/raid1/www/Hosts/bankrupt/TCRLA_Public/240702.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Tuesday, July 2, 2024, Vol. 25, No. 132
Headlines
A R G E N T I N A
ARGENTINA: Milei Plan Pushes Country Into Recession in Q1
B R A Z I L
BRAZIL: Inflation Slows More Than Expected as Rate Cuts Halt
BRAZIL: Unemployment Rate Drops to 7.1%, Hitting a 10-Year Low
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Issues $750 Million Green Bonds
DOMINICAN REPUBLIC: Rice Farmers Seek Details of Free Trade Deal
P A N A M A
PANAMA: Grew Very Rapidly in Two Decades, IMF Says
P U E R T O R I C O
PUERTO RICO: Power Operator Defers Maintenance, Sparks Outcry
S T . V I N C E N T A N D T H E G R E N A D I N E S
ST. VINCENT & THE GRENADINES: Moody's Affirms 'B3' Issuer Ratings
- - - - -
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A R G E N T I N A
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ARGENTINA: Milei Plan Pushes Country Into Recession in Q1
---------------------------------------------------------
The Buenos Aires Times reports that Argentina entered a recession
in the first quarter of the year as President Javier Milei's brutal
spending cuts sent consumption and activity plummeting.
Gross domestic product fell 2.6 percent compared to the fourth
quarter of 2023, according to official government data published,
according to The Buenos Aires Times. Activity contracted 5.1
percent from a year earlier, slightly less than the median estimate
for a 5.3 percent decline among economists surveyed by Bloomberg,
the report notes. The negative print follows a 2.5 percent
quarterly contraction in the three months through December, The
Buenos Aires Times relays.
The first months of the year were marked by sharp cuts to real
pensions and public sector wages and a halt in public
infrastructure projects, the report discloses. When he took office
in December, Milei also devalued the peso by more than 50 percent
and stripped hundreds of price controls, the report notes. Real
wages fell 17 percent from November to March, triggering a 10
percent drop in supermarket sales over the same period, the report
says.
Construction, manufacturing and retail sectors led the declines,
offset by agriculture and mining, according to the government, the
report relays. Capital spending, a proxy for investment, fell 23.4
percent from a year prior, while retail sales fell 8.7 percent, the
report notes. Unemployment rose to 7.7 percent from 5.7 percent in
the previous quarter, according to another set of government data,
the report says.
The painful contraction in activity has nonetheless seen the
government post five consecutive monthly budget surpluses and a
faster-than-expected easing of monthly inflation, from 25.5 percent
in December to 4.2 percent in May, the report discloses. The
International Monetary Fund expects a potential stabilisation in
activity in April as private credit and cement consumption tick
back up, agricultural production rebounds after last year's drought
and consumer confidence gains ground, according to their latest
Argentina report, The Buenos Aires Times adds.
Economists surveyed by the Central Bank estimate GDP will fall 3.8
percent this year, followed by 3.4 percent growth in 2025, the
report relays. Milei's hallmark legislation is expected to win
final approval in the lower house later, which is expected to
contribute significantly to the rebound by relaxing labour laws,
deregulating the energy sector and incentivising large foreign
investments through tax breaks, the report adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Javier Milei is the current
president of Argentina after winning the November 19, 2023 general
election. He succeeded Alberto Angel Fernandez in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019, according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
The IMF's executive board completed on August 23, 2023, the fifth
and six reviews of Argentina's 30-month Extended Fund Facility
(EFF), and approved a US$7.5-billion disbursement to Argentina as
part of the larger program, which refinances payments Argentina
owes the institution from a previous bailout that failed to
stabilize the economy in 2018. Argentina would receive another IMF
disbursement in November of about US$2.75 billion pending another
staff-level agreement and board approval.
S&P Global Ratings, on March 15, 2024, raised its local currency
sovereign credit ratings on Argentina to 'CCC/C' from 'SD/SD' and
its national scale rating to 'raB+' from 'SD'. S&P also raised its
long-term foreign currency sovereign credit rating to 'CCC' from
'CCC-' and affirmed its 'C' short-term foreign currency rating. The
outlook on the long-term ratings is stable. In addition, S&P
revised its transfer and convertibility assessment to 'CCC' from
'CCC-'.
S&P said the stable outlook on the long-term ratings balances the
risks posed by pronounced economic imbalances and policy
uncertainties with the favorable change in near-term debt service
obligations. S&P also expect no further debt exchanges that it
would likely consider to be distressed.
Fitch Ratings upgraded on June 13, 2023, Argentina's Long-Term
Foreign Currency (FC) Issuer Default Rating (IDR) to 'CC' from
'C'and affirmed the Long-Term Local Currency (LC) IDR at 'CCC-'.
Fitch typically does not assign Outlooks to sovereigns with a
rating of 'CCC+' or below.
