Panama has emerged as a global financial hub, driven by its strategic geographic location, trade openness, and world-class infrastructure. The country’s prolonged investment boom has been underpinned by its geographic location, trade openness, and a well-developed financial system, all of which have benefited from globalization. Panama’s Colón Free Zone, the second largest in the world after Hong Kong SAR, and its world-class ports and airport have contributed to the country’s impressive growth performance over the past three decades. The government has actively sought to boost productivity and attract high levels of investment by improving the business environment, fostering innovation, and reducing institutional vulnerabilities. Panama’s dollar-based economy, low inflation, and zero foreign exchange risk have further enhanced its appeal as a global financial and trade center.
The country’s investment climate is attractive, with Panama serving as the home of the Panama Canal, the world’s second largest free trade zone, and sophisticated logistics and finance operations. Panama’s economy is primarily based on a well-developed services sector, including the Canal, banking, tourism, logistics, and insurance. The government has actively sought to combat money-laundering and has a stable, democratic administration that actively seeks foreign investment. However, Panama’s investment climate is weighed down by structural deficiencies, including high levels of corruption, a poorly educated workforce, a weak judicial system, and labor unrest. Despite these challenges, Panama has been one of the Western Hemisphere’s fastest growing economies, with a 10.8 percent GDP growth rate in 2022, outpacing most other countries in the region. Panama’s economic growth has been driven by its role as an important transport and logistical hub, a trade and financial center, and, more recently, by the contribution of mineral exports.
The country’s growth is expected to be around 6.3 and 6.5 percent over the next two years, supported by construction, transport and logistics, tourism, and mining. Panama’s ability to maintain resilient and rapid growth, and perhaps become the first advanced economy in Latin America, may depend less on investment in construction projects and physical capital, and more on human capital and innovation. Diversifying the economy and addressing fiscal risks will be priorities for the country’s continued growth and development.
