Chapter 1. Overview: Towards further sustainable development and inclusiveness in Panama

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.

  

Panama’s recent economic development has been impressive, although some challenges remain to overcome the so-called middle-income trap and guarantee well-being to all citizens. Boosting productivity and increasing value-added are fundamental to consolidate sustainable economic growth. Panama’s economic growth in the past decade has contributed to reduce the gap in terms of GDP per capita with developed countries. Most of the economic performance was related to construction, real estate and commerce (wholesale and retail). Challenges remain to sustain this economic performance. Panama needs to boost labour productivity across sectors and regions, support improvements in living conditions, and reduce income inequalities.

This first volume of the OECD Multi-dimensional Country Review (MDCR) provides an initial assessment of the economy, identifies binding constraints to sustainable and inclusive development, and proposes topics for further analysis in phase II of the MDCR (Box 1.1). The entire process of the OECD MDCR aims to support governments with formulating national development strategies that take into account the multiplicity of development objectives and the means available for implementing public policy to promote equitable, inclusive, and sustainable economic growth that advances national aspirations and improves the well-being of all citizens.

Box 1.1. The three phases of the Multi-dimensional Country Review of Panama

This OECD Multi-dimensional Country Review (MDCR) is designed to help Panama formulate development strategies and identify and support the policy reforms needed to achieve further sustainable and inclusive development. This review is composed of three distinct phases:

  • This first phase aims to identify the main constraints on achieving sustainable and equitable improvements in well-being and economic growth. This report, titled “Initial Assessment”, is the first volume.

  • The second phase will further analyse the key constraints identified in this report in order to formulate policy recommendations that can be integrated into the development strategy of Panama. The second volume produced is entitled “In-depth Analysis and Recommendations”.

  • The final phase of the MDCR will provide support to the implementation of these recommendations. As for other Latin American economies, this final phase is particularly relevant in Panama given the complexity of both the political economy and the policy-making process to make reform happen (Dayton-Johnson, Londoño and Nieto-Parra, 2011). The third volume is entitled “From Analysis to Action”.

For each phase, in addition to the publication of a report, a series of workshops are organised. The MDCR methodology is based on quantitative economic analysis, as well as qualitative approaches including foresight and participatory workshops. Quantitative methods include standard approaches as well as a comparative analysis with a selection of countries, referred to here as the benchmark economies.

This overview chapter provides a broad historical overview of Panama’s social and economic development over the past decades, and the challenge presented by the middle-income trap. The chapter looks at possible qualitative and/or individual outcomes of Panama’s national development strategies and aspirations by presenting the main results of the OECD well-being framework for Panama and a participatory exercise where citizens described life in an ideal future in Panama. The chapter also presents the approach and methodology used in this MDCR. It summarises the main constraints to achieving further inclusive development, overcoming the middle-income trap and consolidating the middle class in Panama.

From crisis to high economic performance to further inclusive development in Panama

The social and political unrest of the late 1980s affected development in Panama. Following the political crisis driven by political unrest with citizens requesting the end of 21 years of dictatorship and the removal of the corrupt Manuel Antonio Noriega from power, the country experienced a sharp drop in international confidence and an economic crisis in the late 1980s (Chaikin, 2013). Private investment decreased dramatically to 5.8% of GDP in 1988 from 17.2% of GDP in 1986. In addition, foreign direct investment net inflows were 2.3% of GDP on average between 1985 and 1990, and in 1988 were less than -10% of GDP. This means that the economy contracted by more than 1.8% in 1987 and 13.3% in 1988. Between 1985 and 1990 GDP per capita growth decreased by 1.7% and by more than 15% in 1988.

Panama’s economic context improved considerably in the 1990s. Average annual economic growth exceeded 5.5% in that decade, which contributed to reducing the income per capita gap with developed countries. In addition, annual GDP per capita growth was close to 3.5% in that period, higher than the average of Latin America (1.0%), upper-middle income countries (1.4%) and high-income countries (1.8%). This macroeconomic performance has been supported by a stable macroeconomic framework. The stable monetary framework, based on dollarisation of the economy in which the US dollar has been legal tender since 1904, was characterised by annual inflation rates below 2%. By the end of the 1990s, public debt had dropped by more than 20 percentage points to less than 60% of GDP.

However, the improvement in the economic performance that started in the 1990s has not fully translated into all social benefits. While the portion of the population living in extreme poverty (defined as living on 1.90 USD a day or less, 2011 PPP) declined by close to 8 percentage points during the 1990s to less than 15% at the end of that decade, significant inequalities continue to exist. The Gini coefficient remained high, at close to 0.58 in that period, and regional disparities persisted. Informality also persisted, with more than one-third of informal workers as a percentage of non-agricultural employment.

Since the beginning of the 21st century, Panama has exhibited considerable socio-economic progress. Over the last ten years, levels of investment have been higher than OECD and Latin American averages. Following the Torrijos-Carter treaties signed in 1977 which were implemented through a process concluded in 1999, revenues from the Canal are a key source of income for the government. Linkages between GDP growth and trade also increased after Panama joined the World Trade Organisation (WTO) at the end of 1997. In the period 2005-15, GDP per capita grew considerably, averaging 5.8% annually. This good performance contrasts to the sluggish annual average growth of 1.9% in Latin American economies and 0.9% in high-income countries in the same period. Extreme poverty continued to decline dramatically and it stood around 5% of the population since 2010. The effect of growth, rather than reduction of inequalities, was responsible for most of the reduction in poverty. Overall well-being is relatively good compared to countries of the same level of development, in particular in areas such as social connections, life evaluations, life expectancy and, more generally, material conditions.

