Panama debt raised to investment grade by Moody’s

June 9, 2010

Bloomberg

Panama’s credit rating was raised to investment grade by Moody’s Investors Service, which cited “significant improvement” in the country’s fiscal policies and strong economic growth.

Moody’s upgraded the country’s debt ratings to Baa3 from Ba1, matching moves that Fitch Ratings made in March and Standard & Poor’s made in May. The outlook on Panama’s rating is stable, Moody’s said.

The Central American country plans to cut its public debt to 35 percent of gross domestic product from 45 percent by 2014 as an expansion of the Panama Canal boosts tax revenue and growing investment in the mining industry buoys royalties, Finance Minister Alberto Vallarino said in March. President Ricardo Martinelli said in April the economy may grow more than 6 percent this year, exceeding the International Monetary Fund’s forecast of 5 percent.

“The Panama Canal expansion and an ambitious infrastructure investment program are likely to support strong economic growth in the next few years, boding well for debt dynamics,” Alessandra Alecci, a Moody’s analyst, said in a statement.

The yield on the Panama’s 6.7 percent bonds due in 2036 dropped 35 basis points, or 0.35 percentage point, this year to 5.92 percent, according to JPMorgan Chase & Co. The yield fell three basis points, pushing the price up 0.35 cent on the dollar to 110.25 cents at 1:15 p.m. in New York.

Panama aims to spend $20 billion during the next four years to build ports, expand its main airports and lure international companies to the country, Martinelli has said.

The infrastructure spending is not expected “to derail public finances as it will be mostly financed by additional fiscal revenues,” Moody’s said.

Martinelli signed a new tax law in March to increase revenue and cut the budget deficit.