The upgrade of the FC IDR reflects that Fitch no longer deems a
default-like process to have begun, as the authorities have not
signaled a clear intention to follow through with an intra-public
debt swap announced in March. The new 'CC' rating signals a default
event of some sort appears probable in the coming years, regardless
of the outcome of upcoming elections. The affirmation of the LC IDR
at 'CCC-' follows the peso debt swap in June that Fitch did not
deem to be a "distressed debt exchange" (DDE).
Moody's Investors Service, in September 2022, affirmed Argentina's
Ca foreign-currency and local-currency long-term issuer and senior
unsecured ratings. The outlook remains stable. The decision to
affirm the Ca ratings balances Argentina's limited market access,
weak governance, and history of recurrent debt restructurings with
recent efforts to marshal fiscal and monetary measures to start
addressing underlying macroeconomic imbalances in the context of
the IMF program that was approved in 2022, according to Moody's.
DBRS, Inc. confirmed Argentina's Long-Term Foreign Currency Issuer
Rating at CCC and downgraded its Long-Term Local Currency Issuer
Rating to CCC from CCC (high) on March 3, 2023.
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B R A Z I L
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BRAZIL: Inflation Slows More Than Expected as Rate Cuts Halt
------------------------------------------------------------
globalinsolvency.com, citing Bloomberg News, reports that Brazil's
mid-month inflation slowed more than expected in early June, just
as central bankers signaled they're in no rush to resume interest
rate cuts after pausing their monetary easing cycle. Official data
released showed prices increased 4.06% from a year earlier, below
the 4.11% median estimate from analysts in a Bloomberg survey,
according to globalinsolvency.com.
Inflation stood at 0.39% on the month. Policymakers led by Roberto
Campos Neto interrupted an almost yearlong cycle of rate cuts,
holding the benchmark Selic steady at 10.5%, the report notes.
A recent rise in bets of future inflation, resilient services costs
and a worsening fiscal outlook prompted central bankers to stay
"vigilant" but give no indication of their next rate moves, the
report relays.
Still, they increased their estimate for neutral rates, signaling
higher real borrowing costs are needed to make the economy grow
without inflation pressures, the report discloses. The bank's
unanimous decision helped calm investors, who fear the institution
may become more tolerant of inflation after President Luiz Inacio
Lula da Silva names a new governor and two directors later this
year, effectively gaining a majority of the board, the report
relays. All four directors appointed by Lula had favored a bigger
rate cut, but were defeated by a majority led by Campos Neto that
backed a more modest quarter-point reduction, the report relays.
The split decision threw the monetary institution into a
credibility crisis that led traders to price in higher interest
rates in the long run — a sign they fear the central bank may
fail reining in inflation next year, the report says. But after
the unanimous vote to hold the key rate, Monetary Policy Director
Gabriel Galipolo, who is seen as a potential replacement for Campos
Neto, said there's "value" in consensus, the report adds.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian
general election. He was sworn in on January 1, 2023, as the 39th
president of Brazil, succeeding Jair Bolsonaro.
S&P Global Ratings raised on Dec. 19, 2023, its long-term global
scale ratings on Brazil to 'BB' from 'BB-'. The outlook on the
long-term ratings is stable. S&P affirmed Brazil's global scale
short-term ratings at 'B' and its national scale long-term rating
at 'brAAA'. S&P also raised the transfer and convertibility
assessment on the country to 'BBB-' from 'BB+'. S&P said, "The
stable outlook reflects our expectation that Brazil will maintain
A strong external position, thanks to strong commodity output and
limited external financing needs. We also believe Brazil's
institutional framework can sustain stable and pragmatic
policymaking based on extensive checks and balances across the
executive, legislative, and judicial branches of government. We
expect a very gradual fiscal correction but anticipate fiscal
deficits will remain large."
Fitch Ratings affirmed on Dec. 15, 2023, Brazil's Long-Term
Foreign-Currency Issuer Default Rating (IDR) at 'BB' with a Stable
Outlook. Fitch said Brazil's ratings are supported by its large and
diverse economy, high per-capita income, and deep domestic markets
and a large cash cushion that support the sovereign's financing
flexibility and its high local-currency debt share. Strong external
finances support resilience to shocks, underpinned by a flexible
exchange rate, robust international reserves and a sovereign net
external creditor position. The ratings are constrained by weak
economic growth potential, relatively low governance scores, high
and rising government debt/GDP, and budgetary rigidities. A new
fiscal framework introduced this year aims to anchor a gradual
consolidation process and address these fiscal weaknesses, but its
effectiveness is increasingly unclear.
Moody's credit rating for Brazil was last set at Ba2 in 2018 with
stable outlook. Moody's affirmed the Ba2 issuer ratings and
senior unsecured bond ratings in April 2022.
DBRS Inc., on August 15, 2023, upgraded Brazil's Long-Term
Foreign and Local Currency - Issuer Ratings to BB from BB (low).
