Panama’s gross domestic product (GDP) grew on average by 6.57% a year between 1990 and 2012, twice the average growth of Latin America during the same period. The country has recovered relatively well from the financial and economic crisis of 2008, helped by the expansion of the Panama Canal and other investments in infrastructure development. In parallel, since 1990 real per capita incomes in Panama have more than doubled. Despite the progress, however, poverty and inequality persist in the country, mostly in rural areas, and unemployment is still high, especially among the young (15.6% in 2011).

Digital government strategies are critical artefacts in guiding policy action in work streams that are constantly and rapidly evolving. Strategies are able to align goals, objectives and initiatives, but are also fundamental in building consensus and contributing to the necessary cross-government co‑ordination for efficient and effective policy implementation. Additionally, their public availability and regular monitoring positively contribute to improved transparency and accountability from the ecosystem of digital government stakeholders (OECD, 2016[1]). Aware of the importance of this policy instrument, all OECD countries that completed the OECD Digital Government Performance survey (2014[2]) and 73% of the Latin American and Caribbean countries that participated in the OECD Government at a Glance survey (2016[3]) have a digital government strategy.

This chapter focuses on the current drivers of economic performance in Panama and the challenges the country faces to consolidate sustainable growth. It analyses the macroeconomic conditions underlying the rise in income per capita and the shifts in productivity over the past decade, as well as the uneven growth of labour productivity across economic sectors and regions. The analysis further looks at Panama’s export profile, which concentrates on services exports, and assesses the exports’ value-added and the contribution of services to other exports. The chapter also presents the impact of foreign direct investment on specific economic sectors and its important contribution to total investment. After describing two major actors in the economy, the Canal and the Special Economic Zones, this chapter evaluates sectorial policies, such as infrastructures, logistics and innovation.

This chapter explores how labour markets can be a lever to help Panama increase equity and find a path towards inclusive growth. It argues that Panama’s dual labour market has been both the cause and a consequence of Panama’s large inequalities. Panama’s successful economic growth in the past decade has been based on a growth model that encompasses labour market inequality. While the productive tradeable service sector offers formal jobs for a few skilled workers; many low-skilled Panamanians are self-employed or informally employed in small, low-productive, non-tradeable service sector or agriculture firms. This chapter discusses a comprehensive policy package that would rebuild the social contract in Panama from a quality employment perspective. This chapter covers policies to strengthen education quality, endow workers with better skills, mitigate the perverse effects of labour informality and provide labour incentives to promote better quality jobs.