Economy of Panama
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|Economy of Panama|
|Rank||92nd (2012, PPP)|
|Currency||Panamanian balboa (PAB, B/.)
|Fiscal year||Calendar year|
|GDP||$57.079 billion (2012 est. PPP)|
|GDP growth||10.6% (2012 est.)|
|GDP per capita||$15,300 (2012 est.)|
|GDP by sector||agriculture: 3.8%; industry: 16.8%; services: 79.4% (2012 est.)|
|Inflation (CPI)||5.4% (2012 est.)|
below poverty line
|29% (2011 est.)|
|Gini coefficient||52.4 (2008)|
|Labour force||1.852 million (2012 est.) note: shortage of skilled labor, but an oversupply of unskilled labor|
|agriculture: 17%; industry: 18.6%; services: 64.4% (2009 est.)|
|Unemployment||4.4% (2012 est.)|
|Main industries||construction, brewing, cement and other construction materials, sugar milling|
|Ease of doing business rank||61st|
|Exports||$17.97 billion (2012 est.)Note: includes the Colon Free Zone|
|Export goods||gold, bananas, shrimp, sugar, iron and steel waste, pineapples, watermelon|
|Main export partners|| United States 20.3%
Costa Rica 6.6%
China 4.1% (2012 est.)
|Imports||$24.04 billion (20121 est.)|
|Import goods||fuel products, medicines, vehicles, iron and steel rods, cellular phones|
|Main import partners|| United States 23.6%
Costa Rica 4.6%
Mexico 4.4% (2012 est.)
|Gross external debt||$13.13 billion (31 December 2012 est.)|
|Public debt||37.0% of GDP (2012 est.)|
|Revenues||$9.219 billion (2012 est.)|
|Expenses||$10.21 billion (2012 est.)|
|Credit rating||Standard & Poor's:
AAA (T&C Assessment)
|Foreign reserves||$3.314 billion (31 December 2012 est.)|
The economy of Panama is a fully dollarized  free market economy with a history of low inflation. It is based mainly on the services industry, heavily weighted toward banking, commerce, and tourism. The hand-over of the canal and military installations by the US has given rise to new construction projects.
Panama's economy is based primarily on a well-developed services sector that accounts for nearly 80% of its GDP. Services include the Panama Canal, banking, the Colón Free Trade Zone, insurance, container ports, and flagship registry, medical and health, and other business. The country's industry includes, manufacturing of aircraft spare parts, cements, drinks, adhesives, and textiles. Also the leading exports for Panama are bananas, shrimp, sugar, coffee, and clothing.
Panama Government and UN Stats
Nominal GDP in Panama was (in million of balboa or US dollar) 11,691 in 2002, 13,099 in 2004, 14,004 in 2005 (Prelim), 15,141.9 in 2006 (est), as reported by Office of Statistics and Census, Government of Panama. Growth from 2002 to 2006 was especially strong in the transport and communications sector, which became the biggest component of GDP, although many sectors also saw strong growth. Real GDP rose 7.5% (03-04), 6.9% (04-05), 8.1% (05-06).
GDP growth in 2008 was 9.2%, reflecting a slowing of the robust growth of 11.5% seen in 2007. Although growth slowed to 2.4% in the first half of 2009, due to the global economic downturn, it is expected to improve in 2010 and is still one of the most positive growth rates in the region. Growth has been fueled by the construction sector, transportation, port and Panama Canal-related activities, and tourism. As a result of this growth, government deficit as a percentage of GDP dropped to 43% in 2009, and government-issued debt achieved investment grade in February 2010. A recent United Nations report highlighted progress in poverty reduction from 2001 to 2007—overall poverty fell from 37% to 29%, and extreme poverty fell from 19% to 12%. However, Panama still has the second-most unequal income distribution in Latin America.
