A Report On The Current Condition Of The Panama Economy

June 29, 2010
During the course of the recent global economic crisis, there have been many countries facing difficult economic challenges. Some countries, however, have managed to weather the storm. A close look at the Panama economy reveals a country that has made its way through the crisis and is primed to emerge in an excellent economic position. Fiscal discipline, massive investment projects, and solid industrial performance, has allowed Panama to keep its economy growing as countries all around it have flounder.

In 2009, Panama's economy saw 2.4% growth, a drop from the previous years' 8% to 11% rates. But when many countries are facing negative growth, even Panama's modest gain is significant. Panama's own projections for 2010 growth are at 5%, while forecasts from others range from 2.5% to 5%.

Two reasons for the growth are a strong financial sector and a bustling construction industry. Both sectors have seen sharp declines in other countries. Another successful sector has been telecommunications. Meanwhile, Panama's real income and employment rates have increased and will no doubt help to invigorate consumer spending. From 2003 to 2009, Panama had a steadily decreasing unemployment rate. It rose from 5.6% to 7.1% in 2009 while countries around the world double-digit rates.

A key source of Panama's economic growth is a $5 billion dollar Panama Canal expansion project, which has helped to bolster domestic and foreign confidence in the Panama's economy. The project has provided jobs and contracts that have helped sustain the economy. In time, it will also be a source of National Revenue.

Another source of economic strength has been the current government. President Ricardo Martinelli and his center-right administration have implemented successful tax reforms and fiscal discipline programs to increase revenues, control debt, and expand investment projects. While Martinelli's popularity has recently begun to waiver in the face of rising crime rates and an an increase in value-added tax, his approval ratings remain quite high.

The rest of the world has begun to take note of Panama's economic successes as well. Late in 2009, Standard and Poor's raised its credit rating outlook for Panama to positive. More recently, Fitch Ratings gave Panama its first-ever investment grade rating. These ratings will likely help boost foreign investment in Panama's ongoing projects, thus continuing to boost the country's growing economy.

Panama has already become an attractive target for foreign investment. The Canal project and other massive public works projects highlight up a five-year, $12 billion investment plan launched by Panama's government. The investment plan is designed to fund infrastructure upgrades throughout the country, and further solidify Panama's fiscal structure. Meanwhile, despite high public debt ratios, Panama has managed to keep its net debt below 2% of the GDP.

Panama's economy is one of the fastest in the region, and in the world. An impressive investment plan for public projects and disciplined tax reform have combined to sustain growth even in the midst of a difficult global economy. Continued foreign investment and disciplined fiscal policy will most likely keep the Panama economy moving forward for at least the foreseeable future.