The economic context of Panama

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Panama's economy is small, very much open, highly diversified, dollar driven and highly competitive by regional standards. In 2022, the country had an estimated growth in GDP of 7.5%, mainly driven by a significant upturn in tourism, and an increase of investment in infrastructure and transportation, which stimulated employment and boosted private consumption. The Panamanian economy is expected to continue recovering in the coming years, albeit at a slower pace, with the IMF predicting a GDP growth of 4% for 2023 and 4.5% for 2024.

In 2022, gross public debt slightly decreased to 55.6% of GDP and, with the country experiencing ongoing fiscal improvement and economic recovery, a gradual debt decrease is expected in the coming years. According to the IMF, the gross government debt is expected to decrease to 55.1% in 2023 and 53.9% in 2024. Fiscal deficit reached 3.7% of GDP in 2022, and should continue decreasing in 2023 and 2024, reaching 2.8% and 1.9%, respectively. Although the current account has a structural deficit, it had been declining. In 2022, it represented -3.7% of GDP, a rate that's expected to decrease to -3.3% in 2023 and -3% in 2024. The external debt is sustainable, with more than 50% held by the banking system. A sovereign wealth fund and banks' foreign currency assets mitigate liquidity risks. In 2022, inflation increased to 3.9%, but this rate is expected to drop to 3.3% in 2023 and 2.5% in 2024. The country is known as a tax haven, and has recently improved the banking regulation system, especially transparency and cooperation with the legal authorities. However, the Panama Papers scandal has shown that banking regulation remains insufficient. In addition, the banking sector is highly exposed to the regional slowdown and strength of the USD, which can affect internal consumption and investment. Two economic drivers, namely real estate and construction, could be particularly affected: given the weight of foreign demand in these sectors, there is concern about potential losses for developers in the event of demand falling as we observe an excess of supply in real estate and high-end tourism. Although the pandemic has significantly impacted the Panamanian economy, the fiscal measures implemented by the government have been effective in boosting economic activity, which has been gradually recovering.

According to the World Bank, Panama has the 17th highest GDP per capita in Latin America & Caribbean, at around USD 14,617. However, despite remarkable progress made by the authorities in recent years, income inequality is among the highest in the region and poverty has increased as a result of the COVID-19 pandemic, especially within most vulnerable groups. When it comes to children, poverty is much higher than average, as more than half the country's children are poor, and almost a fifth suffer malnutrition. Although unemployment has been rising since 2012, the country experienced a significant decrease of unemployment rates in 2022, due to the Panama's steady recovery following the initial impact of the COVID-19 pandemic. Still, it's worth noting that the informal sector employs more than 40% of the labour force. In 2022, unemployment reached 9.5% of the population, and it should continue stable in the coming years, with rates expected to reach 10% in 2023 and 2024.

Main Sectors of Industry

The economy of Panama is largely dependent on the mining, agriculture, and timber industries. The country has one of the largest copper ore reserves in the world, as well as large reserves of gold, manganese, and iron. Hydropower is also a major natural resource in Panama as it supplies 60% of all electricity in the country. Additionally, 30% of the country's land is devoted to farming, as agriculture is one of the industries that contributes the most to the economy. Overall, agriculture accounts for 2.6% of GDP and employs 14.4% of the labour force - about 80% of all farmers in the country are family farmers. Panama produces mainly bananas and different varieties of vegetables, maize, sugarcane, rice, coffee, watermelons, cocoa beans, pineapples, potatoes, coconuts, soybeans, timber, milk, livestock and shrimp. In 2022, Panama saw good harvests, mainly due to above‑average precipitation (especially in the country's key-producing western region), good management, technological improvement, and the increase in hectares.

The industrial sector is not very developed and contributes 27.7% of GDP, employing 17.7% of the labour force. 43.6% of Panama land is forest land, so logging is a big industry in the country. The main industrial activities are in agribusinesses, dairy, sugar refining, apparel manufacturing, petroleum products, chemicals, paper and paper products, printing, furniture and building. Given the country's large mineral reserves, mining is the fastest growing industry in Panama. In 2022, the industry sectors that registered the highest growth rates were construction, brewing, and sugar milling

Panama's economy is pegged to the dollar and the service industry is the biggest in the country, accounting for 66% of Panama’s GDP and employing 67.9% of the workforce. Transport is the most important sector of the service industry, as it comprises the Panama Canal - the government’s chief revenue source. Other well-developed sectors are logistics, banking, the Colón Free Zone (a focal point for foreign investment in the manufacturing industry), insurance, container ports, boat registrations and tourism. Panama is also an important country for off-shore banking services. In 2022, the services sector showed a steady recovery following the pandemic, mainly led by the activity in the Panama Canal and a significant boost in tourism.

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	14.4	17.7	67.9
Value Added (in % of GDP)	2.6	27.7	66.0
Value Added (Annual % Change)	2.9	37.5	9.4

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:

66,2/100

World Rank:

62

Regional Rank:

10

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

 

Sources of General Economic Information

Ministries

Ministry of Foreign Affairs (in Spanish)
Ministry of Commerce and Industry (in Spanish)
Ministry of Public Works (in Spanish)
Ministry of Economy and Finance (in Spanish)
Ministry of Government (in Spanish)

Statistical Office

National Institute of Statistics and Census (in Spanish)

Central Bank

National Bank of Panama (in Spanish)

Stock Exchange

Panama Stock Exchange - Bolsa Latinoamericana de Valores (in Spanish)

Economic Portals

Panama Canal Authority