Since the early 16th century, Panamanians have relied on the country's comparative advantage—its geography. Exploitation of this advantage began soon after the Spanish arrived, when the conquistadors used Panama to transport gold and silver from Peru to Spain. Ports on each coast and a trail between them handled much of Spain's colonial trade from which the inhabitants of the port cities prospered. This was the beginning of the country's historical dependence on world commerce for prosperity and imports. Agriculture received little attention until the twentieth century, and by the 1980s had—for much of the population—barely developed beyond indigenous Indian techniques. Industry developed slowly because the flow of goods from Europe and later from North America created a disincentive for local production.
Panama has been affected by the cyclical nature of international trade. The economy stagnated in the 18th century as colonial exchange via the isthmus declined. In the mid-19th century, Panama's economy boomed as a result of increased cargo and passengers associated with the California gold rush. A railroad across the isthmus, completed in 1855, prolonged economic growth for about fifteen years until completion of the first transcontinental railroad in the United States caused trans-isthmian traffic to decline. France's efforts to construct a canal across the isthmus in the 1880s and efforts by the United States in the early 20th century stimulated the Panamanian economy. In 1903 Panama separated from Colombia and the US took control of the Panama Canal Zone; soon afterwards a constitutional ruling adopted the US dollar as legal tender for the whole country.
|GDP (PPP)||40.152 billion USD (2009)|
|GDP (Nominal)||25 billion USD (2008)|
|GNP||38.08 billion USD (2008)|
|GDP growth||11.2% (2007)|
|GDP per capita||12,600 USD|
|GNI per capita||11,900 USD (2008)|
|Inflation (CPI)||2.4% (2006)|
|Labour force||1.392 million|
|Year||Gross domestic product||US dollar exchange||Growth|
The United States completed the canal in 1914, and canal traffic expanded by an average of 15 percent a year between 1915 and 1930. The stimulus was strongly felt in Panama City and Colón, the terminal cities of the canal. The world depression of the 1930s reduced international trade and canal traffic, however, causing extensive unemployment in the terminal cities and generating a flow of workers to subsistence farming. During World War II, canal traffic did not increase, but the economy boomed as the convoy system and the presence of United States forces, sent to defend the canal, increased foreign spending in the canal cities. The end of the war was followed by an economic depression and another exodus of unemployed people into agriculture. The government initiated a modest public works program, instituted price supports for major crops, and increased protection for selected agricultural and industrial products.
The postwar depression gave way to rapid economic expansion between 1950 and 1970, when GDP increased by an average of 6.4 percent a year, one of the highest sustained growth rates in the world. All sectors contributed to the growth. Agricultural output rose, boosted by greater fishing activities (especially shrimp), the development of high-value fruit and vegetable production, and the rapid growth of banana exports after disease-resistant trees were planted. Commerce evolved into a relatively sophisticated wholesale and retail system. Banking, tourism, and the export of services to the Canal Zone grew rapidly. Most importantly, an increase in world trade provided a major stimulus to use of the canal and to the economy.
In the 1970s and 1980s, Panama's growth fluctuated with the vagaries of the world economy. After 1973, economic expansion slowed considerably as the result of a number of international and domestic factors (see Recent Economic Performance, this ch.). Real GDP growth averaged 3.5 percent a year between 1973 and 1979. In the early 1980s, the economy rebounded with GDP growth rates of 15.4 percent in 1980, 4.2 percent in 1981, and 5.6 percent in 1982. The acute recession in Latin America after 1982, however, wreaked havoc on Panama's economy. GDP growth in 1983 was a mere 0.4 percent; in 1984 it was negative 0.4 percent. In 1985 Panama experienced economic recovery with 4.1-percent GDP growth; the corresponding figure for 1986 was estimated to be 2.8 percent.