At the same time, DBRS Morningstar confirmed Brazil's
Short-term Foreign and Local Currency - Issuer Ratings at R-4.
The trend on all ratings is Stable (March 2018).
BRAZIL: Unemployment Rate Drops to 7.1%, Hitting a 10-Year Low
--------------------------------------------------------------
The Rio Times reports that Brazil's unemployment rate dropped to
7.1% in the quarter ending in May, the lowest since 2014, down from
8.3% a year ago, reported the IBGE.
Analysts had expected a rate of 7.3%, according to The Rio Times.
The number of unemployed people fell by 8.8%, or 751,000
individuals, over the quarter, the report notes.
Annually, this figure dropped by 13%, equating to 1.2 million fewer
job seekers, the report relays. The total unemployed population is
now 7.8 million, the lowest since early 2015, the report says.
Employment figures also reached new highs, the report notes. The
employed population grew to 101.3 million, up by 1.1% (1.1 million
people) over the quarter and 3% (2.9 million people) over the year,
the report discloses.
Both formal and informal employment set records, with formally
employed workers at 38.3 million and informal workers at 13.7
million, the report says. The private sector employed 52 million
people, another record, the report relays.
The number of people not in the labor force remained steady at 66.8
million, the report notes. Adriana Beringuy, IBGE's coordinator of
household surveys, stated that growth in both formal and informal
employment drove these increases, the report discloses.
Various economic activities, including public administration,
social security, education, healthcare, and social services,
expanded their workforce, partly due to seasonal factors, the
report relays.
The average real income of employed individuals was R$ 3,181 for
the quarter, with no significant change from the previous quarter
but a 5.6% annual increase, the report says.
The rise in income and employment boosted the total wage mass to a
record R$ 317.9 billion, a 2.2% increase (R$ 6.8 billion) over the
quarter and a 9% rise (R$ 26.1 billion) over the year, the report
relays.
Unemployment Rate Drops to 7.1% in Brazil, Hitting a 10-Year Low
These statistics reflect a significant improvement in Brazil's
labor market, indicating broader economic recovery, the report
notes.
The drop in unemployment and rise in employment suggest a robust
recovery, driven by job growth across sectors, the report
discloses.
This trend benefits individuals and the national economy, boosting
consumer spending and economic stability, the report notes.
Higher wage mass points to a healthier economy, with more people
earning and spending money, driving demand and supporting
businesses, the report relates.
This environment fosters economic resilience and sustainable
growth, improving living standards for many Brazilians, the report
adds.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian
general election. He was sworn in on January 1, 2023, as the 39th
president of Brazil, succeeding Jair Bolsonaro.
S&P Global Ratings raised on Dec. 19, 2023, its long-term global
scale ratings on Brazil to 'BB' from 'BB-'. The outlook on the
long-term ratings is stable. S&P affirmed Brazil's global scale
short-term ratings at 'B' and its national scale long-term rating
at 'brAAA'. S&P also raised the transfer and convertibility
assessment on the country to 'BBB-' from 'BB+'. S&P said, "The
stable outlook reflects our expectation that Brazil will maintain
A strong external position, thanks to strong commodity output and
limited external financing needs. We also believe Brazil's
institutional framework can sustain stable and pragmatic
policymaking based on extensive checks and balances across the
executive, legislative, and judicial branches of government. We
expect a very gradual fiscal correction but anticipate fiscal
deficits will remain large."
Fitch Ratings affirmed on Dec. 15, 2023, Brazil's Long-Term
Foreign-Currency Issuer Default Rating (IDR) at 'BB' with a Stable
Outlook. Fitch said Brazil's ratings are supported by its large and
diverse economy, high per-capita income, and deep domestic markets
and a large cash cushion that support the sovereign's financing
flexibility and its high local-currency debt share. Strong external
finances support resilience to shocks, underpinned by a flexible
exchange rate, robust international reserves and a sovereign net
external creditor position. The ratings are constrained by weak
economic growth potential, relatively low governance scores, high
and rising government debt/GDP, and budgetary rigidities. A new
fiscal framework introduced this year aims to anchor a gradual
consolidation process and address these fiscal weaknesses, but its
effectiveness is increasingly unclear.
Moody's credit rating for Brazil was last set at Ba2 in 2018 with
stable outlook. Moody's affirmed the Ba2 issuer ratings and
senior unsecured bond ratings in April 2022.
DBRS Inc., on August 15, 2023, upgraded Brazil's Long-Term
Foreign and Local Currency - Issuer Ratings to BB from BB (low).
At the same time, DBRS Morningstar confirmed Brazil's
Short-term Foreign and Local Currency - Issuer Ratings at R-4.
The trend on all ratings is Stable (March 2018).
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Issues $750 Million Green Bonds
---------------------------------------------------
Dominican Today reports that the Dominican Government, through the
Ministry of Finance, has issued green bonds for the first time in
its history, totaling US$750 million. These bonds achieved a rate
of 6.70%, approximately 15 basis points lower than what would have
been achieved with other non-thematic financing instruments of a
similar term, according to Dominican Today.