A new development model is needed to overcome the Middle Income Trap and expand the benefits of growth to all citizens

Panama’s impressive economic performance in the past decade is not without its challenges. Most of the economic growth and the improvements in labour productivity over the 2004-14 period have been explained mainly by factors associated with physical capital and commerce, both retail and wholesale (Figure 1.1). Panama remains a middle-income and an upper middle-income country since 1955 and 1998 respectively, highlighting the need to overcome the Middle Income Trap (MIT). The MIT occurs when a country can no longer rely on its traditional drivers of growth to make further progress (OECD/CAF/ECLAC, 2016; OECD, 2014). Even if Panama were to sustain its recent strong macroeconomic performance (4.5% of average per capita GDP growth rate in the past ten years), it would need four more years, until 2021, to become a high-income country. This would mean that it had remained a middle-income country for more than 67 years.1 The majority of countries in Latin America attained upper middle-income status during the 2000s. But Panama, like Mexico (since 1990) and Venezuela (since 1997), has remained in middle income status for longer (see Chapter 2).

Figure 1.1. Impressive productivity growth but still middle income status
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Note: LAC refers to Latin American and Caribbean countries. Labour productivity growth is the compound annual growth rate in the period 2004-14 of GDP per person employed (constant 2011 PPP USD).

Sources: World Bank, World Development Indicators, OECD, National Accounts Statistics, International Labour Organization, Key Indicators of the Labour Market (database) (accessed 1 February 2017). The threshold for high-income countries follows World Bank’s definition and is described at https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups.

 http://dx.doi.org/10.1787/888933550326

Looking forward, policies promoting the shift to a more diversified and knowledge-driven growth from a conventional pattern of investment driven growth are crucial. Overcoming the MIT will require a set of public policies that should improve labour productivity in Panama. High levels of investment have been positive, but Panama nevertheless should improve several areas that contribute to improved labour productivity. Following the experiences of countries that tackled the Middle Income Trap, improvements in the quality of education, governance, rule of law, the taxation system and liquidity in the equity market are the main domains that should be prioritised to tackle the MIT (Melguizo et al., 2017).

Absolute income poverty rates fell considerably since 2007. However, income inequality, which is understood as one dimension of social inclusion, has improved very little. Indeed, while economic growth had been able to lift the income of important shares of the population, there is room to reduce further income inequalities. For instance, even though the middle class saw significant income growth, it was not large enough to narrow the income gap. Panama remains therefore an unequal country, with income inequality levels higher than most of the benchmark economies and significantly above the OECD average (Figure 1.2).

Figure 1.2. Declining but still high inequality (Gini coefficient)
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Note: The category “2014 or latest” refers to 2015, for Costa Rica; 2013 for Belgium, Chile and Portugal: 2012 for New Zealand; 2011 for Colombia; and 2014 otherwise. The category “2007” refers to 2010 for Costa Rica; 2008 for Australia, Colombia and New Zealand; and 2006 for Chile.

Source: OECD Income Distribution Database; estimates for Dominican Republic, Ecuador, Panama, Peru and Uruguay are based on country microdata as available through CEDLAS (see Box 3.1 for further details).

 http://dx.doi.org/10.1787/888933550345

The improvements in living standards and reduction of poverty have not benefitted all groups equally. Access to public infrastructure and services differ across regions, contributing to discrepancies in the well-being of the population. A great divergence exists between the urban and rural areas in various dimensions such as income, education, health, housing and sanitation, and especially between those areas with high concentrations of indigenous populations versus the rest of the country.

The Multi-dimensional Country Review methodology explores development from all perspectives

Development is multi-dimensional in the sense that it implies an aggregate improvement in a set of desirable outcomes, as opposed to progress along a single dimension. Development is often considered synonymous with economic growth, and yet growth in GDP is only one element of development. If aggregate increases in productivity and material wealth do not produce meaningful gains in the overall well-being of a country’s population, development has failed in both human and economic terms. Economic growth is only a means to an end – the sustainable and equitable improvement of people’s lives.

The OECD’s Multi-dimensional Country Reviews analyse development challenges from a wide variety of perspectives, using a combination of tools. These include a gap analysis across a dashboard of indicators, detailed cross-country benchmarking with a set of comparator countries, and a visioning exercise. The MDCR dashboard of indicators covers three broad areas: well-being, drivers of long-term growth, and structural characteristics and development dynamics. The well-being analysis plays a key role in determining not only “how’s life in Panama?”, but also in assessing development outcomes.

To accurately assess Panama’s economic and social strengths and weaknesses, the MCDR goes beyond describing average outcomes and adopts a more analytical approach by comparing Panama with a set of relevant benchmark economies. No two countries face the same combination of development challenges or opportunities, and therefore no perfect comparison country exists. The idea of creating a benchmark group is to allow comparative evaluation of Panama’s performance over a variety of dimensions. The aim of the comparison is to draw upon a range of policy successes that relate to the multiple challenges and opportunities that Panama faces. In particular, benchmark economies were selected according to criteria that include similar characteristics to Panama when the benchmark country transitioned to the status of high income from middle income (Melguizo et al., 2017); successful economies with similar economic structure to Panama (e.g. maritime transportation is an important driver of growth) that have achieved growth and inclusiveness; recent experiences of economies with useful development paths; and countries in the region with similar socio-economic challenges to Panama.

