Notes On The Present Condition Of The Panama Economy
In the wake of the global economic crisis, many countries have faced tough times, while others have managed to survive well. An analysis of the Panama economy shows that it is one of the countries that has managed its way through the crisis and is emerging as strong as ever. Disciplined fiscal policies, huge construction projects that continue to attract foreign investment, and some strong industries, Panama has kept its economy sound while countries all around them have struggled.
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 main contributing factors for Panama’s continued growth are its strong financial sector and its active construction industry. In other countries, these sectors have seen sharp declines. The telecommunications sector has also made a good showing in Panama. Overall, Panama’s real income and employment rates have been steadily increasing and will undoubtedly serve to re-energize consumer activity in the country. From 2003 to 2009, Panama’s unemployment rates constantly decreased. While it rose in 2009 from 5.6% to 7.1%, many of its neighbors, and many countries around the word saw double-digit employment rates at the same time.
A major contributor to Panama’s economic well-being has been the massive $5 billion dollar expansion of the Panama Canal. The Canal project in particular has helped to boost domestic and foreign confidence in the country’s economy. Not only has the project provided jobs and contracts that have helped buoy the economy, but it promises to be a source of National Revenue over time as well.
The current government has also been a source of economic confidence and strength. The center-right administration of President Ricardo Martinelli implemented tax reforms and fiscal policies that have to increased revenues, kept debt under control, and expanded investment projects. Martinelli’s popularity has begun to slip of late as crime rates have begun to rise, and in response to an increase in value-added tax. Still, his approval ratings have continued to be high.
Panama’s economic successes have begun to attract attention from foreign investors as well. Standard and Poor’s raised Panama’s credit rating outlook to positive in November 2009. By spring 2010 Fitch Ratings had raised Panama’s rating to investment grade for the first time ever. This attention will probably help attract more foreign investment in Panama’s infrastructure projects and to further boost Panama’s economy.
Panama was already an attractive market for foreign investors. The Panama Canal expansion and other massive infrastructure projects make up an ambitious five-year, $12 billion plan developed by Panama’s government. The plan seeks foreign and local investment to fund infrastructure and public works improvements across the country, and to thus further strengthen Panama’s fiscal position. While Panama does maintain high public debt ratios, it has kept its overall net debt below 2% of the GDP.
Panama’s is currently one of the world’s fastest growing economies. Tax reforms and an impressive plan for investment projects have combined to help maintain growth in the face of tough global economic times. Increased foreign investment and continued fiscal discipline promise to sustain the Panama economy for years to come.
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