Panama flag Panama: Economic outline

Economic Outline

Economic Indicators

Panama's economy is small, very much open, highly diversified, dollar-driven, and highly competitive by regional standards. Before the pandemic, Panama saw significant income growth, with its income compared to the US rising from 33% to 48% over two decades. This was propelled by rapid development fueled by major projects like expanding the Panama Canal and Tocumen airport, along with growth in service and logistics sectors supported by these projects. Panama was hit hard by the pandemic, but the economic recovery has been strong. In 2023, GDP grew by 7.5%, benefiting from high investment particularly in construction. In late 2023, Panama's Supreme Court deemed the new mining contract with copper mine operator Minera unconstitutional, leading the government to declare its intention to shut down the mine. Consequently, GDP growth is forecasted to drop to 2.5% in 2024 before gradually recovering in the medium term (IMF). The anticipated slowdown primarily stems from the closure of Minera, which directly and indirectly accounted for approximately 5% of Panama's GDP.

Since the peak of the pandemic, there has been notable fiscal consolidation. The fiscal deficit of the non-financial public sector decreased from 4% of GDP in 2022 to 3% in 2023. This decline in the deficit-to-GDP ratio was driven by increased revenues, including payments from the copper mine Minera and land sales to the ACP, alongside reduced public investment, although interest payments saw a significant increase. In 2024, the government aims to further reduce the fiscal deficit to 2%, although the target is seen as ambitious by the IMF, considering that the 2024 budget authorizes an increase in spending of 3% of GDP compared to the 2023 outcome. In 2023, gross public debt slightly decreased to 52.8% of GDP and should decrease marginally to 51.4% by 2025 as per the IMF, although increasing deficit budget may reverse the trend. The average inflation rate decreased from 2.9% in 2022 to 1.5% in 2023 and consistently stayed lower than other regional countries. It is estimated to remain at a low level of 2.2% (year-on-year) by the end of 2024 and around 2% in the following years (IMF).

According to the World Bank, Panama has a GDP per capita (PPP) of USD 39,280; 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 the most vulnerable groups. Unemployment, which spiked from 7.1% in 2019 to 18.5% in 2020, fell to approximately 8% in 2023 (IMF). For income convergence to persist, there must be a boost in labor productivity growth. In the 25 years before the pandemic, approximately 75% of Panama's income improvement compared to the U.S. stemmed from a rise in the employment-to-population ratio, rather than faster labor productivity growth. However, it's expected that the increase in the employment-to-population ratio will slow down in the future. According to the IMF, attracting FDI, enhancing educational quality, and decreasing informal employment are crucial steps to foster labor productivity and growth.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 76.5282.3587.2492.5798.20
GDP (Constant Prices, Annual % Change) 10.86.04.04.04.0
GDP per Capita (USD) 17,41018,49319,34620,27521,250
General Government Balance (in % of GDP) -3.7-2.9-2.0-1.5-1.5
General Government Gross Debt (in % of GDP) 53.752.852.351.450.5
Inflation Rate (%) n/a1.51.92.02.0
Unemployment Rate (% of the Labour Force) 8.88.08.08.08.0
Current Account (billions USD) -3.00-2.99-2.82-2.73-2.76
Current Account (in % of GDP) -3.9-3.6-3.2-3.0-2.8

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: May 2024

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