The 16 benchmark economies were selected in conjunction with the Ministry of Economy and Finance of Panama. Seven of them are OECD member countries: Australia, Belgium, Chile, Korea, Netherlands, New Zealand and Portugal. In addition to Chile, seven other Latin American and Caribbean (LAC) countries were chosen: Argentina, Colombia, Costa Rica, Dominican Republic, Peru, Trinidad and Tobago, and Uruguay. Hong Kong, China and Singapore are also are included because of their growing economic power and their economic characteristics. Throughout the analysis, Panama is also compared to the Latin America and the Caribbean average and the OECD member average.

In addition to this quantitative dimension, the OECD MDCR methodology includes a series of participatory workshops used to complement the quantitative analysis and enhance understanding of the local context. These workshops aim to enable the OECD team to connect with different perspectives of Panamanian society and together to reflect on the challenges to inclusive, sustainable development. The workshops also serve the purpose of ensuring that the context in which policy responses will be implemented informs the analysis and development of recommendations in the early stages of the MDCR. The workshops also act as a platform for dialogue to exchange ideas, share and receive feedback on emerging findings, and test recommendations to ensure these are both targeted and pertinent. Each workshop for each phase of the MDCR serves a specific purpose, and follows a specific methodology.

The first workshop, “Panama: Vision and Challenges”, was organised in the context of the diagnostic phase of the Panama MDCR, and was hosted by the Ministry of Economy and Finance. The aim of the workshop was to define the country’s development and gain a better understanding of the local context. To do this, the workshop followed a strategic foresight methodology, and brought together participants representing different perspectives of Panamanian society. Gender-balanced group of more than 40 people participated from government ministries, the private sector including people involved in the Panama Canal, academia and civil society, notably those dealing with indigenous and cultural issues.

Strategic foresight: Embracing local engagement to envision Panama’s development future

To better understand Panamanian citizen aspirations for the future of their country, a visioning exercise was carried out where participants were asked to imagine the life of a citizen in 2030 (Annex 1.A1), projecting what their country and citizens’ lives would be like if development objectives were realised. This exercise has been carried out in all MDCRs led by the OECD Development Centre in partnership with countries to better understand each country’s developmental goals through citizens’ normative view of the future, the local context and cultural preferences.

A clear aspiration for Panamanian citizens participating in the workshop is the consolidation of a broad middle class. The stories depict citizens from different parts of the country, including the Comarcas, thriving with good quality jobs and comfortable middle-class lives. Citizens have cars, recycle, use nurseries, are connected online, and enjoy leisure time and cultural activities. Much of their imagined success is linked to the performance of the national public education and health systems. Emphasis is placed on good-quality jobs and an environment where people can access investment to start their own companies or thrive in companies that provide opportunities for career development. The stories are all of women who are all well-educated and actively participate in the labour force, which reflects a good work-life balance. The stories also depict an aspiration for a well-connected country in terms of infrastructure as well as public transportation and further territorial development. Migration to major cities is not needed anymore to live middle-class lives. The stories also reveal an aspiration for active local engagement and civic participation, where local customs are transferred from one generation to the next, and citizens want to contribute to their communities.

How’s life in Panama? An overview of the OECD well-being framework

Part of the OECD MDCR benchmark analysis examines a range of well-being indicators in Panama. Well-being is a multi-dimensional concept and can be difficult to define in isolation as it covers many areas of people’s lives. However, the core idea is relatively intuitive: well-being encompasses those aspects of life that people would consider essential to meet one’s needs, pursue one’s goals and feel satisfied with life (Box 1.2).

Box 1.2. Using the OECD’s “How’s Life” framework to measure well-being in developing countries

The OECD has developed a framework for measuring well-being in OECD countries based on national initiatives undertaken in several countries and several years of collaboration with experts and representatives from national governments (OECD, 2011). This “How’s Life” framework has also been adapted to measure well-being in non-OECD countries, taking into account the literature on measuring development outcomes and embracing the realities of these countries. Its dimensions have been redefined to better match the availability of data, the priorities and critical concerns of these countries (Boarini, Kolev and McGregor, 2014).

This adjusted framework, like the original framework, measures well-being outcomes in two broad pillars. The first pillar, material conditions, comprises the dimensions of consumption possibilities, work and housing conditions and infrastructure. The second pillar, quality of life, comprises health status, education and skills, social connections, empowerment and participation, vulnerability and life evaluations, feelings and meaning — i.e. the main aspects of subjective well-being (Figure 1.3). These ten dimensions are used to measure current well-being. They are complemented with another set of indicators to measure the sustainability of current well-being in the future. The framework emphasises the importance of preserving the natural, human, economic and social resources that are essential for ensuring the well-being of future generations.

The OECD well-being framework is informed by a number of analytical principles. First, it is concerned with the well-being of individuals rather than aggregate economic conditions. Second, it focuses on well-being outputs rather than inputs, recognising that outcomes may be uncorrelated with the resources devoted to achieve them. Third, it emphasises the need to measure the distribution of well-being outcomes to identify inequalities across and within population groups. Finally, it considers both objective and subjective indicators, as people’s own evaluations and feelings about their lives matter as much as the objective conditions in which they live.

Figure 1.3. OECD well-being framework for developing countries
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Source: Boarini, Kolev and McGregor (2014), “Measuring well-being and progress in countries at different stages of development: Towards a more universal conceptual framework”, http://dx.doi.org/10.1787/5jxss4hv2d8n-en and OECD (2011), How’s Life?: Measuring Well-being, http://dx.doi.org/10.1787/9789264121164-en.

