Economic Outline

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.

Any Comment About This Content? Report It to Us.