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Panama will grow more than 5% in the coming years: Fitch

The agency highlights macroeconomic stability, but recalls the institutional limitations and the weak credibility of fiscal policy.

The rating agency Fitch Ratings believes that the growth of the Panamanian economy will remain above 5% in 2017 and 2018, which will make the country one of the most dynamic among those with a similar rating (BBB), but it will mean a slowdown if compared to the average of 8% registered in the last five years.

The recent expansion of the Panama Canal will generate an increase in merchandise traffic and an economic spill in the logistics activities that surround it.

The next execution of several large infrastructure projects, as well as mining operations, should sustain high investment and growth rates in the medium term, the rating agency said in a statement yesterday.

The agency believes that the reputational damage caused by the Mossack Fonseca case has not had a discernible impact on macroeconomic performance so far. “Although the legal services involved in filtering represent a small part of the economy, these events could represent a risk for the banking and professional services sector.”

The rating agency believes that the measures taken to increase transparency will help mitigate these risks, although progress will need to be made in implementing them to obtain a favorable review by the Financial Action Group, which will evaluate the country again this year.

The agency affirmed yesterday the sovereign rating of Panama at BBB with a stable outlook. The growth of recent years and macroeconomic stability boost the risk rating. On the other hand, the country’s institutional limitations and the weak credibility of fiscal policies act as a negative factor. “The administration has improved compliance with legal deficit limits, but has not been able to lower the central government’s deficit despite the high growth,” the agency said.

The fiscal deficit of 2016 was 2.5% of the gross domestic product (GDP), lower than the effective limit (3.1%) that could have come with the adjustment of the deficit allowed by the Fiscal Social Responsibility Law when the contributions of the Panama Canal they do not exceed 3.5% of GDP.

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