Panama’s performance is mapped across a range of indicators that represent the ten dimensions of the OECD’s well-being framework (Figure 1.4). Panama’s actual performance (the blue bars) is shown in contrast to its expected performance given its level of economic development (the black circle). Results that are outside the circle represent better-than-expected outcomes; results inside the circle show lower-than-expected outcomes. The longer the bar is, the better Panama’s performance in that indicator is in relation to its expected outcome.

Figure 1.4. Current and expected well-being outcomes for Panama: Worldwide comparison
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Note: The bars represent the observed well-being values for Panama and the black circle shows the expected values based on Panama’s level of GDP per capita obtained from a set of bivariate regressions with GDP as the independent variable and the various well-being outcomes as dependent variables from a cross-country dataset of around 150 countries with a population over a million. All indicators are normalised in terms of standard deviations across the panel. The observed values falling inside the circle indicate the areas where Panama performs poorly in terms of what could be expected from a country with a similar level of GDP per capita. All indicators had been normalised so that the longer the bar, the better the outcome.

Source: Gallup (2016), Gallup World Poll, http://www.gallup.com/services/170945/world-poll.aspx (accessed 1 February 2017), World Bank (2017), World Development Indicators (database), Washington DC, http://data.wroldbank.org, UNESCO Institute of Statistics (UIS), PISA scores (2009), and Transparency International (2016), Corruption Perception Index, http://www.transparency.org

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When it comes to well-being, Panama has areas of strengths and weaknesses (Figure 1.4). Panama performs reasonably well in the areas of social connections and life evaluations and more generally on material conditions, however, it underperforms in the areas of education and vulnerability. In most dimensions, the average situation is relatively good compared to countries of the same level of development, but inequalities remain high.

Material conditions are reasonably good in Panama, but inequalities remain high

Although income per capita is high compared to most Latin American economies, further increases are needed to overcome the Middle Income Trap (see Chapter 2). Gross national income (GNI) per capita in 2014 was USD 18 800 (2011 constant PPP), well above the Latin American average of USD 14 400. However, Panama’s income per capita remains well below the average of both the OECD economies and high-income economies, which in 2014 were close to USD 37 700 and USD 42 200, respectively (both at 2011 constant PPP).

Given its level of economic development, Panama has good results in the area of consumption possibilities, but nonetheless a large share of the population report difficulties in getting by on their income. Although more than three out of four Panamanians report being satisfied with their living standards, significant disparities among the population exist. In 2014, 8.4% of the population were living on less than USD 3.10 a day, more than what could be expected for a country with a similar level of development. Similarly, data from the Gallup World Poll show that in 2015 more than one-third (36%) of Panamanians do not feel that their household income is enough to get by on or to live comfortably, 42% report that they do not have enough money for food and 33% for shelter.

Panama performs relatively well in terms of its employment rate even though the quality of employment is just below what can be expected. More than 60% of people over the age of 15 are employed, and the unemployment rate is very low at around 4%. However, Panama shows slightly lower performances in terms of job quality and women’s participation. The share of vulnerable employment in the Panamanian labour market (i.e. unpaid family workers and own-account workers) is around 30%. Informal employment (i.e. those who will not have the right to a pension or work in a firm with five or fewer employees and are non-professional self-employed, or have zero income) is relatively high at 40% of total non-agricultural employment. Almost one-quarter of this informal employment is within formal private businesses (see Chapter 3). Informality mainly affects less-skilled Panamanians and those with lower-paying jobs, contributing further to inequality. The employment gap between women and men is larger than in most OECD and benchmark economies.

Access to decent housing and infrastructure is a challenge for Panama. Satisfaction with the availability of good and affordable housing and with the quality of the roads and highways is close to the expected level for Panama, based on the experience of countries with similar GDP per capita. However, Panama lags behind regarding access to improved sanitation facilities. Only three-quarters of its population have access to sanitation facilities in their house – i.e. flush or pour flush toilet (to piped sewer system, septic tank and pit latrine), ventilated improved pit latrine, pit latrine with slab, or composting toilet.

Quality of life outcomes are unbalanced but subjective well-being remains high

Variability is seen amongst different measures of environmental conditions, but based on the experience of countries with a similar GDP per capita, the overall outcome is around the expected level for Panama. It experienced a 3.5% reduction in forest area over ten years, and therefore stands slightly below what could be expected. Air pollution is much lower than the expected level for a country with Panama’s level of industrialisation. According to World Bank data, Panama’s PM2.5 level – a measure of particulate matter (PM) of 2.5 micrometres, a size that has severe health effects – was only 6.8 micrograms per cubic metre in 2013. These mixed results continue with subjective measures of environmental quality. Around three-quarters of the population report being satisfied with water quality, a share that is close to what could be expected given Panama’s level of GDP.

Panama has significant weaknesses in the area of education and skills (see Chapter 3). In terms of attainment and access to education, Panama performs as expected given its GDP per capita. Mean years of schooling of the population aged 25 and above are 9.04 and the net enrolment rate of secondary education is 78%. However, completion rates and quality of its education are major challenges. In 2014, only 52% of the population aged 25 and above have completed secondary education and one out of five young Panamanians drop out of upper secondary school (OECD/CAF/ECLAC, 2016). Even those who complete secondary education graduate with skills that rank well below international standards. On the quality side, while basic literacy skills are almost universal (95%), the cognitive skills of 15-year-olds as measured by the Programme for International Student Assessment (PISA) are remarkably low. Panama’s mean PISA reading score was 370 in 2009 and ranked significantly below what could be expected (PISA measures the cognitive skills of 15-to-16 year-olds in the areas of mathematics, reading and science, assessing their competencies when they reach the end of compulsory education).