Jochi Vicente, the head of the Treasury, explained that the funds
obtained from this issuance will be used for green expenditures, as
outlined in the country's first Reference Framework for Green,
Social, and Sustainable Bonds, published, the report discloses.
This initiative not only implies savings for public finances due to
the lower financing cost but also supports projects aimed at
mitigating the effects of climate change, to which the Dominican
Republic is highly vulnerable, the report says. These projects
will help protect public infrastructure and the population from
climate-related impacts, the report notes.
The green bonds received demand from foreign investors in global
capital markets that was six times higher than the amount issued.
This significant interest demonstrates confidence in the Dominican
Government's commitment to environmental protection, social needs,
and sustainable development, as well as the robust performance of
the Dominican economy, the report relays.
"Each time we access international capital markets, we receive
notable support, which is partly due to our effective public debt
management," highlighted Vicente, the report discloses.
Maria José Martinez, the Vice Minister of Public Credit, noted
that these green bonds are part of a sustainable emissions program
included in the 2024-2028 debt strategy, Dominican Today relays.
This program aligns with the goals set in the National Development
Strategy 2030, the report notes.
"The inclusion of thematic bonds in our financing plan not only
promotes environmental and social benefits but also exemplifies our
commitment to transparency in public debt management and
diversifies our investor base," emphasized Martinez.
Additionally, this operation was complemented by the repurchase of
US$1,009 million of an external bond maturing in 2025, the report
relays. To facilitate this repurchase and to cover part of the
2024 General State Budget financing needs, RD$105,000 million of an
external bond in local currency maturing in 2036 and US$500 million
of a reopening maturing in 2031 were issued, the report notes.
These operations have significantly impacted the debt portfolio of
the non-financial public sector by decreasing the percentage of
foreign currency financing and increasing the average maturity time
of the global bond portfolio, the report adds.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district. Luis Rodolfo
Abinader Corona is the current president of the nation.
TCR-LA reported in April 2019 that Juan Del Rosario of the UASD
Economic Faculty cited a current economic slowdown for the
Dominican Republic and cautioned that if the trend continues,
growth would reach only 4% by 2023. Mr. Del Rosario said that if
that happens, "we'll face difficulties in meeting international
commitments."
An ongoing concern in the Dominican Republic is the inability of
participants in the electricity sector to establish financial
viability for the system.
On December 4, 2023, the TCR-LA reported that Fitch Ratings has
affirmed Dominican Republic's Long-Term Foreign-Currency Issuer
Default Rating (IDR) at 'BB-' and revised the Outlook to Positive
from Stable. Fitch says the Positive Outlook reflects a trend
improvement in governance, and robust growth prospects that should
lead to continued gains in per capita income. According to Fitch,
growth has decelerated in 2023, but it expects Dominican Republic
to recover to high levels during 2024-2025. External liquidity
metrics have improved in recent years, and foreign currency share
of government debt is on a downward path.
In August 2023, Moody's Investors Service changed the outlook on
the Government of Dominican Republic's ratings to positive from
stable and affirmed the local and foreign-currency long-term issuer
and senior unsecured ratings at Ba3. Moody's said the key drivers
for the outlook change to positive are: (i) sustained high growth
rates have enhanced the scale and wealth levels of the economy; and
(ii) a material decline in the government debt burden coupled with
improved fiscal policy effectiveness will support medium-term debt
sustainability.
The affirmation of the Ba3 ratings balances the Dominican
Republic's strong economic growth dynamics and relatively contained
susceptibility to event risks, with a comparatively weaker fiscal
position, reflecting long-standing credit challenges which include:
(i) a shallow revenue base compared to peers, (ii) weak debt
affordability metrics, and (iii) high exposure to foreign currency
borrowing.
S&P Global Ratings, in December 2022, raised its long-term foreign
and local currency sovereign credit ratings on the Dominican
Republic to 'BB' from 'BB-'. The outlook on the long-term ratings
is stable. S&P affirmed its 'B' short-term sovereign credit
ratings. S&P also revised its transfer and convertibility (T&C)
assessment to 'BBB-' from 'BB+'. The stable outlook reflects S&P's
expectation of continued favorable GDP growth and policy continuity
over the next 12-18 months that will likely stabilize the
government's debt burden.
In February 2023, S&P said its BB ratings reflect the country's
fast-growing and resilient economy. It also incorporates the
country's historical political and social challenges in passing
structural reforms to contain fiscal deficits, despite recent
improvements in the electricity sector. The ratings are constrained
by relatively high debt, a hefty interest burden, and limited
monetary policy flexibility.
DOMINICAN REPUBLIC: Rice Farmers Seek Details of Free Trade Deal
----------------------------------------------------------------
Dominican Today reports that the Dominican Republic president
should discuss the plan because he foresees that the producers will
want to lower their investments.
