The economic bets of the new government in Panama are aimed at strengthening the growth that the country is experiencing

Economic growth projections for Panama look promising. With a population of just over 4 million inhabitants, the National Institute of Statistics and Census of Panama reported that The country’s GDP grew by 1.7 percent in the first quarter of this year.

In turn, the Economic Commission for Latin America and the Caribbean (ECLAC) projects GDP growth of 3 percent in 2024, while the International Monetary Fund (IMF) forecasts medium-term GDP growth of 4 percent and low inflation at the end of 2024, around 2.2 percent year-on-year.

The projection is also based on the economic growth that Panama had last year when it topped the list of the “Preliminary Overview of the Economies of Latin America and the Caribbean 2023” of ECLAC with 6.1% growth, followed by Costa Rica (4.9%), Paraguay (4.5%), Mexico (3.6%) and Guatemala (3.4%).

It is estimated that Panama experienced such growth driven by several sectors such as construction, trade, transportation, tourism, Colon free zone and financial activities during the first three quarters of the year.

In addition, the country stands out as a crucial logistics and financial center in the region where progress has been driven by trade and services, especially by the Canal.

Austerity plans and increased investment, the bets of the new president José Raúl Mulino

Since last July 1st, The new administration of President José Raúl Mulino will have to address fiscal challenges structural factors to continue its growth path and maintain a solid fiscal outlook.

“These challenges include urgent reform of the Social Security pension fund system and addressing climate disruptions, including the increasing frequency and intensity of El Niño, which poses significant risks through hurricanes and their effect on water levels in the Canal,” explains the World Bank Group, made up of 189 member countries.

Over the past 30 years, Economic growth in Panama has generated employment and significantly reduced povertydeclining from 48.2 percent in 1991 to 12.9 percent in 2023, at $6.85 per day per capita, as measured by Purchasing Power Parity (PPP).

However, poverty in rural areas continues to increase, from 29.3% in 2022 to 32.3% in 2023.

In foreign affairs, Mulino said he would intensify joint work with the United States “to make strong progress in matters of security, technology and international trade.”

This was coupled with significant challenges faced by the country in the last quarter of last year, including a decline in ship traffic through the Canal due to a prolonged drought caused by El Niño and social protests in October and November against an open-pit mining operation.

These protests led to the declaration of unconstitutionality of the contract with Panama copper by the Supreme Court, which resulted in the mining company subsequently ceasing operations.

Due to the interruption of copper mine operations, growth is expected to slow to 2.5 percent in 2024. However, the dynamism of the service sector is anticipated to gradually contribute to growth in the medium term.

To address the situation, Mulino announced at the start of his government (2024-2029) austerity plans in spending, more investment in public works and a clear foreign policy that, for the moment, generate confidence in the business sectors and analysts of this Central American country.

“Starting in 2025, accelerated growth is forecast as long as the country maintains its attractiveness as a destination for foreign investment, which should initiate a moderate decline in poverty as the economy and the labor market regain their pre-pandemic dynamism,” the World Bank Group notes.

In foreign affairs, Mulino said he would intensify joint work with the United States “to make strong progress on issues of security, technology and international trade”; he would move forward with neighboring Costa Rica “on agreements on security, trade, energy and integration in the Central American sphere,” and he hopes to promote a free trade agreement with Mercosur, among others.

For Panamanian analyst José Stoute, it is worth noting that the new president has ruled out privatizing the water service, which is very precarious in the country, or a pension subsystem that “is on the verge of collapse due to lack of funds and that he plans to refloat with measures that affect taxpayers and pensioners as little as possible,” he said.

Collecting taxes and fighting corruption are among the challenges in Panama

“We liked it, President Mulino continues to generate confidence to create jobs (…) he has formed a team that generates confidence,” said the president of the Chamber of Commerce, Industry and Agriculture of Panama (CCIAP), Juan Alberto Arias, on Tuesday.

The Chamber, which brings together some 1,600 companies from 15 economic sectors, aims to “support and work hand in hand” with Mulino “in all positive aspects, monitor what is negative” and “report” anything with which the private sector does not agree, he added.

“Let the public works (underway) continue, let the mistake of stopping them not be made, because nobody benefits, and let confidence continue to be generated. Confidence is generated quickly but is lost much faster,” Arias told local TVN.

Mulino spoke of the imminent launch of a first-job plan for young people and a national road reconstruction program, and programs to build low-income housing and promote tourism.

The leader of the economic team of the Mulino Government is Felipe Chapman, head of the Ministry of Economy and Finance (MEF), who has acknowledged that the situation is serious but has a solution.

Chapman has announced that these measures include improving tax collection, eliminating some subsidies and combating corruption.

Although Fitch downgraded its sovereign risk rating to BB+ from BBB- on March 28, 2024 and there is downward pressure on other agencies’ ratings, the country still maintains good access to capital markets, but with a higher spread, thanks to its dollarized economy and a stable macroeconomic environment.

STEPHANY ECHAVARRÍA

International Editor

TIME