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Panama’s Economy

by Andrew Plowman, Economic Counselor, U.S. Embassy Panama

Photo by: Luis J. JimenezPhoto by: Luis J. JimenezThe U.S. Embassy in Panama has witnessed spectacular changes in Panama in recent decades.  With the entry into force of U.S.-Panama Trade Promotion Agreement (TPA) on October 31, we continue to see many opportunities but also reasons for exercising caution.

High economic growth rates over the past five years in Panama have been fueled by a consolidation of the economy around services that add value to the country’s strategic location as a bridge between two oceans and the meeting of two continents.  Panama has invested in public infrastructure, including development of an excellent maritime and air transport hub, but is also an international trading, banking, and services center.  Trade liberalization has boosted growth as Panama has implemented a series of free trade agreements.  Panama's U.S. dollar-based economy eliminates foreign exchange risk and Panama has no restrictions on the outflow of capital or outward direct investment.  Its government actively seeks foreign investment in all sectors.  In 2010 the three major credit rating agencies – Standard & Poor’s, Moody’s, and Fitch - all raised their ratings of Panama to investment grade, recognizing Panama’s recent tax reforms and its record of steady GDP growth and strong fiscal management.

The Panamanian economy has historically concentrated on the service sector, so the assembly and manufacturing sectors account for only a small percentage of the economy.  There is production of processed foods, chemical products, construction materials, and a small and declining clothing sector. 

Panama's well-developed services sector, accounting for about 79 percent of GDP, includes services such as the Panama Canal, banking, the Colon Free Zone, insurance, container ports, and air transportation.  The Panama Canal expansion, which the government of Panama hopes will be completed in 2015, is a US$5.25 billion project that will double capacity and allow passage of larger post-Panamax vessels. This project, in conjunction with the expansion of the capacities of its ports on both the Atlantic and Pacific coasts, will solidify Panama’s global logistical advantage in the Western Hemisphere. 

The United States is Panama's most important trading partner, with 35.75 percent of Panama’s imports of goods (excluding imports into the Colon Free Zone and the Oil Free Zone) coming from the United States.  U.S. products enjoy a high degree of acceptance in Panama.  In 2011, U.S. goods exports to Panama jumped 34 percent to $8.25 billion.  U.S. goods exports as expected  continue to grow, as the U.S.-Panama TPA immediately eliminated tariffs on 86 percent of U.S. industrial and consumer goods exports to Panama and on nearly half of U.S. agricultural exports to Panama (based on 2011 trade statistics).  U.S. products that gained immediate duty-free access upon entry into force of the TPA on October 31, 2012, include information technology equipment, agricultural and construction equipment, aircraft and parts, medical and scientific equipment, environmental products, pharmaceuticals, fertilizers, and agro-chemicals, high-quality beef, frozen turkeys, soybeans, soybean meal, crude soybean and corn oil, almost all fruit and fruit products, wheat, peanuts, whey, cotton, and many processed food products.

The United States is highly competitive in services trade and U.S. service providers will also obtain substantial access to this growing market.  U.S. exporters and suppliers will have greater access to government procurement opportunities in Panama.


Panama’s high costs for electricity are a source of concern for investors, and contribute to higher than average unit production costs in Panama.  U.S. investors continue to express concern about some government practices in Panama.  These include skewed bidding procedures and a slow and imperfect judicial system.  However, it is anticipated that Panama’s implementation of the rules in the TPA that apply to a broad range of government procurement will help address many of these issues.  The educational system has not produced a supply of skilled labor and English speaking employees to meet the booming service sectors’ demand.  Although unemployment is low, there is significant underemployment among those without skills, and there is marked income inequality.  Continued improvements to the educational system, transparency and rule of law will be critical for Panama to improve its business competitiveness standing in the region.

International indexes generally rate Panama as one of the best countries in Latin America to do business and invest.  At the same time, however, U.S. investors have voiced concerns about corruption and inconsistent treatment. The U.S. Embassy encourages U.S. companies interested in investing in Panama to read our report on Investing in Panama thoroughly and to contact us for more information.  We also recommend that Americans interested in purchasing property in Panama review the U.S. citizens services note here.


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