The economic context of Panama

Economic Indicators

Panama's economy is small, very open, highly diversified, dollar-driven, and highly competitive by regional standards. The country has experienced robust growth over the past 30 years, driven by capital and labour accumulation, resulting in strong job creation and a significant reduction in poverty. GDP grew a solid 7.3% in 2023, driven by construction, transport and storage, wholesale and retail, utilities, business services, and hotels and restaurants. Growth slowed sharply to 2.9% in 2024 due to a halt in copper production and air transport declined, as per official government figures; however, the dynamic services sector should support a gradual recovery in growth over the medium term. The IMF expects growth to pick up to 4% by 2026 on the back of a robust pipeline of public works. The new government led by President Jose Raul Mulino plans to address the copper mine issue in 2025, following social security reform. Potential proposals include an "open-to-close" approach, which would involve temporarily reopening the mine to finance its responsible closure.

The non-financial public sector (NFPS) deficit for 2024 was 7.4% of GDP (USD 6.4 billion). Contributing one-off factors included the settlement of USD 650 million in prior-year arrears (0.8% of GDP) in April and reduced Panama Canal contributions due to a drought (0.3% of GDP). After taking office in July, the Mulino government registered another USD 730 million (0.8% of GDP) in arrears but allocated most of this to the 2023 deficit without specifying the amount for the 2024 deficit. A tax amnesty brought in 0.1% of GDP. The government aims to increase tax collections by 42%, or 2.3% of GDP, through efforts to reduce tax evasion. However, the underlying deficit, excluding these one-off factors, remains high at over 6% of GDP. Therefore, significant consolidation efforts will be needed to meet the revised 4% target for 2025 (Fitch Ratings). Public debt increased to 54.6% in 2024, from 52.4% one year earlier, and is forecast to peak at 55.8% of GDP in 2025 and then gradually decline (IMF). Implementing new structural fiscal reforms, particularly in revenue mobilization, could accelerate this decline. Despite downward pressures on sovereign ratings due to the closure of Cobre Panama, the country maintains good access to financing as a stable dollarized economy. Meanwhile, inflation decreased to 1.5% in 2023 and 0.7% in 2024, driven by lower transport and food prices. It is expected to stabilize at around 2% during the forecasting period.

According to the IMF, Panama has a GDP per capita (PPP) of USD 41,292; however, despite remarkable progress made by the authorities in recent years, Panama remains one of the most unequal countries in the world, with significant poverty in rural areas and among indigenous communities. This inequality stems from unequal labour market opportunities and limited fiscal redistribution. Moreover, slower growth before and during the pandemic led to higher unemployment and informality. After peaking in 2020, unemployment has been gradually declining, averaging 7.1% in 2023. It increased to 9.5% as of October 2024, according to the latest official figures. As per the IMF, attracting FDI, enhancing educational quality, and decreasing informal employment are crucial steps to foster labour productivity and growth.

Main Sectors of Industry

The economy of Panama is primarily driven by the service sector, particularly transportation and logistics linked to the Panama Canal. However, mining, agriculture, and timber also play significant roles. The country has substantial copper reserves, notably the Cobre Panamá mine, though operations have been suspended since November 2023 due to environmental protests and legal challenges, impacting the economy. Additionally, Panama has reserves of gold, manganese, and iron. Hydropower is a major energy source, supplying around 60% of all electricity in the country. Agriculture, while a smaller contributor to the economy, accounts for 2.6% of GDP and employs about 15% of the labour force. Around 29.4% of the country's land is used for farming, with roughly 80% of farmers classified as family farmers. Panama's primary agricultural products include bananas, various vegetables, maize, sugarcane, rice, coffee, watermelons, cocoa beans, pineapples, potatoes, coconuts, soybeans, timber, milk, livestock, and shrimp. Cereal imports for the 2023/24 marketing year (August–July) were estimated at 813,000 tonnes, slightly below the previous year’s level. Imports for 2024/25 are expected to be above average. In June 2024, to meet rising maize demand in the feed industry, the government temporarily removed the 40% import tariff on maize until year-end (data FAO).

The industrial sector is not very developed and contributes 27.8% of GDP, employing 17.5% of the labour force. More than 40% of Panama's land is forest land, so logging is a big industry in the country. The main industrial activities are agribusinesses, sugar refining, apparel manufacturing, petroleum products, chemicals, paper and paper products, printing, furniture, and building. Despite internal diversification, the industrial sector remains highly dependent on imports, relying on foreign equipment and software. Over two-thirds of the inputs used in Panamanian industry are imported. The manufacturing sector as a whole accounts for only 5% of GDP.

Panama's economy is pegged to the dollar and the service industry is the biggest in the country, accounting for 67.3% of Panama’s GDP and employing 67.8% 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 offshore banking services.

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	14.7	17.5	67.8
Value Added (in % of GDP)	2.5	27.8	67.3
Value Added (Annual % Change)	0.5	12.8	5.9

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 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