EM LATAM CREDIT: Moody’s Periodic Review of Panama: Neutral take
Republic of Panama (PANAMA; Baa3 neg / BBB- / BB+)
• Moody’s noted strong economic growth as a positive with 2025 real GDP expected at 4%, matching the IMF projected 4% growth rate, up from 2.9% in 2024. Growth is expected to come from increased activity at the Panama Canal as well as construction from large infrastructure projects.
• The rating agency expressed concern about rising debt levels and interest costs which we discussed in our post a few days ago: https://mni.marketnews.com/44RagTm
• Moody’s cited a 2024 fiscal deficit of 7.4% of GDP and an increase in the debt to 62% of GDP. They acknowledged the government’s willingness to reduce the deficit but question its ability given the pension reform which they estimate will cost over 1% of GDP in 2025 and the challenge in building consensus with the legislature as well as social pressures.
• The rating agency noted in 1Q2025 that the fiscal deficit of 1.6% of GDP was higher than the 1.5% a year ago. The negative outlook on the rating is due to heightened concerns about the fiscal deficit and rising debt levels so we need to see progress from the government on the fiscal front.
• Economy and Finance Minister Felipe Chapman said last week that the government projected a fiscal deficit of 3.88% of GDP for 2025 with the goal of reducing that to 1.5% by 2030.
• The IMF shows gross debt to GDP of 58.1% projected for 2025, up from 56.6% last year and 51.5% in 2023. Prior to the pandemic in 2019 it was 40%.
• President Jose Mulino has pledged to reopen the copper mine that a few years ago contributed 5% to the GDP and that would be a major positive if it were to happen. The government seems less motivated to reduce expenditures dramatically in the near term, preferring a more gradual approach.
• Panama 10-year bonds were last quoted T+281bps, 21bps tighter QTD and 33 bps tighter YTD. Panama’s quoted spread is much wider than other ‘BBB’ rated Latam sovereign bonds like United Mexican States (MEX; Baa2neg / BBB / BBB-) 10-year notes quoted T+200bps and Republic of Peru (Baa1 / BBB- / BBB) at T+118bps.
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US TSYS: Extraordinary Measures And Cash Look Sufficient To Head Off X-Date
Treasury has about $164B in "extraordinary measures" available as of April 23 to avoid hitting the debt limit, per its regular report out Friday. That's out of a maximum total of $375B (they have used $211B).
- With Treasury cash looking healthy (around $600B), that's a fair amount of dry powder to get through the summer months to wait out the debt limit impasse. Tax receipts have looked strong with tariff revenues also starting to boost cash flows, further reducing the near-term urgency to adjust bond issuance.
- This has also helped push back analyst “x-date” expectations to later in the summer/September. We expect to hear from Treasury about its own x-date assumptions next week.
US TSYS: Treasury Market Trading Stayed Orderly In April: Fed Report
Liquidity across financial markets including the Treasury market deteriorated after President Trump's April 2 reciprocal tariffs announcement but market functioning was generally orderly, according to the Federal Reserve's semiannual report on financial stability, released Friday. (PDF link is here)
- Treasury market liquidity has been poor for years and yields were particularly volatile in early April, contributing to a deterioration in market liquidity, the Fed said.
- Nevertheless "trading remained orderly, and markets continued to function without serious disruption," according to the report, which looked at information available as of April 11.
FED: Ex-Gov Warsh: Fed Has Failed To Satisfy Price Stability Remit
From our Washington Policy Team - Some fairly sharp words today from ex-Fed Governor Warsh on the central bank (who for what it's worth is seen by betting markets as by far the frontrunner for the next Fed Chair):
- The best way for the Federal Reserve to safeguard its independence is for policymakers to avoid expanding the institution's role over time, including wading into policy areas that are outside its core mission, former Fed Governor Kevin Warsh, a leading contender to replace Jerome Powell as chair next year, said Friday.
- "I strongly believe in the operational independence of monetary policy as a wise political economy decision. And I believe that Fed independence is chiefly up to the Fed," Warsh said in a speech at a Group of Thirty event on the sidelines of the IMF meetings. "Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability. It has also contributed to an explosion of federal spending." His speech made no mention of Trump's tariffs or the appropriate monetary policy to deal with them.
- He said the ideas of data dependence and forward guidance widely adopted by Fed officials are not especially useful and might even be counterproductive.
"We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts -- subject to significant, subsequent revision -- is evidence of false precision and analytic complacency," he said.
"Near-term forecasting is another distracting Fed preoccupation. Economists are not immune to the frailties of human nature. Once policymakers reveal their economic forecast, they can become prisoners of their own words. Fed leaders would be well-served to skip opportunities to share their latest musings."
