Panama is the home of the Panama Canal. With ports on both oceans and known as the “Hub of the Americas,” it’s one of the world’s most connected countries. Panama has a dollar-based economy, low inflation, and zero foreign exchange risk. Its government is stable, democratic and actively seeks foreign investment. On July 1, 2019, President Laurentino Cortizo, of the Democratic Revolutionary Party (PRD), was sworn into office for five years. His administration was elected on a platform of fighting corruption, tackling inequality, and strengthening Panama’s ability to combat money-laundering, but these remain prevalent problems. Panama will have their next presidential elections in May 2024. Panama was placed on the Financial Action Task Force (FATF) grey list in June 2019 due to years of deficiencies in fighting money laundering and terrorist finance, one month before Cortizo’s inauguration.
For five years prior the COVID-19 panademic, Panama’s economy averaged an annual growth rate of 4.6 percent – one of the highest rates in Central America. After an economic contraction of 17.9 percent in 2020, Panama’s previous “high-income” classification was adjusted to “upper-middle-income” by the World Bank in July 2021, with a per capita income is $15,643, and an estimated gross domestic product of US$29.2 billion dollars (up to Q3 of 2021), according to the National Institute of Statistics and Census. Nevertheless, with more than four million people, the country’s inequalities remain high, with sharp regional disparities. The World Bank maintains that poverty prevails in rural areas, particularly among the indigenous population.
In October 2021 and due to the Pandemic, the estimated unemployment was reported to be at 11.3 percent (it was estimated that the actual number may have been up in the 20% range). According to the International Monetary Fund (IMF), inflation was reported;u 2.7 percent in May and will decline to 2% by the end of 2022. In terms of poverty, it fell from 15.4 percent to 12.5 percent, between 2015 and 2018, while extreme poverty decreased from 6.7 percent to 5.1 percent. Since the pandemic started, poverty increased in 2020, 2021, and it is expected to continue this trend by the end of 2022.
The Government of Panama is giving mining the opportunity to become the country’s second-largest economic sector, after the Panama Canal. Cobre Panama is in full operation and First Quantum Minerals’ US$6.3 billion copper mine should add to copper exports once in full operation. Reports claim that by 2023, copper exports will be around $2 billion, and that mining activity will contribute to about 10 percent of GDP.
Panama’s economy is primarily based on a well-developed services sector that accounts for about 80 percent of GDP with the Panama Canal as the largest economic contributor. The services sector includes the Canal, banking, tourism, logistics, activities in the Colón Free Trade Zone (CFZ), insurance, container ports, and flagship registry. In June 2016, the country completed a $5.25 billion expansion of the Panama Canal that allows for larger ships (Neo-Panamax ships) carrying 12,000 containers (compared to the 5,000-container limit under the old infrastructure). The expanded locks are crucial for maritime trade. The Panama Canal has 46% of the total market share of containers moving from Northeast Asia to the East Coast of the United States. Revenue from canal tolls amounted nearly US3 billion in 2021. The Panama Canal serves more than 144 maritime routes connecting 160 countries and reaching some 1,700 ports globally. Tranisting through the canal saves ships from having to circumvent South America and saves roughly 7,875 miles on a trip from San Francisco to New York.
The Colón Free Trade Zone’s (CFZ) is the second largest in the world and accounts for about 8.5 percent of Panama’s GDP. The CFZ has over 2,500 companies and employs around around 30,000 people. It has become a vital trading and transshipment center serving the region and the world. CFZ imports are a broad array of luxury goods, electronic products, clothing, and other consumer products and arrive from all over the globe to be repackaged, resold, and reshipped. Because of the wide variety of products,the share of U.S. brands is fairly significant even though most of those products are made in Asia. The CFZ’s activity has waned some in recent years due to more and more small suppliers procuring directly from China, increasing competition from other regional transshipment hubs, decreasing demand from Venezuela, and a trade dispute with Colombia.
The U.S.-Panama Trade Promotion Agreement (TPA) went into effect in October 2012 and will continue to offer U.S. goods a competitive advantage. For 87 percent of U.S.made goods, tariffs dropped to zero percent immediately, with remaining non-agricultural tariffs phasing out by the end of 2022. In general, the Agreement has been successful for all parties but in 2022 Panama has been looking to renogiate some of the terms of the agreement with USTR. The U.S. goods trade surplus with Panama was $4.9 billion in 2020, a 48 percent decrease over 2019, and U.S. exports to Panama were $5.76 billion, a decrease of 34 percentfrom the previous year. Correspondingly, U.S. imports from Panama were $593 million, up 31 percent. Panama was the United States’ 36th largest export market in 2020. As for services, U.S. exports of services to Panama were an estimated $2.1 billion in 2020, and U.S. imports were $2.7 billion. Panama has 19 full free trade agreements throughout the Americas, Asia, Europe, and the Middle East. The Cortizo administration paused negotiation for a free trade agreement with China.
Political & Economic Environment: State Department’s website for background on the country’s political environment.