The Big Idea
Panama | Below-the-line analysis
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Panama has reported no fiscal data since March in contrast to the June data available across most countries in the region. This makes it hard to assess rating risks with a Moody’s review coming in the fourth quarter. So, the focus shifts from spending to funding. Funding sheds light not only on fiscal performance but on financing strategy and debt dynamics, too. Panama’s economic team has already completed 75% of the financing program with thin liquidity buffers and hence maybe larger fiscal deficits and debt burdens. The high volume of financing below the line does not suggest spending restraint above the line.
There is no straightforward way to figure out monthly budget seasonality with only sparse and recently released monthly fiscal data. However, it is interesting that total financing raised this year is now at 75% of the program budget. This coincides with a low-level proxy of liquidity buffers. It stands to reason that if they are not saving, then they are spending these financing resources. The liquidity proxy is now reaching low historic levels with no significant benefit from the recent BBVA bank loan used to fully repay the JPM bank loan. The accelerated pace for financing in the first semester would require significant deceleration for spending in the second semester of the year to reach the ambitious 4%-of-GDP NFPS deficit target. If not, the current pace would suggest a NFPS deficit closer to 5.4% of GDP, almost aligned with Moody’s estimates.
The breakdown of the financing program also provides insight into financing options and rollover risks. Panama has issued no Eurobonds this year despite earlier projections of $1 billion. The recent bank loans (including repayment) at $5.4 billion now is reaching the $6 billion shelf limit.
The easiest recourse is to upsize the bank loan shelf issuance through another cabinet decree. This would probably align with the official objective of minimizing financing costs with shorter loans and avoiding the higher cost of longer Eurobonds. Moody’s puts more weight on the cost of financing in its sovereign rating models. The other rating agencies may consider the higher rollover risks as the debt amortizations now bump up to $4 billion to $5 billion a year over the next few years and as 35% of the debt stock amortizes within the next five years. The accelerated financing in the first half of 2025 also increases the debt stock to near the official 62% of GDP projected for the full year—or far higher according to rating agency debt projections.
The policy options remain the same: either reduce the gross financing needs through lower fiscal deficits or diversify the financing resources. It’s not clear how much fiscal success can come from efficiency gains across spending and revenues. There is no political or social mandate for tax or budget reforms. The 2026 budget is the next litmus test, with Moody’s closely evaluating whether budget reform can help Panama hit an ambitious 3.5%-of-GDP fiscal deficit target.
The next option is financing diversification. The 2025 program shows minimal support from local markets and multilaterals. How long will Panama be able to access bank loans? Are there still other options away from the Eurobond markets? These are important questions considering the high annual gross financing needs of maybe 10% of GDP and the relevance of supply and demand on Eurobond performance. If the bank loans reach saturation, then the Eurobond markets return as the primary funding vehicle (at 60% of the debt stock). This supply risk is increasingly relevant especially with demand possibly dropping from threats of credit rating downgrades. This remains the primary yearend event risk with the high below-the-line financing the leading indicator of still high above-the-line spending and unclear medium-term financing alternatives in the Eurobond markets.
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