Panama: The economy continues to thrive
Excerpt from Panama Means Business 2016/ 2017 edition, series 2
The Panamanian economy is an anomaly in Latin America and the rest of the world. While many economies are collapsing, it continues to thrive. The inauguration of the expanding Canal, the new Colón Free Port, changes to the Colón Free Zone legislation are some of the measures boosting business opportunities even more. Foreign and local investors see the Isthmus as a viable proposition with its dollarized economy, sustainable growth, connectivity, competitiveness, logistics performance and transparency.
Last year, the economy grew 5.8%, an increment that is evidenced by the demand for shipping strength, as well as private, national and foreign investment. Panama maintains its position as leader of economic growth in Latin America with inflation at only 0.2%, due to low fuel costs allowing consumers to save more than $1 billion in 2015.
In 2015, foreign direct investment increased by16.8%, totaling $5.03 billion. The Ministry of Economy and Finance (Ministerio de Economía y Finanzas (MEF)) launched a program to attract investment and modernize the State’s finances, as a result the world’s main risk rating agencies: Moody’s, SP Global and Fitch Ratings have confirmed that Panama’s investment rate has a stable perspective, highlighting macroeconomic and macro fiscal prudence, moderate public debt burden and positive economic performance outlook for years to come.
The main sectors that grew in 2015 were utilities (electricity, water and gas supply) 13.6% and financial intermediation 10.4%. Other activities that contributed to the Gross Domestic Product, showing moderate growth were transportation, warehousing and communications. The activities that stand out are shipping transport and port activity; wholesale and retail trade with easy access to loans.
The economy of Panama centers on the services sector, which represents more than 75% of gross domestic product (GDP). The Panama Canal accounts for almost10% of the country’s GDP. Other important components of the service economy are the Colon Free Trade Zone (CFZ), which is the second largest free port in the world, but has been depressed due to problems in the South American market, especially in Colombia, Venezuela and Brazil. The other component is the Trans-Panama Pipeline, which allows for the transport of crude oil between the Pacific and Atlantic coasts.
It is expected that the Panamanian economy will grow 6.2% between 2016 and 2020. This outlook coincides with the CEPAL (Central American Parliament), World Bank and International Monetary Fund forecasts. Moody’s is giving the country a Baa2 long term, while SP Global (former Standard Poor) awarded a rate of BB Band Fitch gave it a BBB too with stable perspective. According to these organizations Panama is consolidating its position as the logistics hub of the region.
Foreign Direct Investment
Foreign Direct Investment in Panama is expected to be 3709.90 PAB Million by the end of 2016, according to the magazine “Trading Economics” global macro models and analysts’ expectations. In the long-term, the Panama Foreign Direct Investment Inflows are projected to trend around 3573.75 PAB Million in 2020, according to the econometric model of this organization. Panama receives the most incoming Foreign Direct Investment (FDI) in Latin America as a proportion of its GDP Panama and 45% of all incoming FDI in Central America. Since 2014, the country has experienced an increase of 16.4 percent in FDI inflows and over 50% of that money is used in reinvestments.
Panama will be the country with the fastest growth rate in Latin America in 2017, according to the World Bank report and the International Monetary Fund. The Panama Canal expansion along with a toll hike could boost the economy. The Focus on Economy Organization report expects that it will reach a growth of 6.1% in 2017.
According to the World Bank, Panama is in a very good position to achieve that international institution’s goals to eradicate extreme poverty and boost shared prosperity thanks to the growth perspectives and the renewed Government attention to inclusion.
To be continued.