After taking office in 1994 President Ernesto Perez Balladares set forth an economic liberalization program designed to liberalize the trade regime, attract foreign investment, privatize state-owned enterprises, institute fiscal discipline and privatized its two ports in 1997 and approved the sale of the railroad in early assets. Panama joined the World Trade Organization (WTO) and a banking reform law was approved by the legislature in early 1998 and dismantled the Central bank. After two years of near stagnation the reforms began to take root; GDP grew by 3.6% in 1997 and grew by more than 6% in 1998. The most important sectors which drove growth were the Panama Canal and the shipping and port activities of The Colon Free Zone which also rebounded from a slow year in 1996.
On September 1, 1999, Mireya Moscoso, the widow of former President Arnulfo Arias Madrid, took office. During her administration, Moscoso attempted to strengthen social programs, especially for child and youth development, protection, and general welfare. Moscoso's administration successfully handled the Panama Canal transfer and was effective in the administration of the Canal.
The PRD's Martin Torrijos won the presidency and a legislative majority in the National Assembly in 2004. Under Torrijos, Panama continued strong economic growth and initiated the Panama Canal expansion project that began in 2007 and is scheduled to be completed by 2014 at a cost of $5.3 billion - about 25% of current GDP. The expansion project will more than double the Canal's capacity, enabling it to accommodate ships that are now too large to transverse the transoceanic crossway, and should help to reduce the high unemployment rate. Strong economic performance had reduced the national poverty level to 29% in 2008; however, Panama had the second most unequal income distribution in Latin America. The Torrijos government implemented tax reforms, as well as social security reforms, and backed regional trade agreements and development of tourism. Not a CAFTA signatory, Panama in December 2006 independently negotiated a free trade agreement with the US, which, when implemented, should help promote the country's economic growth.
In May 2009, Panama held its general elections and selected Ricardo Martinelli as president. President Martinelli assumed the presidency on July 1 and has promised to promote free trade, establish a Panama City metro system at an approximate cost of $1.0 billion, reform the health care system, and complete the expansion plan for the Panama Canal. President Martinelli also emphasized the importance of transforming Panama into a “safer, modern and supportive” nation devoted to improving the living conditions of its population through efficient and accountable governance.
For centuries, agriculture was the dominant economic activity for most of Panama's population. After construction of the Panama Canal, agriculture declined; its share of GDP fell from 29 percent in 1950 to just over 9 percent in 1985. Currently, agriculture and fisheries comprise 7.4% of the country's GDP. Panama is a net food importer and the U.S. by far, is its main supplier. Though for many years, Panamanian agriculture remained poorly conditioned, after the 1970s, agriculture became mechanized as industrialization became more intensified.
Taxation in Panama, which is governed by the Fiscal Code, is on a territorial basis; this is to say, that taxes apply only to income or gains derived through business carried on in Panama itself. The existence of a sales or administration office in Panama, or the re-invoicing of external transactions at a profit, does not of itself give rise to taxation if the underlying transactions take place outside Panama. Dividends paid out of such earnings are free of taxation.
In February, 2005, Panama’s unicameral legislature approved a major fiscal reform package in order to raise revenues from new business taxes, and increases the country’s level of debt. The legislature voted 46 to 28 in favour of the measures, which include a new 1.4% tax on companies’ gross revenues, and a 1% levy on firms operating in the Colon Free Trade Zone – the largest free port in the Americas.
President Ricardo Martinelli had promised to implement a flat tax system with a flat tax of 10% and which promised to raise revenues, put inflation under control and which will allow enormous real wage gains. Instead the Martinelli government increased sales tax to 7% from 5%, as well as increasing other taxes, in order to finance many infrastructure projects around the country.
Highways are well-developed for Latin America. In Panama City there are six highways: the Panama-Arraijan Bridge of the Americas, Panama-Arraijan Centennial Bridge, Arraijan-Chorrera, Corredor Norte, Corredor Sur, and Autopista Alberto Motta.
