S&P Global Ratings downgraded its long-term sovereign credit ratings on Panama to BBB from BBB+, with a stable outlook, citing pressures on debt servicing costs amid a higher government debt burden.

The rating agency expects Panama's interest payments to take up 17% of revenue in 2020 as a result of lower fiscal revenue and a higher debt burden, before reaching an average of 12% in 2021 to 2023. Compared with peers, Panama's government revenue is low, at only about 18% of GDP as of last year.

The net general government debt burden is projected to approach 43% of GDP in 2020 and stabilize at 45% in the succeeding two years.

"Panama faces challenges in strengthening its public finances in the medium term," the rating agency said, noting that the country's most urgent problem is the deteriorating finances of its national pension plan.

Meanwhile, the fiscal deficit is projected to surpass 8% of GDP this year before easing to 5.6% of GDP in 2021 as a result of an expected economic recovery and fiscal consolidation efforts.

The rating agency forecasts Panama's economy to shrink about 9% in 2020 due to the impact of the COVID-19 crisis and grow 7% in 2021 and 5% through 2023.

S&P Global Ratings affirmed its A-2 short-term sovereign credit ratings on Panama.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.