cerda anticipates a similar move from Moodys later this year.Such junk status from two leading agencies might force a $4.5 billion bond sell-off, especially affecting bonds maturing in 2031, 2034, and 2036.Just before Panamas presidential elections, the downgrades timing startled investors, triggering a sharp decline in bond prices.Panama at a Crossroads: Credit Downgrade Shakes Market Confidence.
(Photo Inernet reproduction)This has placed Panamas bonds among the worst-performing in emerging markets.Panamas financial challenges have been mounting since protests led to First Quantums shutdown of the Cobre Panama mine.Yet analysts have recently softened their stance on the bonds, awaiting clearer signals post-election.Fitch notes that Panamas fiscal and governance issues have worsened due to the mines closure, pointing to significant fiscal deficits and poor revenue performance.The upcoming presidential elections offer a chance for fiscal reform, but Fitch sees limited room for maneuver due to slow growth and social tensions.Rebuilding fiscal credibility will be a lengthy process.
Since 2010, Panama has maintained an investment-grade rating with Fitch.Moodys still rates it at the investment-grade threshold, whereas S-P has slightly higher.BackgroundFirst Quantums market value plummeted by over half after Panama unexpectedly ordered the Cobre Panama copper mine to shut down last November.Among the globes largest, this mine was crucial for First Quantum, generating around 40% of its revenue.After the Panama court ruling, First Quantum sought $20B arbitration after protests, shaping a new strategy.This amount mirrors the original investments market value, with Pascall suggesting the potential for even higher claims.