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.

This second volume of the Multi-dimensional Country Review (MDCR) of Panama builds on the results of the first one, which identified the main constraints to advancing citizens’ well-being and achieving more sustainable and inclusive development. It provides recommendations in three key areas to address these constraints: skills and jobs, territorial development, and financing for development. A third volume will propose a way of prioritising policy interventions and a framework for measuring policy implementation.

After nearly three decades of strong macroeconomic performance and some social improvements, Panama should now embark on a new reform agenda to become a sustainable and inclusive high-income country. This chapter highlights the socio-economic improvements Panama has achieved in recent decades thanks to strong economic growth and consequent poverty reduction. Its growth model is characterised by a dual economy in which a small number of activities, including those related to the Canal and Special Economic Zones (SEZs), have exhibited high productivity growth but limited job creation. This chapter therefore urges greater productivity in sectors that contribute to job formalisation to reduce disparities in income and among regions. As developing these policies requires further resources, taxation system improvements and greater mobilisation of private sector investment through public-private partnerships are needed. This chapter presents the main results of implementing policy actions in the three areas studied in this report: skills and jobs, regional development, and development financing.

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.

This chapter explores how regional development can be a lever to help Panama continue on its growth trajectory and achieve more inclusive socio-economic outcomes. It discusses Panama’s current multi-level governance architecture, identifying where it should be strengthened to better support the design and implementation of regional development policy. In addition, it evaluates the need for a more strategic approach to regional development and greater capacity in subnational finance, institutional co‑ordination, and quality public service delivery, at all levels of government. A special focus is placed on Panama’s local authorities in light of specific resource challenges and the 2014 decentralisation reform. Finally, the chapter looks into what would be necessary to achieve a strategic shift towards a “place-based” policy approach for regional development, and provides recommendations for action.

The preceding chapters laid out an ambitious agenda for inclusive development in Panama. To finance this development, Panama will need to significantly increase public expenditure and mobilise private investment. Current taxation levels are relatively low compared with other Latin American economies and are well below those of Organisation for Economic Co‑operation and Development (OECD) economies. A better-structured taxation system, coupled with a stronger tax administration, should yield greater fiscal revenues. In addition, improvements in the regulatory and institutional framework for public-private partnerships should promote private investment for development. This chapter first summarises the revenues necessary to finance development, then presents the current fiscal framework to guarantee the solvency of the state. Third, it proposes alternative ways of increasing tax revenues that could preserve competitiveness while making the tax system more equitable. It then proposes a new framework for public-private partnerships to mobilise private investment for inclusive development and finally closes with a conclusion and policy recommendations.