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The shutdown of a major First Quantum mine in Panama has reinforced downward pressure on the country’s ‘BBB-‘ rating and its deficit forecast, Fitch Ratings said on Friday, warning of slower near-term growth prospects and government weaknesses.
Fitch said the closure of the Cobre Panama mine, a copper project that represents about 5% of Panama’s GDP, will pressure the Central American country’s already weak finances.
“Public finances remain structurally weak, amid surging interest costs, spending pressures and sluggish tax revenues,” Fitch said in a statement. “Authorities have enacted measures that Fitch believes could worsen rather than improve the underlying trend.”
The agency downgraded Panama’s rating outlook to negative from stable in September, indicating it could consider lowering it. BBB- is Fitch’s lowest investment grade rating and any cut would see the country downgraded to “junk,” likely increasing the government’s borrowing costs.
The government ordered the shutdown of the project in December after anti-mine protests erupted across the country and a court ruling deemed the contract to run the mine unconstitutional.
Protesters argued the government’s contract with First Quantum was too favorable to the Canadian miner and needed more environmental safeguards.
Fitch also pointed to a drought affecting traffic on the Panama Canal, a key waterway for global freight, which it said could produce a budget shortfall of around 0.4% of GDP.
The agency lifted its 2024 deficit forecast to 4.7% of GDP from 4.3%.
Analysts at Goldman Sachs had warned on Thursday that the country was at risk of ratings downgrades due to the mine’s closure.
(By Valentine Hilaire; Editing by Kirsten Donovan)
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