Panama Economy Overview

By | September 8, 2021


The economy of Panama is strongly linked to the presence of the canal of the same name, which since 1920 has effectively connected the two oceans of the Atlantic and the Pacific, and to the importance of the United States of America, one of the main beneficiaries of the creation of the passage. Up to 31 December 1999, a large share of the country’s foreign exchange income was in fact made up of the rent paid to Panama by the United States, tenants of the Canal Zone and by commercial activities, favored precisely by the interoceanic artery. It is the tertiary sector, therefore, that constitutes the main economic sector of the country, to which the prosperity, albeit relative, of the state in the Central American context can be traced back. Conspicuous support for the national economy also derives from the activity of the free zone in the port center of Colón, Established since 1948 but only recently actually upgraded: there are now numerous industrial and commercial complexes, so much so that by volume of business it is believed to be preceded only by Hong Kong. The presence of the free zone of Colón, the very large government tax breaks and, in practice, the lack of state controls have also led to a rapid expansion of the banking and financial sector in general: numerous banks and companies operate in the country. ‘international insurance companies (there were just about ten in 1964), thanks to which Panama has now become a real financial “center” offshore of international rank (among the traffics, however, there are also illegal ones, linked to drug trafficking, source of considerable income). The canal, however, shows a certain structural inadequacy; not only that, but the growing weakness of the related industries is exacerbated by the fact that the revenues related to the canal’s activities are almost exclusively the prerogative of the numerous foreign companies, to which a large part of the merchant fleet present in the country belongs. By way of example, 113 new vessels registered in the naval register in 2005 alone were all attracted by the favorable conditions guaranteed by the Panamanian flag. L’ investment in the financial and banking sector registered in the State is therefore part of that project of diversification of the tertiary activities desired by the government to overcome these growing difficulties. The first development plan drawn up during the 1990s by the authorities (who took office at the helm of Panama after the overthrow of the Noriega regime in 1989), set as a priority the launch of a modern market economy, to be pursued above all through the privatization of state enterprises (such as those producing and distributing energy), the abolition of the monopoly, greater liberalization of prices, the reform of the banking and financial sector as well as that of the world of work. Thanks to these measures, the country’s GDP has grown significantly: 5% in 2005, 9, per capita of US $ 6,784) and with a forecast of future growth of around 10%. Despite some improvement in the economic situation, the inflation rate remains very high and more than half of the population still lives below the poverty line. This condition is further aggravated by the measures adopted by the government to contain the foreign debt (which remains very high: almost 60% of GDP), starting with the cuts in public spending. Unemployment, fiscal deficit, trade liabilities and distribution of wealth are finally the other hot fronts that the country has been facing since the beginning of the new millennium.


Practiced on an area equal to about 8% of the national territory, agriculture has been witnessing the contraction of the sector for years, recording a rapid decrease in the number of employees. As in most of the underdeveloped countries, also in Panama, a country located in Central America according to medicinelearners, there is a clear distinction between subsistence agriculture with very low productivity, practiced with backward techniques on microfounds, which very often correspond to the climatically less favored soils, and a very efficient plantation agriculture. reserved for crops grown for export purposes managed by foreign groups or landowners. Only during the 1980s, in an attempt to make the country self-sufficient in the food sector, some model farms were set up, rationally managed and provided with adequate capital. cassava, potatoes, tomatoes and other vegetables, but production fails to meet the needs of the internal market. Plantation crops, especially bananas, have a greater development, especially around Lake Gatún, in the adjacent northern coastal plain and near the Gulf of San Miguel; the lava soils of western Panama, especially in the flat areas, are the most suitable environment for the cultivation of cocoa, sugar cane, tobacco, citrus fruits (especially oranges); the coffee is grown in the tierras templadas belt, while the coconut palm is common along the coast. § The forests, which cover 57.7% of the national surface, are rich in woodworking essences, such as mahogany, and rubber plants; however, currently exploitation is not very intense. Less than a fifth of the land is occupied by pastures and meadows. § The zootechnical sector is clearly developing, especially as regards cattle breeding, which is centered on recently selected breeds with appropriate crossings to adapt them to environmental conditions and increase their productivity; poultry are also fairly represented. § Relevant is the fishing activity (with high quantities of shrimps and lobsters, which are exported to the United States), practiced mainly in the coastal waters of the Pacific, where the fishing ports of Pedregal, Pueblo Nuevo, Chimán etc. are located. Pearls are fished in the archipelago of the same name, inside the Gulf of Panamá, and in the waters of the Gulf of Chiriquí. The primary sector, in which 17.9% of the active population is employed, participates for 7.8% in the formation of GDP.

Panama Economy Overview