Rice producers need President Luis Abinader to inform them about
the tariff relief that rice will have starting next year due to the
Free Trade Agreement (DR-Cafta), according to Dominican Today.
They need to plan their next harvest, which could require less
investment if the agreement with the United States remains the
same, the report notes.
This was stated by Marcelo Reyes, the president of the Dominican
Federation of Rice Producers (Fenarroz), the report notes. He
added that the President should talk about the plan for the sector
because he foresees that the producers will want to lower the
investment grade in order not to risk capital, the report relays.
"It is time to give more finished information to the producers
since the last harvest under the current system of rice production
is left. The president must say what the situation is," he said.
At the beginning of the year, Abinader assured that before 2025,
there would be a solution to the rice and DR-Cafta issue and
explained that he had been working on it, looking for different
ways to solve it in accordance with the treaties signed by the
Dominican Republic, the report discloses.
Reyes expressed confidence in the president and highlighted the
creation of a commission to address the issue, the report notes.
"As I understand it, the technicians have been working. We must
know where the public policies oriented to this are going to be
directed," he said, the report relays.
He said that in recent months, the liberalization of the rice
market under the treaty has generated growing concern among rice
producers, the report discloses. This concern lies in the impact
that this opening could have on the competitiveness and
sustainability of the national rice sector, especially for small
farmers operating in smallholdings, the report notes.
"National producers , mostly small farmers operating on plots of
less than 100 tareas, fear that the DR-Cafta measures will favor
the entry of rice at lower prices, which could displace national
rice from the market," he added.
He explained that the United States, with its high technology and
generous agricultural subsidies, has the capacity to produce rice
at a significantly lower cost. This disadvantages local producers,
and their dependence on them will affect price stability, the
report notes.
The producer recalled that the possible flooding of the market with
imported rice affects not only competitiveness but also the
sustainability of the sector and of those communities whose main
economic activity is the cultivation of that cereal, the report
discloses.
"Small producers will not be able to compete," he added.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district. Luis Rodolfo
Abinader Corona is the current president of the nation.
TCR-LA reported in April 2019 that Juan Del Rosario of the UASD
Economic Faculty cited a current economic slowdown for the
Dominican Republic and cautioned that if the trend continues,
growth would reach only 4% by 2023. Mr. Del Rosario said that if
that happens, "we'll face difficulties in meeting international
commitments."
An ongoing concern in the Dominican Republic is the inability of
participants in the electricity sector to establish financial
viability for the system.
On December 4, 2023, the TCR-LA reported that Fitch Ratings has
affirmed Dominican Republic's Long-Term Foreign-Currency Issuer
Default Rating (IDR) at 'BB-' and revised the Outlook to Positive
from Stable. Fitch says the Positive Outlook reflects a trend
improvement in governance, and robust growth prospects that should
lead to continued gains in per capita income. According to Fitch,
growth has decelerated in 2023, but it expects Dominican Republic
to recover to high levels during 2024-2025. External liquidity
metrics have improved in recent years, and foreign currency share
of government debt is on a downward path.
In August 2023, Moody's Investors Service changed the outlook on
the Government of Dominican Republic's ratings to positive from
stable and affirmed the local and foreign-currency long-term issuer
and senior unsecured ratings at Ba3. Moody's said the key drivers
for the outlook change to positive are: (i) sustained high growth
rates have enhanced the scale and wealth levels of the economy; and
(ii) a material decline in the government debt burden coupled with
improved fiscal policy effectiveness will support medium-term debt
sustainability.
The affirmation of the Ba3 ratings balances the Dominican
Republic's strong economic growth dynamics and relatively contained
susceptibility to event risks, with a comparatively weaker fiscal
position, reflecting long-standing credit challenges which include:
(i) a shallow revenue base compared to peers, (ii) weak debt
affordability metrics, and (iii) high exposure to foreign currency
borrowing.
S&P Global Ratings, in December 2022, raised its long-term foreign
and local currency sovereign credit ratings on the Dominican
Republic to 'BB' from 'BB-'. The outlook on the long-term ratings
is stable. S&P affirmed its 'B' short-term sovereign credit
ratings. S&P also revised its transfer and convertibility (T&C)
assessment to 'BBB-' from 'BB+'. The stable outlook reflects S&P's
expectation of continued favorable GDP growth and policy continuity
over the next 12-18 months that will likely stabilize the
government's debt burden.
In February 2023, S&P said its BB ratings reflect the country's
fast-growing and resilient economy. It also incorporates the
country's historical political and social challenges in passing
structural reforms to contain fiscal deficits, despite recent
improvements in the electricity sector. The ratings are constrained
by relatively high debt, a hefty interest burden, and limited
monetary policy flexibility.
===========
P A N A M A
===========
PANAMA: Grew Very Rapidly in Two Decades, IMF Says
--------------------------------------------------
The Executive Board of the International Monetary Fund (IMF)
concluded the Article IV consultation with Panama on June 3, 2024.