Panama performs well in terms of average life expectancy but shows more mitigated results when other aspects of health status are considered. Good health is a major determinant of quality of life and a core dimension of well-being. In addition to its intrinsic value, it is vital for people’s ability to work and participate in social life. Panamanians report very high outcomes regarding their personal health. Their life expectancy at birth is 78 years, above the expected value and only 2.5 years behind the OECD average. According to the Gallup World Poll, 91% of people surveyed in Panama report being satisfied with their health conditions and 82% say they have no health problems. However, despite these high objective and subjective outcomes, Panama shows less impressive results when it comes to child mortality or satisfaction with the health care system. These lower outcomes – although in line with what could be expected – are partly explained by regional differences (see Chapter 3).

Panama’s results are lowest in terms of vulnerability, which is understood in the OECD well-being framework as the exposure to risks such as food or income insecurity, job loss, illness, or physical violence. In 2013, its rate of intentional homicides per 100 000 people was 17.4 – much lower than the Latin America and Caribbean average (23.2 per 100 000 people) but still much higher than what could be predicted given Panama’s GDP per capita. Its rate is significantly above the world average of 5.3 per 100 000 inhabitants (UNODC, 2017). At the same time, people’s perceived level of safety is relatively low: in 2015, only half of Panamanians surveyed reported that they felt safe walking home alone at night, which is much lower than the expected value. Although less significant than violence, economic insecurity is another salient issue. Around one-third of Panamanians are not covered by any social protection, less than what could be expected in countries with a similar GDP per capita.

Social connections in Panama are relatively strong. Good proxies of the strength of close personal networks in a country are the share of people feelings that they can count on others in times of need and the amount of time people spent with friends and family. In Panama, 88% of those surveyed said that they have at least one friend or a relative that they can turn to for help in a time of need, slightly above the world average (Gallup, 2016).

Panama shows very mixed results in the area of empowerment and participation (see Chapter 5). On one hand, the selected indicators show that civic engagement is amongst the highest of the South American continent. On the other hand, trust in government and institutions is relatively low. Civic engagement can be measured through voter turnout but also goes well beyond electoral participation. If Panama shows average results regarding the former (voter turnout was 77% at the last presidential elections, see Chapter 5), other forms of political participation may be higher. For example, more than one-third of Panamanians say they have voiced their opinion to a public official, a much higher level than that expected for countries with Panama’s GDP per capita. Panama also ranked in the middle in terms of public trust and corruption in Transparency International’s Corruption Perception Index (2016), which ranks countries based on how corrupt their public sector is perceived to be by business people and country analysts (87 out of 176 countries or territories). This is broadly similar to countries with the same level of economic development. However, citizen’s perception of the quality of government is rather low: 84% of those surveyed think corruption is widespread in government, only 39% of Panamanians have confidence in national government and only 44% believe in the honesty of elections, putting Panama in the upper half of the worst-performing countries in Latin American (Gallup, 2016).

Despite this complex reality, with areas of strong and poor performance, subjective well-being in Panama is above what could be expected. Life evaluation is measured through three distinct channels to disentangle people’s daily experiences (feelings and emotions) from overall life satisfaction. These measures are based on the idea that people are the best judges of how their own lives are going (OECD, 2011). Using the Cantril Ladder, a measure which asks respondents to rate their lives as a whole on a scale of 0 to 10, with 0 representing the worst possible evaluation and 10 representing the best, average life satisfaction in Panama is 6.6, as compared with a Latin American average of 6. Using a set of ten positive and negative “experiences”, Panama shows more unbalanced results (higher-than-expected on the positive experiences but lower-than-expected on the negative experiences). These experiences include, on the one hand, feeling well-rested, laughing and smiling, enjoyment, feeling respected, and learning or doing something interesting, and on the other hand, include stress, sadness, physical pain, worry and anger. The high overall level of subjective well-being relative to the level that could be predicted based on the country’s GDP per capita is a feature that Panama shares with most other Latin American countries.

The well-being framework within each dimension: The case of gender inequalities

The OECD well-being framework also accounts for inequalities within each dimension, consistent with the idea that community welfare reflects both average outcomes and how they are distributed across people with different characteristics. For instance, gender inequality is a cross-cutting issue that should be gauged across every dimension of well-being. Women tend to have lower outcomes in most of the dimensions of well-being and are significantly lagging behind in the areas of jobs, vulnerability and life evaluation (Figure 1.5). In particular, regarding jobs, they are more likely to be out of the labour market and have a higher risk of being unemployed. Close to one-quarter of young women (from 15-to-29 years old) is in neither education, employment nor training (NEET), compared to 11% of young men in the same age group (see Chapter 3). Conversely, women tend to report higher results in education, health and social connections.

Figure 1.5. Difference of well-being outcomes by gender
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Note: The bars represent the observed well-being values for women in Panama. The dots stand for the observed well-being values for men. The black circle shows the expected values based on Panama’s level of GDP per capita obtained from a set of bivariate regressions, with GDP as the independent variable and the various well-being outcomes as dependent variables from a cross-country dataset of around 150 countries with a population over one million. All indicators are normalised in terms of standard deviations across the panel. The observed values falling inside the circle indicate the areas where Panama performs poorly in terms of what could be expected from a country with a similar level of GDP per capita. All indicators have been normalised so that the longer the bar, the better the outcome. For some indicators, such as the GNI per capita or poverty, the disaggregation by gender was not possible.

