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Panama Reaches Investment Grade Status from one of the
Global Rating Agencies

By Juan Carlos Martinez

Panama has finally reached the coveted status for a sovereign nation: investment grade qualification by one of the major credit rating agencies in the world Fitch.  Panama has been aggressively seeking this rating since 1995, and in 2009 it got a rating, just below investment grade. 

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For a sovereign country investment grade status is a seal of approval.  It indicates that according to independent rating agencies, in this case Fitch Ratings, the country is able to pay its debt.  It also indicates just how likely it is to pay its debt to other Countries, and on what this payment depends on.  For example, Panama just got a “BBB-” in investment grade status versus its last grade “BB+” which while high. is still not investment grade.  For Fitch Ratings “BBB-” rating indicates that, under their criteria, Panama has an “adequate capacity to pay”.
 
In general terms Fitch Ratings rates sovereign debt, meaning bonds and paper issued by sovereign nations.  Panama issued new debt into the international markets last year, had a very good reception by investors.  An investment grade qualification makes Panamanian debt an even more attractive investment.
 
To issue investment grade -  rating agencies take into account many different factors such as public finance management, historic economic growth, debt levels, fiscal health and fiscal planning, among others.  In Panama's case public finances in the country showed vigorous economic growth in the past years, public debt has steadily been reduced and a 1% fiscal deficit at closing tipped that balance in favor of investment grade for Fitch Ratings.
 
Panama has been seeking investment grade qualification for 15 years and has continually made reforms, managed its public debt showing its permanent commitment to fiscal discipline.  As a secondary effect of investment grade qualification the Republic of Panama in general terms becomes a more attractive investment arena.  This qualification indicates to investors that Panama is committed to creating and maintaining a healthy economic climate. 
 
Another effect of investment grade qualification is that both the government and private enterprises in Panama may have access to lower cost financing.  Currently only five other countries in Latin America hold investment grade qualification: Brazil, Mexico, Chile, Peru and now Panama.
 
Panama is now waiting for the results from two other international rating agencies: Standard & Poor's and Moody's, which likely should be in by the end of the second quarter of this year.  The next step for Panama is to solidify its public finance management, in its plans to lower public debt and implement fiscal reforms.

 


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