How is panama so rich?

Panama's economy is based primarily on the tourism and services sector, which represents almost 80% of its GDP and accounts for the majority of its foreign income. Services include banking, commerce, insurance, container ports and flagship registration, medical and health services, and tourism. Panama is a small country of about 4.4 million people. It has benefited from steady economic growth, but poverty and income inequality have been persistent and have disproportionately affected rural indigenous territories and to the Afro-Panamanian populations.

It should be noted that the increase of protected land from 33% to 54% and strong ocean conservation efforts have made Panama one of only three countries with negative carbon emissions in the world. Hydroelectric energy is also an important natural resource in Panama, providing 60% of all electricity in the country. Panama mainly produces bananas and different varieties of vegetables, corn, sugar cane, rice, coffee, watermelons, cacao beans, pineapples, potatoes, coconuts, soybeans, wood, milk, cattle and shrimp. The Panama Canal holds 46% of the total market share of containers traveling from Northeast Asia to the East Coast of the United States.

The Colon Free Trade Zone (ZLC) is the second largest in the world and represents around 8.5 percent of Panama's GDP. Panama's economy is tied to the dollar and the service industry is the largest in the country, accounting for 66% of Panama's GDP and employing 67.9% of the workforce. Panama's economy is small, very open, highly diversified, dollar driven and highly competitive by regional standards. With a stable macroeconomic environment, Panama is likely to need additional fiscal reforms in the medium term. Transportation is the most important sector of the service industry, since it comprises the Panama Canal, the government's main source of revenue.

The Panama Canal serves more than 144 maritime routes that connect 160 countries and reach some 1,700 ports around the world. Fiscal policy is expected to respect Panama's Social and Fiscal Responsibility law, although incoming authorities will need to enact measures to address fiscal risks stemming from imbalances in pensions and revenues from the Canal and mining, in addition to potential climate change crises. During the five years prior to the COVID-19 pandemic, Panama's economy had an average annual growth rate of 4.6 percent, one of the highest rates in Central America. The Government of Panama is giving mining the opportunity to become the second largest economic sector in the country, after the Panama Canal.

Although the pandemic has had a significant impact on the Panamanian economy, the fiscal measures implemented by the government have been effective in boosting economic activity, which has been gradually recovering. According to the World Bank, Panama has the 17th highest GDP per capita in Latin America and the Caribbean, with about 14,617 USD.

Abigail Angelotti
Abigail Angelotti

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