Recent headlines confirmed what most of us residing in Panama already knew: the local economy is “en fuego”.  Construction grew by 25%.  Economic officials this week declared a 11.2% GDP increase in 2007.  That’s an astronomical figure.  To put that into perspective, China, the media’s sweetheart and crowned king of economic expansion, grew at an estimated 11.4% and is expected to slow to single-digit figures in 2008.

In turn, both Fitch and S&P raised their ratings for Panama last week.  Here is one excerpt:

“Fitch Affirms Panama’s L-T Foreign & Local Currency IDRs at ‘BB+’; Outlook Revised to Positive

NEW YORK–(Business Wire)–Fitch Ratings has affirmed the Republic of Panama’s long-term foreign currency and local currency Issuer Default Ratings (IDRs) of ‘BB+’ and simultaneously revised the Rating Outlook to Positive from Stable. Fitch has also affirmed the short-term foreign currency IDR of ‘B’ and the country ceiling of ‘BBB+’. The revision of Panama’s Rating Outlook to Positive reflects the virtuous circle of growth momentum and fiscal consolidation, which has put Panama’s public and external debt indicators on a downward path. As such, Fitch believes that Panama should be able to absorb future increases in public debt related to the expansion of the canal without precipitating downward pressure on the ratings given its solid economic growth prospects and the expectation that fiscal discipline will be maintained.”

What does all this mean for Panama’s future?  Certainly we can expect any of the following possibilities in 2008:

1. Increased foreign investment
2. More new hotels and tourism related businesses will open to meet growing demand 
3. Inflation
4. Rising real estate prices
5. Labor strikes, supply shortages
6. Tightening of regulations on construction, immigration and expat retirement benefits

It looks like the cat is out of the bag…way out.

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Filed under: News on February 29th, 2008