Source: Gallup (2016), Gallup World Poll, http://www.gallup.com/services/170945/world-poll.aspx (accessed 1 February 2017), World Bank (2017), World Development Indicators (database), Washington DC, http://data.wroldbank.org, UNESCO Institute of Statistics (UIS), PISA scores (2009), and Transparency International (2016), Corruption Perception Index, http://www.transparency.org

 http://dx.doi.org/10.1787/888933550383

Sustainable Development Goals and citizens’ views on well-being

The OECD well-being framework presented above for the case of Panama provides similarities but also complementarities to the Sustainable Development Goals (SDGs), which Panama committed to achieve as an United Nations (UN) member (Box 1.3).

Box 1.3. The Sustainable Development Goals and the OECD well-being framework

Following the adoption of the 2030 United Nations Agenda for Sustainable Development, Panama, like the other 192 UN Members, committed to achieving a series of Sustainable Development Goals (SDGs) in a wide range of areas.

These commitments, which are grouped into five categories (People, Planet, Prosperity, Peace and Partnership), focus on improving outcomes in areas such as education, health, the fight against poverty, violence and corruption, gender equality, the environment, innovation, and access to adequate employment and housing. They also include the objective of helping north-south and south-south co-operation on the path of sustainable development through financial support and co-operation. There is a lot of overlap and complementarity between the OECD well-being indicators and the UN Sustainable Development Goals, with both similarities and differences between the two approaches. For instance, the OECD well-being framework is an analytic and diagnostic tool to assess the conditions of a community, whereas the 2030 Agenda is a list of policy commitments agreed by world leaders.

The policy commitments in the 2030 Agenda touch on practically all of the dimensions considered in the OECD well-being framework, with the exception of two aspects. The first is SDG 17 (means of implementation), which reflects the choice to focus on universally-valued outcomes rather than the country-specific policies needed to attain them. The second is the 2030 Agenda’s focus on the “shared responsibility” of all countries in delivering global public goods and avoiding negative global impacts. This element does not feature in the OECD framework because of its focus on describing the conditions prevailing in each community, rather than the drivers (some of them external) shaping both current well-being and its sustainability. Conversely, the two OECD dimensions of “social connections” and “subjective well-being” do not correspond to any of the SDGs, although “promoting well-being for all” is part of SDG 3 on health.

Panamanians who participated in the workshop for this MDCR identified these dimensions of the OECD well-being framework and the inequalities within each dimension as important. The multi-dimensional approach of the well-being framework provided an assessment of people’s lives in Panama according to its level of development. These dimensions were also considered as essential by the Panamanians participating at workshop to pursue better satisfaction with life. In the participatory workshop participants depicted a desired future for Panama through imagined stories of citizens in 2030. Participants then worked to identify different dimensions of these stories, which were clustered and mapped onto the OECD “How’s Life?” framework. In this exercise, all dimensions of the OECD framework were identified. When participants discussed the different dimensions, sustainability emerged as a cross-cutting issue in several dimensions including life satisfaction, education and the environment, as well as income and wealth. Inequalities and social inclusion also emerged as a cross-cutting issue, and were discussed in relation to multiple dimensions including the financial system, health, employment, income and wealth, and governance and participation. In relation to well-being, participants focused on questions of culture, national identity and citizenship.

Major bottlenecks to inclusive development

The quantitative and qualitative analyses of well-being outcomes complement the in-depth analysis of the dimensions associated with inclusive development in Panama that are the focus of the remaining chapters of this report.

Chapter 2 assesses the macroeconomic performance and productivity and competitiveness challenges, as well as infrastructures, logistics and innovation outcomes. Panama needs to improve the potential benefits of specific activities, such as the Canal and Special Economic Zones, to the rest of the economy and move towards an innovation-driven growth with improvements in labour productivity across regions and economic sectors.

Chapter 3 studies the social and territorial challenges including health, education and the labour market. Higher investment in education, for example, is needed to promote further inclusiveness. As is the case in other countries in Latin America, the poor quality and high drop-out rates in secondary schools stand as key challenges since they thwart students’ path towards higher education, exacerbate inequalities and narrow the skill base of the labour force. Despite a significant increase over the past two decades, social expenditure in Panama is below that in benchmark economies, and should be increased.2

Chapter 4 analyses the financing for development in Panama, highlighting the public and private resources to finance development and the structure and sustainability of these resources. Regarding the resources that are available for development activities, further resources from the public sector should finance social challenges. An effective and efficient tax-and-transfer system, together with employment promotion and good quality jobs, are direct and powerful instruments to redistribute income.

Chapter 5 focuses on several aspects affecting institutions and sustainable development. Panama needs to improve the effectiveness of its institutions. Confidence in institutions remains low. Trust in government, for instance, through greater transparency on the part of institutions, is needed to build public trust in government. Panama needs to improve evidence-based decision making and increase its capacity for long-term strategic foresight to move forward in the reforms aimed to increase inclusive development. Although Panama has a comprehensive National Development Plan (Plan Estratégico de Gobierno, 2015-19) and is currently working on a strategic plan with a 2030 horizon (CCND – Consejo de la Concertación Nacional para el Desarrollo –, 2016), planning and evaluation processes should be improved by strengthening technical capabilities within most of the ministries. Finally, to improve the reputational risk of the country, Panama should continue implementing the measures to increase transparency and improve exchange of information on taxes with other countries, especially those recently adopted.

Table 1.1 presents a summary of the main constraints to achieve further sustainable and inclusive development and related areas of action identified in this report.