The Board considered and endorsed the staff appraisal without a
meeting, on lapse-of-time basis.
Panama grew very rapidly in the two decades preceding COVID-19 but
was hit very hard by the pandemic. Between 1994 and 2019, GDP per
capita increased from 33 percent of US GDP per capita to 48
percent. Rapid growth was driven by an unprecedented construction
and investment boom that included major construction projects, such
as the enlargement of the Panama Canal and the Tocumen airport, and
the expansion of the services and logistics sectors that benefited
from those projects. From the supply side, convergence was in large
part supported by a sharp increase in the employment-to-population
rate. This was the result of a demographic transition, an increase
in female labor force participation, and a significant drop in
unemployment. In 2020, GDP fell by 17.7 percent, a much larger
decline than in other countries. A strict lockdown, with a
six-month shutdown of the construction sector resulting in a 50
percent decline in investment, was a key factor behind the sharp
decline.
The strong post-pandemic rebound continued in 2023. For the third
year in a row, real GDP growth surprised on the upside, reaching
7.3 percent in 2023. Rapid growth was driven by a rebound in
construction, retail and wholesale trade, transportation, and
logistics. From the expenditure side, growth was driven by very
strong fixed capital information, while private consumption growth
lagged GDP growth. GDP is now well above pre-COVID 19 levels, and
unemployment is near pre-crisis levels. GDP has grown by 39 percent
since 2020 and 14 percent since 2019 and surpassed pre-crisis
levels in 2022. However, private consumption is still below 2019
levels. Unemployment, which had surged from 7.1 percent in 2019 to
18½ percent in 2020, has since fallen back to 7.4 percent in
August 2023. The fiscal deficit declined from 10.0 percent of GDP
in 2020 to 3.0 percent in 2023, in line with the Social and Fiscal
Responsibility Law. Panama exited the FATF grey list in November
2023.
Amidst several headwinds, the economy is expected to slow and the
outlook is uncertain. GDP growth is projected to decrease to 2.5
percent in 2024, largely as a result of the closure of the Cobre
Panamá copper mine. The mine contributed, directly and indirectly,
about 5 percent of Panama's GDP. Growth in the non-mining sector is
likely to slow as well, as the strong rebound from the pandemic has
likely run its course and Panama faces higher financing costs. The
near-term economic outlook is subject to a large degree of
uncertainty and the balance of risks is tilted to the downside. Key
risks include the loss of investment grade, further social unrest,
the fallout from the end of copper production (including from
international arbitration proceedings), and external risks. Over
the medium term, GDP is expected to grow by around 4 percent,
subject to considerable uncertainty, as construction and investment
are unlikely to provide the same support as they did before the
pandemic. In addition, the scope for a significant increase in the
employment-to-population ratio (which was an important driver of
rapid growth during the boom years) is limited.
Executive Board Assessment
Panama has recovered strongly from the pandemic, but growth in 2024
is projected to decline and the balance of risks is titled to the
downside. Key risks include the loss of investment grade status and
a further rise in financing costs. Being a dollarized economy adds
to the importance of maintaining fiscal sustainability and
financial stability. The external position is assessed to be
broadly in line with the level implied by fundamentals and
desirable policies.
Panama has made significant progress in reducing its fiscal
deficit. The fiscal deficit declined from 10.0 percent in 2020 to
3.0 percent of GDP in 2023, in line with the targets of the SFRL
albeit also helped by one-off revenue sources.
Meeting the 2024 fiscal deficit target of 2.0 percent of GDP will
require an unduly large compression of public investment. A fiscal
deficit of 4 percent of GDP in 2024 would be adequate from a
cyclical perspective, avoiding an overly large investment
compression and allowing a more gradual adjustment to the permanent
loss of fiscal revenues from Minera.
The SFRL goal of reducing the fiscal deficit over time to 1.5
percent of GDP remains appropriate. If the deficit stays around 4
percent of GDP in coming years, there would be no further decline
in the debt ratio, leaving public finances vulnerable to renewed
shocks. To ensure that public debt is on a firm downward trend, the
public finances strategy for 2025 should contain a credible
multi-year fiscal consolidation plan to reduce the deficit to the
SFRL target of 1.5 percent of GDP by 2027. Without a credible plan,
the risk of further sovereign downgrades is high, which would
increase financing costs and exacerbate possible adverse debt
dynamics.
With no lender of last resort and deposit insurance, it is
imperative that the banking system remains well-capitalized and
liquid. The Panamanian banking system appears broadly resilient
against severe downturn scenarios, but risks have increased amidst
higher interest rates and a slowing economy. Current capital
adequacy and liquidity indicators in the banking system are well
above regulatory minima, and continued intensive supervision and
monitoring and expanding the macroprudential policy toolkit will
help mitigate future asset quality and liquidity risks. The recent
FSAP outlined a reform agenda that will help underpin financial
stability and foster further financial development. All Fintech
companies that carry out financial activities as defined by the
FATF should be subject to AML/CFT regulation and supervision.