Panama's roads, traffic and transportation systems are generally safe, with traffic lights having undergone a recent overhaul and most have been replaced by intelligent traffic lights, even at busy intersections where they are not needed. Driving during the midday is usually slow and demanding due to dense traffic, frequent traffic jams, and street renovation programs. On roads where poor lighting and driving conditions prevail, night driving is difficult and in many cases, restricted by local authorities, this usually occurs in informal settlements. Night driving is particularly hazardous in these areas. Traffic in Panama moves on the right, and Panamanian law requires that drivers and passengers wear seat belts.
Currently, Panama has an extensive and efficient, yet confusing to tourists, form of public transportation consisting of colorful painted buses colloquially known as diablo rojo. A diablo rojo is usually "customized" or painted with bright colors, usually depicting famous actors, politicians or singers. It is now popular all over the city (and also in neighboring towns) for bus drivers to personally customize the interior and exterior of their diablo rojo. Panama City's streets experience frequent traffic jams due to poor planning for the now extensive private vehicle fleet.
Panama economy grew 3%, 2.2% and 1.1% in the first, second and third quarter of 2009 respectively. Panama remains one of the few countries in Latin America that grew in 2009. However, the economic growth plummeted from 12.1% and 10.7% in 2007 and 2008 respectively. The local web site Panama Economy Insight estimates that Panama economy grew only by 1.6% in 2009 because economic growth continued slowing in the fourth quarter. Economic Commission for Latin America and Caribbean was very optimistic and forecast that Panama economy will grow by 4%, but on July 15 change its forecast by 2.5%. JP Morgan forecast only 1.5%. International Monetary Fund, Indesa, Delloite and Standard & Poor forecast 1.8%, 1.8%, 3.5% and 2.5% respectively.
Forecast (last updated: Janunary 21st 2011)
Panama Economy Insight published in its blog www.panamaeconomyinsight.blogspot.com that Panama economy will grow by 9.2% in 2011, meanwhile INDESA, another consulting entrerprise, forecast only 5.9%.
PANAMA'S ECONOMIC GROWTH FORECAST, YEARS 2009-2014 (% change of real GDP)
|Ministry of Economy and Finance|
|Panama Economy Insight||9,2||13,0||11,0||4,9|
|International Monetary Fund||6,1||7,0|
Last updated: January 21, 2011.
- "Doing Business in Panama 2013". World Bank. Retrieved 2012-10-23.
- "Export Partners of Panama". CIA World Factbook. 2012. Retrieved 2014-01-03.
- "Import Partners of Panama". CIA World Factbook. 2012. Retrieved 2013-07-24.
- "Sovereigns rating list". Standard & Poor's. Retrieved 26 May 2011.
- Rogers, Simon; Sedghi, Ami (15 April 2011). "How Fitch, Moody's and S&P rate each country's credit rating". The Guardian. Retrieved 28 May 2011.
- Berg, Andrew; Borensztein, Eduardo (2008-12-01). "Full Dollarization The Pros and Cons". International Monetary Fund. Retrieved 2009-06-16.
- Dirección de Estadística y Censo - Panamá
- Scott D. Tollefson. "Growth and Structure of the Economy". Panama: A country study (Sandra W. Meditz & Dennis M. Hanratty, ed.). Library of Congress Federal Research Division (December 1987). This article incorporates text from this source, which is in the public domain.
- Savastano, Miguel (1996). "Dollarization in Latin America: Recent Evidence and Some Policy Issues". IMF Working Paper. WP/96/4.
- "Panama Taxes Explained", Panama Taxes Feb, 2012.
- "Panama: Country-specific information". U.S. Department of State (March 18, 2009). This article incorporates text from this source, which is in the public domain.
- (English) Panama Economy Insight
- (Spanish) Ministry of Economics and Finance
- (Spanish) Bolsa de Valores (Panama Stock Exchange)
- (Spanish) Comisión Nacional de Valores (Panama SEC)
- American Chamber of Commerce & Industry of Panama
- Invest in Panama Summary