A dynamic services sector, a strong investment climate and the Panama Canal expansion programme are expected to ensure that economic growth in Panama exceeds last year's 8.1%. This is the conclusion of Moody's, the international ratings agency, which stated that the country's Ba1 foreign currency government bond rating and stable outlook are supported by "a dynamic service sector that has served to shield the economy from the volatility observed in other countries in the region, and by a favourable debt profile". "The strong performance of services' exports (including tourism), domestic consumption and investment activity, in preparation of the Panama Canal expansion, are key contributors to such growth," noted Moody's analyst senior Alessandra Alecci, according to an AFX News report.
Driven by revenues resulting from the 2005 tax reform, Moody's observed that the non-financial public sector deficit has moved into surplus for the first time in a decade.
However, Alecci reportedly cautioned that Panama would not be immune from the dangers of a global economic downturn, given the Central American economy's sensitivity to the external environment. This, she suggested, would "pose significant challenges to Panama's performance".
In June, Moody's upgraded Panama's foreign and local-currency country ceilings for bonds to A3 from Baa1, reflecting a decline in risk during a period of relative macroeconomic and political stability, the responsible running of the Panama Canal since the handover from the US in 1999, and the relative smooth running of government affairs despite periods of alternating power between the two main political parties.
Last year, Panama's construction sector grew by 17.4%, reflecting a continuing property boom, which also perhaps assisted growth of 12.8% in the banking sector. Improving tourism lifted the hotel and restaurant sector by 12.5%. External trade grew by 11.3%.
Panama's finances will be dominated for years to come by the proposed expansion of the canal, anticipated to cost US$5.25 billion, with construction expected to be completed in 2014.