For income convergence to continue, labor productivity growth will
need to accelerate. The demographic transition has largely run its
course, and labor force participation in Panama already exceeds the
average in the region and in high-income countries. Continuing to
attract FDI, improving the quality of education and governance, and
reducing the share of informal employment will be key to foster
labor productivity and growth.
=====================
P U E R T O R I C O
=====================
PUERTO RICO: Power Operator Defers Maintenance, Sparks Outcry
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RJR News reports that the private operator of Puerto Rico's power
grid confirmed earlier the deferral of US$65 million worth of
maintenance and improvement projects in the United States
territory.
Some repairs were postponed for at least a year because of budget
constraints, putting at risk the already troubled grid and sparking
widespread outcry, according to RJR News.
Some of the deferred projects include maintenance of more than
100,000 light posts, fire mitigation and repairs on underground
circuits, among other improvements, the report notes.
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S T . V I N C E N T A N D T H E G R E N A D I N E S
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ST. VINCENT & THE GRENADINES: Moody's Affirms 'B3' Issuer Ratings
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Moody's Ratings has affirmed the Government of St. Vincent and the
Grenadines long-term local and foreign-currency issuer ratings at
B3, short-term local and foreign-currency non-prime rating and
maintained the stable outlook.
The rating of St. Vincent and the Grenadine's (SVG) reflects the
nation's small size, limited diversification and vulnerability to
external and climate shocks. The recurrence of these shocks have
contributed to fluctuating growth rates and fiscal imbalances,
which led to high debt burden. High public debt level, largely a
consequence of regular reconstruction needs post-disaster, further
constrains the sovereign's credit profile. The sovereign's reliance
on concessional financing and grants constrains fiscal flexibility,
while also containing interest burden of its high debt level.
Despite these challenges, the rating also considers the country's
stable political environment and ongoing efforts to improve
resilience to natural disasters.
The rating affirmation reflects the economy's ability to rebound
after successive shocks, and implementation of infrastructure
projects that support economic growth and reduce the economy's
vulnerability to shocks. The decision to affirm incorporates
Moody's expectations that fiscal deficits will decline as
government spending returns to pre-pandemic levels once those
projects near completion in the next two years, leading to a
gradual reduction in the government's debt burden. Moody's expect
debt affordability will remain relatively stable reporting levels
comparable to those observed in similarly-rated peers, supported by
access to concessional funding.
The stable outlook reflects Moody's expectation that growth will
remain relatively strong in the next 2-3 years and that fiscal
consolidation following completion of large infrastructure projects
will lead to gradual decline in debt burden, balanced against risks
related to high exposure to climate shocks and the economy's
limited diversification. The outlook also considers SVG's access to
funding from MDB's on favorable terms, limiting liquidity and
refinancing risks for the sovereign.
St Vincent and the Grenadines' local-currency ceiling remains at
Ba3, three notches above the sovereign rating to capture the
country's limited economic diversification and vulnerability to
shocks balanced against moderate institutional strength and
membership in the ECCU. The foreign-currency ceiling remains at B2,
two notches below the local-currency ceiling to capture SVG's
external vulnerability and constrained foreign currency funding
options.
RATINGS RATIONALE
RATIONALE FOR THE RATING AFFIRMATION
FIRST DRIVER - RELATIVELY ROBUST GROWTH SUPPORT CREDIT PROFILE, BUT
VULNERABILITY TO CLIMATE SHOCKS REMAINS
The economy of St. Vincent and the Grenadines is highly vulnerable
to external and environmental shocks, having suffered two large
shocks in quick succession. The pandemic hit in 2020 and the
economy suffered severe disruption in tourism activity as
international travel came to a halt. The following year, an
eruption of La Soufriere volcano destroyed part of the island
economy causing significant damage to housing, infrastructure, and
agriculture. The island economy has limited diversification
prospects, a factor that constrains the country's ability to
achieve sustained growth at higher rates. Although the government
is taking steps to increase growth potential through various
infrastructure projects investment, including a new airport,
completed in 2017, a new cargo port under construction, and
exploring geo-thermal energy, SVG's economy remains highly
dependent on tourism and travel, which accounts for roughly 30% of
total economic activity.
Moody's estimate real GDP growth of around 5% in 2023 as the
economy recovered, and expect medium-term annual growth to revert
to pre-pandemic trend of around 2.5% on the back of infrastructure
investment, recovery of agriculture sector, and robust activity in
tourism sector aided by additional airlift and the launching of
operations in two large resorts.
