Mixed fiscal results through September, but infrastructure projects are good news for medium-term growth prospects

PANAMA - Report 25 Nov 2025 by Marco Fernandez

The NFPS fiscal trajectory observed through September 2025 supports maintaining the sovereign’s investment-grade rating in 2026. However, the deficit containment strategy relies heavily on spending cuts rather than structural revenue expansion, raising sustainability concerns.

Our review of five large-scale public investment projects, which display apparent financial profitability, suggests they will serve as solid drivers for GDP growth. This growth will support debt-to-GDP solvency ratios by bolstering the "denominator". Conversely, regarding the "numerator" (the fiscal accounts), we see no sign of a medium-term tax reform. President Mulino’s political capital will likely be absorbed by the copper mine negotiations and issues related to citizen security and drug trafficking.

The Panama Canal is driving short-term growth, productivity, and Panama’s fiscal and external accounts. However, rising dependence on its efficient management heightens the need to diversify the economy beyond the Canal. We also note that we do not anticipate any new disputes with the U.S. government regarding the Panama Canal.

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