The Big Idea
Panama | Full data download
This material is a Marketing Communication and does not constitute Independent Investment Research.
The next steps for Panama should be a focus on getting additional budget flexibility from fiscal reform to capitalize on the extension of Moody’s rating review through this year. The tight valuations with Panama now trading inside Mexico already discount bullish expectations for policy management while resilient external demand keeps rollover risk low for now and validates a neutral recommendation.
The market liked Panama’s latest quarterly fiscal data, rewarding the economic team for delivering on fiscal rule targets. This came from a brutal 20% year-over-year cutback in capital expenses as well as 5.3% year-over-year decline in current spending. The fiscal accounts may still get a lift from decent economic growth near 4% year-over-year that allows for still consistent cyclical revenues. The high capex spending from the ACP could immunize the economy against fiscal contraction. The fiscal restraint is more impressive if against the higher spending on the CSS pension accounts. The debt service was mostly stable from 3.0% of GDP in 2025 against 2.9% of GDP in 2024 and similar stable at 17% interest over revenues.
There was some important clarity on the debt accumulation statistics. The $5.6 billion increase in public debt should have implied a central government deficit of 6.2% of GDP. However, the lower central government deficit of 5.2% of GDP is explained by one-off payments including the $241 million preferential interest payment and the $650 million early payment of a 2026 debt amortization. If these one-off payments are non-recurring, then the structural central government deficit would show a much more pronounced improvement from 7.6% of GDP deficit in 2024 to 5.2% of GDP in 2025.
The next question is how to move forward on the multi-year reduction of the fiscal deficit from the 3.7% of GDP NFPS deficit in 2025 to the 1.5% to 2% of GDP trend deficit necessary to lower debt ratios and sustain the investment grade rating. The fiscal report shows a contraction in capex from peak levels of +9% of GDP in 2013 to almost 20-year lows at 4% of GDP with cutbacks across many government departments. The impressive spending restraint last year would suggest much less budget flexibility after having front-loaded with significant cutbacks. This is why the economic team have referred to the proposal to reduce budget flexibility across earmarked and mandated spending. The approval of fiscal reform would show broader political commitment and lower the execution risks for the Fiscal Rule compliance (or concerns that capex cutbacks are only temporary). The other alternative is revenue collection efficiency, though its uncertain if the rating agencies would view as a reliable substitute to fiscal reform.
The rating agencies and markets alike will be monitoring the policy options with broader flexibility for a longer review period on the Moody’s negative outlook through the end of the year after the goodwill from the strong 2025 fiscal performance. Meanwhile, the funding program benefits from several factors: 1.) supply diversification towards multilaterals or alternative currency external funding markets, 2.) extraordinary external demand with Panama still a relatively “cheap” investment grade credit amongst crossover investors and 3.) the still captive index demand on the extended review period on their Moody’s investment grade rating. This should sustain the carry returns and reaffirm low rollover risks ahead of the bulky bank loan payments from 2026-2028, especially under the optionality of more active debt liability management.
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 © 2026 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.
