Panama flag Panama: Economic outline

Economic Outline

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 2021, the country had an estimated growth in GDP of 12%, mainly driven by the recovery in activity in the Panama Canal, a gradual 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 5% for both 2022 and 2023.

Public spending remains under pressure, as gross public debt represented 62.2% of GDP in 2021. However, the country has been experiencing ongoing fiscal improvement and economic recovery, so a gradual debt decrease is expected. According to the IMF, the gross government debt is expected to decrease to 61.2% in 2022 and 60.6% in 2023. Fiscal deficit reached 6% of GDP in 2021, and should continue decreasing in 2022 and 2023, reaching 3% and 2.2%, respectively. Although the current account has a structural deficit, it had been declining. In 2021, it represented -3.7% of GDP, a rate that's expected to decrease to -3.5% in 2022 and -3.2% in 2023. 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 2021, inflation remained low at 1.4% and this trend is expected to continue, with inflation rates reaching 2% in 2022 and remaining stable in 2023. 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. To mitigate the impact of the COVID-19 pandemic, the government continued implementing a series of fiscal measures in 2021, which included increased health spending, temporary economic support to vulnerable households; tax relief, benefits, and and a series of tax-related measures - such as an extension of the deadline for the filing and payment of taxes, quicker tax refunds, and the suspension of penalties and interest. Overall, the fiscal measures implemented by the Panamanian government in light of the pandemic have been effective in boosting economic activity, which has been gradually recovering.

According to the IMF, Panama has the 8th highest GDP per capita in Latin America, at around USD 14,640. 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 2021, 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 2021, unemployment reached 10.2% of the population, and it should continue decreasing in the coming years, with rates expected to reach 9.2% in 2022 and 8.2% in 2023.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 66.79e52.94e60.1264.3768.94
GDP (Constant Prices, Annual % Change) 3.0e-17.9e12.05.05.0
GDP per Capita (USD) 15,831e12,373e13,86114,64415,481
General Government Balance (in % of GDP) -5.2-6.2e-6.0-3.0-2.5
General Government Gross Debt (in % of GDP) 42.266.3e62.261.260.6
Inflation Rate (%) -0.4-1.6e1.42.02.0
Unemployment Rate (% of the Labour Force) 7.118.5e10.29.28.9
Current Account (billions USD) -3.331.23e-2.22-2.22-2.25
Current Account (in % of GDP) -5.02.3e-3.7-3.5-3.3

Source: IMF – World Economic Outlook Database, 2016

Note: (e) Estimated Data

 
Monetary Indicators 20162017201820192020
Panamean Balboa (PAB) - Average Annual Exchange Rate For 1 GBP 1.351.291.331.251.28

Source: World Bank, 2015

 

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Latest Update: April 2022

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