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 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.
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.
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 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 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.
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