Panama, with a population of just over 4 million, is currently in the midst of an electoral process to choose the new president of the Republic on May 5th. Since 2021, Panama has solidified its position as one of the first carbon-negative countries. This means its forests capture more carbon than the country emits, thus contributing to combating the climate crisis.
Additionally, Panama stands out as a crucial logistical and financial center in the region. Progress has been driven by trade and services, and the Canal plays a fundamental role in these sectors. Despite these developments, Panama remains one of the most unequal countries in the world, with significant poverty among indigenous peoples and Afro-Panamanians, and low quality and access to key public services. This underscores the need for a more equitable redistribution of resources.
Over the last thirty years, economic growth has generated employment and significantly reduced poverty, decreasing from 48.2% in 1991 to 12.9% in 2023, at 6.85 dollars per day per capita, according to the Purchasing Power Parity (PPP) measurement of 2017. However, poverty in rural areas continues to increase, rising from 29.3% in 2022 to 32.3% in 2023. Currently, the Panama Solidarity Program has been a crucial element in the fight against poverty in the country, contributing to reducing the number of people living in poverty.
In 2023, it is estimated that Panama experienced a growth of 6.5%, driven by several sectors such as construction, trade, transportation, tourism, the Colon Free Zone, and financial activities during the first three quarters of the year. During the fourth quarter of the same year, Panama successfully exited the Financial Action Task Force (FATF) list and the European Union list of high-risk countries due to deficiencies in the prevention of money laundering and terrorism financing after implementing actions that strengthened its anti-money laundering and terrorism financing regime, which will bring positive economic benefits to the country in the medium and long term.
However, during the same period of the year, the country faced significant challenges, such as the decrease in ship traffic crossing through the Canal due to a prolonged drought caused by El Niño and social protests between October and November against an open mining operation. These protests led to the Supreme Court's declaration of the contract with Cobre Panama as unconstitutional, resulting in the cessation of operations of the mining company later.
Due to the interruption of the operation of the cooper mine, growth is expected to decrease to 2.5% in 2024. However, the service sector's dynamism is anticipated to contribute to medium-term growth gradually.
From 2025 onwards, accelerated growth is forecasted as long as Panama maintains its attractiveness as a foreign investment destination, which should initiate a modest decrease in poverty as the economy recovers and the labor market regains its pre-pandemic dynamism.
Although, Fitch downgraded its sovereign risk rating to BB+ from BBB- on March 28, 2024, and there is a downward pressure on the ratings of other agencies, the country still maintains good access to capital markets, though with a higher spread, thanks to its dollarized economy and a stable macroeconomic environment.
Starting on July 1st, the new administration will need to address key structural fiscal challenges to continue its growth path and sustain its robust fiscal outlook. These challenges include an urgent reform of the Pension Fund System and addressing climate disruptions, including the increasing frequency and intensity of El Niño, which poses significant risks through hurricanes and their effect on water levels in the Canal.
Last Updated: Apr 03, 2024
