The Big Idea
Panama | Data watch
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
Markets continue to watch Panama’s fiscal and funding circumstances closely. Panama is not particularly vulnerable to direct fallout from higher US tariffs. Merchandise exports to the US are almost irrelevant with much higher service exports, primarily the canal and tourism. There is arguably close to zero direct contagion to the Panama economy with almost no exports and a sizable trade deficit with the US. The bigger risk is the indirect impact of a global economic slowdown and financial contagion for a small, open dollarized economy that depends on external capital.
There isn’t any obvious recourse to mitigate the downside risks to growth under dollarization, but the weak correlation to tax revenues also doesn’t suggest a negative shock to tax data. It is more a question of whether there is the political commitment for fiscal austerity and whether there is an alternative source of financing.
There is really no other option other than to deliver fiscal adjustment over a multi-year process and worsening funding constraints. This is quite ambitious. Panama’s current strategy is to raise revenues and lower spending to reduce a structural fiscal deficit of 6.5% of GDP to 4% of GDP this year. Fiscal austerity may be inconvenient but it’s what’s necessary to stave off negative credit rating action and minimize the fallout from worsening debt service and debt ratios.
Panama’s tax agency finally released their data for February. Every month is critical to see whether the fiscal accounts come close to the ambitious target and stave off negative credit rating action. The proactive policy management is particularly relevant given the instability in global markets. Those countries with the highest policy flexibility or most effective policy management could immunize against a worse cycle on debt dynamics. One data point doesn’t make a trend, but any improvement is welcome.
The country’s reporting delays still reinforce some skepticism about the quality of the data. However, the initial interpretation is favorable with a spike in income taxes and a real increase in consumption taxes. This cumulative two months of data now appears more reasonable. The budget data for February should come out soon with a preview for the spending trends. It will require either a consistent real increase in revenues or aggressive cutbacks in high capital expenditures.
There is no quick fix on what continue to be really ambitious fiscal goals for this year. There is no instant lift to sentiment. The process of re-opening the Cobre copper mine is lengthy and complicated. And it will take many months to establish a track record of fiscal discipline after the blowout deficit last year.
The other focus remains on the financing program. Panama is vulnerable for its dependence upon external markets with Eurobonds 60% of the debt stock. The US Treasury weakness is a concern for the higher yielding credits, especially on the much higher absolute cost of funding and restricted market access. This requires diversification of the funding program with higher dependence upon local markets and higher commitment to lower the primary spending and offset higher debt service.
The country’s funding program then remains vulnerable near-term to the uncertainty in global financial markets. External market access is particularly critical for dollarized countries with under-developed local markets. The cost of funding has spiked much higher with a wider country risk premium as well as pronounced US Treasury weakness. The 20-year Panama Eurobond yields peaked at around 8.5% in the last week at worst historic levels. The recent volatility has closed external markets to most issuers. The International Monetary Fund may provide a backstop of liquidity for ‘B’ credits; however, the ‘BB’ credits will have to rely mostly upon their local markets.
The revised 2025 financing program already diversified away from Eurobond markets and towards local markets for $3.4 billion spread across treasury bills ($1.4 billion), notes ($800 million) and local bank loans ($1.2 billion). The first quarter 2025 total local issuance reached $540 million. This along with international bank loans and some multilateral loans should reduce the $7.5 billion total financing needs to around $3 billion for the remainder of the year.
Local markets might be able to finance these remaining $3 billion needs. This would also have to assume compliance on the ambitious 4%-of-GDP fiscal deficit target this year as well as tolerance for much higher local funding costs since local debt clears at a significant yield premium over the Eurobond curve. The recent bank loans provide a temporary liquidity buffer; however, the limited local funding will require external market access in the second half of this year. There shouldn’t be much if any tolerance for any deviation from fiscal targets under the current risk aversion. The fiscal data watch will be critical to monitor with funding costs and options dependent upon more favorable market conditions as well as good efforts on fiscal target compliance. The dependence upon external markets should sustain the high market beta relative to the other ‘BB’ credits in the region.
This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.
Important Disclaimers
Copyright © 2025 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.
In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.
The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.
Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.
Important disclaimers for clients in the EU and UK
This publication has been prepared by Trading Desk Strategists within the Sales and Trading functions of Santander US Capital Markets LLC (“SanCap”), the US registered broker-dealer of Santander Corporate & Investment Banking. This communication is distributed in the EEA by Banco Santander S.A., a credit institution registered in Spain and authorised and regulated by the Bank of Spain and the CNMV. Any EEA recipient of this communication that would like to affect any transaction in any security or issuer discussed herein should do so with Banco Santander S.A. or any of its affiliates (together “Santander”). This communication has been distributed in the UK by Banco Santander, S.A.’s London branch, authorised by the Bank of Spain and subject to regulatory oversight on certain matters by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
The publication is intended for exclusive use for Professional Clients and Eligible Counterparties as defined by MiFID II and is not intended for use by retail customers or for any persons or entities in any jurisdictions or country where such distribution or use would be contrary to local law or regulation.
This material is not a product of Santander´s Research Team and does not constitute independent investment research. This is a marketing communication and may contain ¨investment recommendations¨ as defined by the Market Abuse Regulation 596/2014 ("MAR"). This publication has not been prepared in accordance with legal requirements designed to promote the independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The author, date and time of the production of this publication are as indicated herein.
This publication does not constitute investment advice and may not be relied upon to form an investment decision, nor should it be construed as any offer to sell or issue or invitation to purchase, acquire or subscribe for any instruments referred herein. The publication has been prepared in good faith and based on information Santander considers reliable as of the date of publication, but Santander does not guarantee or represent, express or implied, that such information is accurate or complete. All estimates, forecasts and opinions are current as at the date of this publication and are subject to change without notice. Unless otherwise indicated, Santander does not intend to update this publication. The views and commentary in this publication may not be objective or independent of the interests of the Trading and Sales functions of Santander, who may be active participants in the markets, investments or strategies referred to herein and/or may receive compensation from investment banking and non-investment banking services from entities mentioned herein. Santander may trade as principal, make a market or hold positions in instruments (or related derivatives) and/or hold financial interest in entities discussed herein. Santander may provide market commentary or trading strategies to other clients or engage in transactions which may differ from views expressed herein. Santander may have acted upon the contents of this publication prior to you having received it.
This publication is intended for the exclusive use of the recipient and must not be reproduced, redistributed or transmitted, in whole or in part, without Santander’s consent. The recipient agrees to keep confidential at all times information contained herein.
