Panama's Credit Rating Raised By Standard & Poor's (Update2)

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Panama's sovereign credit rating was raised to one level below investment grade by Standard & Poor's as the country posts record economic growth and reduces debt.

The increase to BB+ from BB made the Central American nation's rating equal to those of Brazil and Peru. Panama's outlook is stable, while its short-term rating of B was also affirmed, New York-based S&P said in a statement today.

Panama's economy, which has averaged growth of 6.5 percent since 2002, likely expanded 10 percent last year on increased revenue from the canal, which remains the main driver of growth, S&P said. The slowdown of the global economy will cut Panama's pace of growth to 6.5 percent in 2008, S&P said. Panama is rated Ba1 by Moody's Investors Service and BB+ by Fitch Ratings.

`` While it's good news for the credit, it's not unexpected,'' said Claudia Calich, who manages $1 billion in emerging-market debt for Invesco Inc. in New York. The ratings increase now ``puts all three agencies on the same level.''

The government's debt probably dropped to 33 percent of gross domestic product last year from 42 percent in 2004. Panama has $8.27 billion of debt, according to S&P data.

The extra yield investors demand to own Panamanian dollar debt instead of U.S. Treasuries widened 2 basis points to 2.14 percentage points at 3:04 p.m. in New York, according to JPMorgan Chase & Co.'s EMBI Plus index. A basis point is 0.01 percentage point. The yield difference shrank 13 basis points yesterday.

Panama will post a record surplus of 0.7 percent of GDP for 2007 after a deficit of 5.6 percent in 2004, S&P said. Tourism, construction and international financial institutions are helping to diversify Panama's economy, according to the credit rating company. The expansion of the canal won't hurt the government's finances as long as it remains on budget, S&P said.