Since 2021, Panama has strengthened its position as one of the world’s first carbon-negative countries, with its forests capturing more carbon than the nation emits. This achievement underscores Panama’s commitment to environmental sustainability.
Besides, Panama stands out as a key logistical and financial center in the region. Development has been driven by trade and services, with the Canal playing a fundamental role in these sectors. Despite these advances, Panama remains one of the most unequal countries in the world, with significant poverty among indigenous peoples and Afro-Panamanians, as well as limited access and low-quality of essential public services.
Over the last thirty years, economic growth has generated employment and significantly reduced poverty, which has decreased from 48.2% in 1991 to 12.9% in 2023, with a per capita income of $6.85 per day, according to the 2017 Purchasing Power Parity (PPP) measurement.
GDP grew by 7.3 percent in 2023, driven by the construction, transport and storage, wholesale and retail trade, utilities, business services, and hospitality sectors, collectively employing 45 percent of the workforce. However, progress in poverty reduction has been affected by the elimination of the government’s emergency transfers (Nuevo Programa Panamá Solidario – NPPS).
During the fourth quarter of 2023, Panama successfully exited the Financial Action Task Force (FATF) list of high-risk and non-cooperative countries in the fight against money laundering and terrorism financing after implementing actions that strengthened its regime in combating these crimes. This will bring positive economic benefits to the country in the medium and long term.
Despite strong growth and reform progress, new challenges have emerged. Following the prolonged drought that lasted from July 2023 to April 2024, the Panama Canal had to restrict the transit of vessels.
Additionally, the Supreme Court's ruling that the contract with the Cobre Panama company was unconstitutional will have significant economic impacts on the country.
Growth is expected to slow to 2.4 percent in 2024, following the halt of one of the country's most important mining activities. However, the dynamism in the services sector should help gradually improve growth. Starting in 2025, accelerated growth is expected if Panama maintains its attractiveness as a destination for foreign investment, which should initiate a modest reduction in poverty as the economy recovers and the labor market regains its momentum.
The fiscal deficit is projected to widen to 4.6 percent of GDP in 2024, due to lower revenues and higher expenditures. However, it is expected to gradually decrease to around 3 percent by 2026, as fiscal consolidation measures take effect, signaling a positive trajectory towards long-term stability.
While Fitch downgraded Panama’s sovereign risk rating from BBB— to BB+ on March 28, 2024, the country maintains good access to capital markets.
In May 2024, Panamanians elected Jose Raul Mulino to lead the country, and a new government took office on July 1, 2024. The new administration has set its sights on addressing Panama’s structural challenges, in order to restore high growth rates, ensure fiscal sustainability, and improve resilience to climate shocks. Tackling these issues will require improving revenue mobilization through tax rate alignment, addressing inefficiencies in tax administration, and reducing spending pressures, particularly those related to the pension system and untargeted subsidies. These efforts will send positive signals to investors and restore confidence.
Last Updated: Nov 15, 2024
