Will Panama Hold On to Its Investment Grade? Here is What J.P. Morgan’s Latest Report Says

Posted on 2026-06-18

Panama’s economic outlook has received strong international backing. In its latest sovereign research report titled "Panama: Holding on IG", J.P. Morgan’s emerging markets research team concluded that Moody’s is highly likely to maintain Panama’s Baa3 rating—the minimum threshold for investment grade—when the agency issues its decision before the end of the year.

Despite the negative outlook assigned to the country in November 2024, the bank argues that President José Raúl Mulino’s administration has shown solid progress, leaving rating agencies with insufficient arguments for a downgrade.

1. Fiscal Consolidation: Higher Revenues, Lower Capex

The report highlights that Panama is well on track to meet its 3.5% GDP deficit target for this year. Cumulative fiscal results through April 2026 show an encouraging picture:

• Rising Revenues: Non-Financial Public Sector revenues grew 13.2% year-over-year (YoY), driven by improved central government collection and the restructuring of the Social Security Fund (CSS).

• Capital Spending Cuts: Capital expenditures (capex) dropped 15.9% YoY.

• Controlled Current Spending: Current expenditures saw a moderate increase of just 4.5% YoY.

2. The Panama Canal: A Short-Term Fiscal Anchor

The Panama Canal has cemented its role as the country’s main short-term fiscal anchor. In April, Canal revenues surged 10% YoY, which the bank estimates is equivalent to roughly $400 million in additional annualized revenue.

What is driving this boost?

Ironically, the momentum stems from global geopolitical tensions. Disruptions in the Middle East have triggered a rerouting of global trade flows, increasing both transit volumes and toll revenues through the interoceanic waterway.

Key Takeaway: This extra $400 million is more than enough to comfortably offset the government's fuel subsidy program, which is estimated at $100 million (0.1% of GDP).

Challenges on the Radar

Despite the optimism, J.P. Morgan warns that there is no room for complacency. The report identifies two primary risks that could alter these projections:

1. Climate Factors: El Niño conditions remain a well-known risk for water levels and transit volumes in the Canal.

2. Geopolitics: An eventual normalization and reopening of the Strait of Hormuz could rebalance trade flows back to their traditional routes, softening the current windfall revenues.

For now, the data supports the resilience of the Panamanian economy, providing a crucial breather for financial stability and international market confidence.