July 2, 2012 / 9:06 PM / 5 years ago

UPDATE 1-S&P lifts Panama's rating to BBB from BBB-minus

NEW YORK, July 2 (Reuters) - Standard & Poor's on Monday raised Panama's sovereign rating to BBB from BBB-minus, citing expectations for strong economic growth in the medium term and higher infrastructure investment.

The rating carries a stable outlook, S&P said in a statement.

"The upgrade reflects our view that Panama's economic policy flexibility is strengthening as the economy continues to grow, diversify, and gain resilience," the statement read.

The country's strong fiscal position means "the government has been able to implement an ambitious public infrastructure investment plan of more than 60 percent of 2011 GDP (including the expansion of the Panama Canal) over the next three years without increasing its fiscal debt burden," S&P said.

Still, S&P noted that the economy faces risks, including vulnerability to external shocks and a more polarized political environment.

Panama, the statement read, "remains vulnerable to shifts in investor sentiment because of its small domestic debt market and heavy reliance on external financing."

Moody's Investors Service currently rates Panama Baa3 with a positive outlook.

Fitch Ratings rates Panama BBB with a stable outlook, having affirmed the rating in May.

Panama, which uses the U.S. dollar as its currency and straddles a narrow strip between the Atlantic and Pacific oceans, won investment-grade ratings on its debt in 2010.

The agencies bumped Panama's sovereign rating into investment grade territory that year after the country weathered the global financial crisis with strong growth, kept budget deficits within legal limits and passed tax reforms to swell coffers.

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