Panama Fiscal Rule Change Signals Weak Fiscal Credibility

 

• Panama's legislative approval for wider fiscal deficits will lead to a further weakening of public debt dynamics, says Fitch Ratings.
• Modifying the fiscal rule's deficit ceiling also follows a decade-long pattern of postponement of fiscal consolidation goals that has weighed on policy credibility, a key constraint for the sovereign rating since its upgrade to 'BBB' in 2011.
• The government has modified its fiscal responsibility law (LRSF) to widen its fiscal deficit targets because of declining revenues (despite positive, albeit slower growth) and a need to settle accumulated arrears. General government debt in 2019 is expected to be in line with the 'BBB' median of 38% of GDP.

(Source: Fitch)