Economic growth matters, but it is just one facet of development. Policy makers should focus their attention on ensuring that their country’s development path is sustainable and that the lives of their citizens improve. This requires reconciling economic, social and environmental objectives.

Panama has made significant strides in improving economic performance and social inclusion since the turn of the century. Economic growth started to accelerate after the social unrest of the late 1980s, which resulted in income per capita doubling since 2000. Today, Panama has consolidated an open economy with low unemployment, high investment rates and a stable macroeconomic framework. These achievements contributed to improving well-being and reducing poverty.

Population (million)

Panama has experienced considerable socio-economic progress and improved well-being in the past decades. GDP per capita has grown considerably since 2006 at a 4.5% annual average, faster than the average of 2.8% in Latin America and Caribbean and narrowing the gap with developed countries in terms of GDP per capita. If Panama sustains this growth rate, it would become a high-income country by 2021. In addition, Panama cut its level of poverty, defined as the share of people living on less than USD 3.10 purchasing power parity (PPP) per day, in half to 8% between 2004 and 2014. Over the same decade, extreme poverty, or those living on less than USD 1.90 PPP per day, decreased by two-thirds, encompassing 3% of the population. Furthermore, Panama performs relatively well in most OECD well-being dimensions compared to countries at the same level of development.

Since the beginning of the 21st century, Panama has exhibited remarkable economic growth and has reduced the gap in terms of income per capita with high income countries. While this growth has enabled poverty reduction and advances in some well-being dimensions, prosperity has not always translated into social benefits for the whole population. Today Panama faces the challenges of adopting a new development model to overcome the middle income trap, and ensure prosperity is to the benefit of all. This overview chapter highlights the main assessments of this Multi-dimensional Country Review to promote further inclusive development through improvements in productivity, social cohesion, resource mobilisation and governance. The chapter presents a brief historical overview of Panama’s development. The chapter then describes the methodology employed in this review, and summarises the main results of the OECD well-being analysis, which presents a comprehensive picture of people’s material living conditions and quality of life. This chapter concludes with a summary of the main bottlenecks to inclusive development, and describes how these were selected for further analysis in the following chapters.

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.

Strong and sustained economic growth over the past 15 years has translated into significant improvements in well-being outcomes. Although economic growth lifted a significant share of the population out of poverty and created jobs, Panama still faces structural challenges preventing the emergence of a consolidated middle class and equity across territories. This chapter discusses the main bottlenecks affecting inclusive growth and well-being. It begins with an overview of income patterns in the past decade and then examines the main drivers of inequality. It looks in particular at the role of income redistribution, differences across regions, urban planning, education and skills, and job quality. Assessing these drivers is key to improve the lives of all Panamanians, especially the most vulnerable.

This chapter outlines the financing flows available for Panama over recent years to support development activities by the public and private sectors. The focus throughout is on the resources that are or could be available for development activities, rather than how those financing flows have been used. The chapter examines public finances and the scope to increase the resources available for the public sector, focusing on the potential to improve the performance of Panama’s tax system. The chapter also assesses the sustainability of public debt and potential liabilities. It then examines the availability of resources that could support development activity by private sector firms, through foreign direct investment and financing from the domestic financial system. Finally, it notes the evolving role of remittance flows to support consumption possibilities in Panama.

To consolidate the high economic performance registered in the past decade and promote further inclusive development, better institutions and sustainable development are needed. This chapter first describes civic engagement and citizens’ trust in institutions. Second, it presents key aspects of public governance including the framework to plan, prioritise and implement policies in Panama. Third, it studies factors linked to medium- and long-term financial governance. Fourth, it focuses on the implementation of international transparency and exchange of information standards. Fifth, this chapter analyses policies towards further entrepreneurship and competition and better public-private partnerships. Sixth, it highlights the environmental sustainability in Panama, and finally it presents the main conclusions.