Table 1.1. Main constraints and action areas to further inclusive development in Panama

Chapters of the MDCR Panama Volume 1

Main constraints identified

Action areas being implemented or to be implemented

Chapter 2

Stagnated productivity in the agricultural sector, linked with lack of technological transfer.

Improve the potential benefits of specific activities, such as the Canal and Special Economic Zones, to the rest of the economy.

Chapter 2

Modern service sectors are unarticulated with traditional sectors, and services contribute little value-added to other sectors’ exports.

The economic structure needs to be upgraded and shifted towards innovation-driven growth.

Chapter 2

Innovation outcomes remain low.

Increase innovative policies and spending in research and development, particularly by the private sector.

Chapters 2 and 3

Quality of and access to infrastructure are unequal across regions.

Prioritise interventions in infrastructure at sub-national level and develop co-modality in the transport sector.

Chapter 3

Marked territorial differences in several public services including health, education and housing, and also on income and well-being.

Expand investment and build capacities in Comarcas and rural areas.

Chapter 3

Low quality of education, combined with large inequalities in access to education and performance across socio-economic groups.

Expand education resources by increasing government spending, especially for pre-primary and secondary; improve teacher quality through better teacher training.

Chapter 3

Poor levels of skills, which are not aligned with current and future needs of the labour market.

Expand the offer of technical and vocational secondary and tertiary non-university programmes.

Chapter 3

Two-fifths of the workforce are in informal employment, with low wages and no job protection.

Increase workplace controls and promote workers’ registration in the formal sector; expand training and active labour policies for informal and low skilled workers.

Chapters 3 and 4

Untargeted social spending and subsidies.

Continue improving the effectiveness of public expenditures.

Chapter 4

Low fiscal revenues and ineffective tax structure to finance development.

Increase tax receipts by reducing tax expenditures, raising some direct and indirect taxes, and facilitating compliance.

Chapters 4 and 5

Relatively weak assessment and coverage of the underlying risks of the financial system.

Increase the time frequency and in-depth analysis of a public and comprehensive financial stability report.

Chapter 5

Low confidence in institutions and the government.

Promote further transparency across public entities, improve the planning and implementation of policies, and implement further exchange of information.

Chapter 5

Weak private sector involvement in infrastructure.

Better regulation and institutional frameworks for public-private partnerships.

Chapter 5

High environmental impact of growing mining sector.

Improve the institutional framework to promote green growth.

Source: Authors’ elaboration.

Grouping these constraints into three blocks of the most salient and cross-cutting issues, the second phase of the Panama Multi-dimensional Country Review (MDCR) will develop in-depth policy recommendations and provide OECD expertise on:

  • Promoting social inclusiveness at the provincial level. Several dimensions such as vertical co-ordination, planning and evaluation of education, transport infrastructure and other public services will be included.

  • Boosting formal jobs. Better skills and training policies will be part of this study. Other factors such as policies to enhance SMEs and labour market regulations will be included as well.

  • Better public and private financing policies for development. Strengthening the taxation system to increase efficiency and equity, and sound regulatory and institutional frameworks for public-private partnerships, will be two key elements of this study.

References

Boarini, R., A. Kolev and A. McGregor (2014), “Measuring well-being and progress in countries at different stages of development: Towards a more universal conceptual framework”, OECD Development Centre Working Papers, No. 325, OECD Publishing, Paris, http://dx.doi.org/10.1787/5jxss4hv2d8n-en.

CCND (Consejo de la Concertación Nacional para el Desarrollo) (2016), Plan Estratégico Nacional con Visión de Estado “Panamá 2030”, Documento en consulta, http://www.concertacion.org.pa/tmp/file/333/PEN%202030_para%20Consulta.pdf

Chaikin, D. (2013), “Controlling corruption by heads of government and political élites”, in Larmour P. and N. Wolanin (eds.), Corruption and Anti-Corruption, ANU Press, pp. 97-118, retrieved from http://www.jstor.org/stable/j.ctt2tt19f.9.

Dayton-Johnson, J., J. Londoño and S. Nieto-Parra (2011), “The process of reform in Latin America: A review essay”, OECD Development Centre Working Papers, No. 304, OECD Publishing, Paris, http://dx.doi.org/10.1787/5kg3mkvfcjxv-en.

Gallup (2016), Gallup World Poll, http://www.gallup.com/services/170945/world-poll.aspx (accessed 1 February 2017).

ILO (2016), Key Indicators of the Labour Market, 9th Edition, (database) International Labour Organization, Geneva, http://ilo.org/global/statistics-and-databases/lang--en/index.htm (accessed 1 March 2017).

Melguizo A., S. Nieto-Parra, J.R. Perea and J. Perez (2017), “No sympathy for the devil! Policy priorities to overcome the middle-income trap in Latin America”, OECD Development Centre Working Papers No. 340 (forthcoming), OECD, Paris.

OECD (2014), Perspectives on Global Development 2014: Boosting Productivity to Meet the Middle-Income Challenge, OECD Publishing, Paris, http://dx.doi.org/10.1787/persp_glob_dev-2014-en.

OECD (2011), How’s Life?: Measuring Well-being, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264121164-en.

OECD (2010), PISA 2009 Results: Equity in Learning Opportunities and Outcomes (Volume II), OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264091504-en.

OECD/CAF/ECLAC (2016), Latin American Economic Outlook 2017: Youth, Skills and Entrepreneurship, OECD Publishing, Paris, http://dx.doi.org/10.1787/leo-2017-en.

OECD, National Accounts Statistics (database), http://dx.doi.org/10.1787/na-data-en.