Large investment projects to improve critical infrastructure,
healthcare, and climate resilience will drive growth in 2024-25 and
will also boost SVG's potential growth, reducing vulnerability to
climate shocks. Moody's expect these projects to be near completion
by 2025, allowing the government to reduce public spending and
begin a fiscal consolidation process backed by primary surpluses of
2-3% of GDP in the medium-to-long term. This is consistent with
commitments made by the government related to emergency support
received from the IMF in 2021 under the Rapid Credit Facility, and
it is also in line with the authorities' stated objective of
reducing public debt to 60% of GDP by 2035. Additionally, it should
be noted that fiscal risks related to the projects are relatively
contained since SVG will rely on long-term concessional finance to
fund them.
The country's high exposure to climate shocks has contributed to
debt accumulation as the government has to respond to these
recurrent shocks. To address the costs and economic consequences of
frequent natural disasters, the authorities have taken steps to
reduce financial vulnerability to climate shocks and increase
resilience, including the creation of Contingencies Fund (CF), a
self-insurance mechanism to cover post-disaster reconstruction
efforts, and by investing in climate-resilient infrastructure and
clean energy.
SECOND DRIVER - HIGH DEBT BURDEN MITIGATED BY ACCESS TO
CONCESSIONAL FINANCE, SUPPORTING DEBT AFFORDABILITY
Moody's expect SVG's debt burden to stabilize over the next 2-3
years at around 90% of GDP, after having increased to 87% from 67%
during 2019-2023 as a result of both the pandemic shock and of
infrastructure projects that were undertaken, including, a new port
and a new hospital project.
Moody's expect completion of large projects will allow the
government to reduce spending; however fiscal risks remain as a
result of climate vulnerability. Coupled with improved revenue
collection, this should facilitate adherence to primary balance
targets of around 2-3 percent of GDP starting in 2026, leading to a
gradual but steady fall in the debt ratio to around 60 percent over
the next decade in line with the government's commitment under the
fiscal responsibility framework and the ECCU-wide debt target.
Despite the increase in debt burden, which weakens SVG's fiscal
profile, debt remains highly concessional and, consequently, the
debt service remains manageable. Debt affordability will remain
broadly stable, with interest-to-revenue ratio below 10% for
2024-25. Since SVG's external financing is concentrated in
concessional funding from bilateral official creditors and
multilateral development banks, external liquidity risks are
contained. Additionally, SVG has access to funding in local
currency through the regional capital market of the ECCU.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectation that implementation
of infrastructure projects will support medium-term potential
growth, and fiscal consolidation after project completion will lead
to gradual decline in debt burden, balanced against risks related
to exposure to climate shocks and the economy's limited
diversification. The outlook also considers SVG's access to funding
from MDB's on favorable terms, limiting liquidity and refinancing
risks for the sovereign.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
SVG's ESG Credit Impact Score (CIS-4) incorporates high exposure to
environmental and social risks and moderately strong institutions.
SVG's is highly vulnerable to environmental risks (E-5 issuer
profile score), reflecting exposure to physical climate risk
related to recurrent weather-related shocks, such as hurricanes and
volcano eruptions that have caused severe economic disruption to
the island's vital tourism and agriculture sectors.
Exposure to social risks (S-4 issuer profile score) reflects risks
related to high dependency ratio and aging population, and generous
pension system which raises fiscal risks, weak productivity and
some deficiency in education outcomes and the provision of
services.
Moody's assessment of SVG's governance risk (G-3 issuer profile
score) reflects the country's relatively strong governance and
institutions, despite somewhat mixed track record of fiscal policy
implementation and some delays in data availability.
GDP per capita (PPP basis, US$): 17,820 (2023) (also known as Per
Capita Income)
Real GDP growth (% change): 5% (2023) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 4.1% (2023)
Gen. Gov. Financial Balance/GDP: -9.1% (2023) (also known as Fiscal
Balance)
Current Account Balance/GDP: -13.5% (2023) (also known as External
Balance)
External debt/GDP: 65.1% (2023)
Economic resiliency: b1
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On June 25, 2024, a rating committee was called to discuss the
rating of the St. Vincent and the Grenadines, Govt of. The main
points raised during the discussion were: The issuer's economic
fundamentals, including its economic strength, have not materially
changed. The issuer's institutions and governance strength, have
not materially changed. The issuer's fiscal or financial strength,
including its debt profile, has not materially changed. The
issuer's susceptibility to event risks has not materially changed.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
While currently unlikely, Moody's would consider a rating upgrade
in case of higher sustained economic growth and faster fiscal
consolidation, leading to significant improvement in the country's
debt-to-GDP.
SVG's rating could be downgraded if it faces difficulties in
accessing external liquidity on concessional terms. Such an event
could strain its liquidity, hurting debt service payments. Shocks
derived from climate events that could lead to a substantial
deterioration in SVG's fiscal and debt metrics, or an material
increase in market borrowing would undermine the sovereign credit
profile.
The principal methodology used in these ratings was Sovereigns
published in November 2022.
*********
S U B S C R I P T I O N I N F O R M A T I O N
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