Transparency International (2016), Corruption Perception Index (database), https://www.transparency.org/news/feature/corruption_perceptions_index_2016 (accessed 1 March 2016).

UNESCO (2015), Data to Transform Lives: Education and Literacy (database), UNESCO Institute for Statistics, Montreal, http://uis.unesco.org/ (accessed 1 March 2017).

UNODC (2017), Data and indicators (database), https://data.unodc.org/?lf=1&lng=en.

World Bank (2017), World Development Indicators, World Bank, Washington, DC, http://data.worldbank.org/data-catalog/world-development-indicators (accessed 7 March 2017).

ANNEX 1.A1. Vision exercise workshop: Stories of the future

The OECD Multi-dimensional Country Review (MDCR) methodology includes a series of participatory workshops used to complement the quantitative analysis and enhance understanding of the local context. These workshops aim to enable the OECD team to connect with different perspectives of Panamanian society and together reflect on the challenges to inclusive, sustainable development. The workshops also serve the purpose of ensuring that the context in which policy responses will be implemented informs the analysis and development of recommendations in the early stages of the MDCR. They also provide a platform for dialogue; an exchange of ideas; sharing and receiving feedback on emerging findings; and testing recommendations to ensure these are both targeted and pertinent. Each workshop, for each phase of the MDCR serves a specific purpose, and follows a specific methodology.

As part of the MDCR approach, a visioning exercise was carried out during the participatory workshop where Panamanians were asked to tell a story of a citizen in 2030, imagining what their country and citizens’ lives would be like if development objectives were realised. This exercise is carried out in all MDCRs to better understand the country’s developmental goals through citizens’ normative view of the future, the local context and cultural preferences. The exercise is also carried out to better understand how the country’s development objectives relate to the OECD’s well-being framework. Below are a sampling of these stories that emerged during the workshop.

  • María González is 30 years old in 2030. She is a healthy middle-class professional, is married and has a healthy baby son. María has finished university studies and today works as an electromechanical engineer. She is entrepreneurial and has recently become a consultant. María was born in the Comarcas and has three brothers. Her parents made sure she grew up learning her customs and traditions. She did her secondary studies in public schools in the region, which has good access to basic services and access to technology. María is health-conscious, has a healthy lifestyle and, she makes sure she eat healthy foods. She speaks Spanish, English and her native language. She is currently studying for a Master’s degree at the Technological University of Panama that has been recognised as one of the best in the region.

  • Esperanza is from the Ngäbe Comaraca. In 2030, she is a doctor and works in the Central Hospital of the region. Esperanza initially left the Comarca to pursue her education. However, upon completing her studies, she returned to where she grew up because she felt she had the opportunity to help the community. Esperanza is happy because the region today has hospitals in adequate condition, and new infrastructure has significantly improved the living conditions of the people. They now have good education, health care facilities and roads that have reduced travel time and increased connectivity to other parts of the country. These improved conditions have also meant that people have more leisure time, and the opportunity to focus on cultural activities and environmental sustainability.

  • Esperanza Buenaventura lives in the city of Panama, in Santa Libuada. She is an engineer in the logistics sector, working on finance and technology. Esperanza is happy: she has a job that she loves with good remuneration and purchasing power which allows her to buy goods and services. Esperanza enjoys a good work/life balance; she is a manager in a company that offers flexible working hours that enable her to take care of and enjoy her children. She also has spare time to volunteer and contribute to society. Panama has efficient public transportation, and quality health and education. Esperanza enjoys her life in Panama, and feels safe going around the community, her city, and her country. Esperanza has confidence in the justice institutions and political system, and therefore pays her taxes diligently as she believes they are used for wise public investment. Since there are recycling facilities, she recycles, as she is aware of the importance of protecting the environment.

  • Valentina is 30 years old. She is married with two children and has a disability. Valentina is pursuing a Master’s degree in human resource management with a major in human rights. She studied in public school and university. Valentina speaks English very well and works in a multinational company’s human resources department. Her company has well-developed and inclusive policies that provide employment and development opportunities: her company’s educational grant enabled her to enrol in her Master’s degree programme. The company has a special agreement with local nurseries so her children are taken care of while she works. Valentina has health insurance, and feels she has a fulfilling life and a lot to do and potential to develop. In her spare time Valentina is tech-savy and a social entrepreneur: she broadcasts her own YouTube programs related to gender, disability and issues that affect her generation. She lives in Capira, in a region that was successfully reforested and today has many green areas and inclusive infrastructures that allow her to go out and enjoy the clean air and nature. In her district, she has access to quality water, energy and sanitation, and everything is recycled. Valentina feels she has everything she needs around her, but when she wants to go to the city, she has safe and adequate public transportation and it only takes 15 minutes.

  • María is 30 years old and lives in Puerto Armuelles. She is an independent entrepreneur who has her own food production company with her husband. María is married to Carlos Rodríguez, who has a Bachelor’s degree in logistics and, like her, graduated from a state university. María and Carlos have two children who were born in the CSS and currently, like their parents, study in a public school of excellence. María and Carlos benefitted from the opportunity of a business financing programme built on returnable seed capital. María and her family commute a lot every day.

Notes

← 1. Panama is not an isolated case in the region of Latin America and the Caribbean (OECD/CAF/ECLAC, 2016). However, the performance of other countries indicates that a more rapid transition from a middle-income to a high-income economy is possible. For instance, it took Korea 27 years, Portugal 46 years and Chile 55 years to make that transition.

← 2. Social expenditure is compared across countries according to Economic Commission for Latin America and the Caribbean (ECLAC) data and the OECD Social Expenditure (SOCX) database.