Latin America is that eternal promise that never ends. A region with great natural resources, without war conflicts in sight and with great potential, but that has not yet found the path to prosperity. However, there are always exceptions. Within this region there is a country whose per capita income has reached levels worthy of a developed economy. Furthermore, its economic growth remains relatively high in terms of GDP per capita, with a variation rate that exceeds 4%. What is more surprising, this country has no oilalthough it has something that is similar and that is really what has made it the most prosperous nation in Latin America: a channel that has revolutionized international trade.
Panama has the highest GDP per capita in purchasing power parity or PPP (eliminates price distortions in different economies) in all of Latin America. But, in addition, according to data from the World Bankthis indicator is growing at a rate of 4.4% annually, a true miracle for a country whose PPP per capita income is close to $43,000. All of this is allowing Panama to see the US increasingly closer.
Such is the miracle that the International Monetary Fund (IMF) has carried out extensive work analyzing the factors that explain the success of this small economy. The conclusions are clear: “Panama has achieved income convergence with respect to United States standards much faster than most other Latin American countries in the last 25 years and is now the richest country in Latin America,” the report states. Although its miracle has been notable, experts say that it has fallen a bit short below that achieved by South Korea, for example.
In 1994, Panama’s GDP per capita has gone from representing 33% of the GDP of the United States, while currently it is already close to 50%making it one of the fastest growing economies in per capita terms during that period worldwide. Currently, Panama is classified as an upper-middle-income emerging market economy. Its purchasing power parity (PPP)-adjusted GDP per capita stood at US$42,7000 in 2023, ranking among the 35 countries with the highest GDP in the Penn World Table sample of 114 countries.
Not only the IMF, the World Bank also shows its amazement with Panama’s success story: “In the last thirty years, economic growth has generated employment and significantly reduced poverty, which has decreased from 48.2% in 1991 to 12.9% in 2023”. However, the weak point continues to be inequality between people and territories, especially in rural areas.
Since the 2000s, Panama has become detached from the rest of the region. In 1970, Panama’s GDP per capita was approximately equal to that of the Latin American and Caribbean region as a whole and less than that of Chile, Costa Rica, Uruguay, Mexico, Ecuador, Jamaica, Nicaragua and Barbados. However, since 1990, Panama’s growth performance has been very strong and, in 2023, Panama had a higher per capita product than any other country in the regionhighlights the IMF report.
Panama has experienced remarkable economic growth, often called the “Panamanian economic miracle.” This growth has been supported by several key factors, but above all by the investment and income generated by the Panama Canal thanks to globalization. The expansion and modernization of the Panama Canal have been fundamental, since they have significantly increased toll revenues and have consolidated the country as a global logistics center. Additionally, the Colón Free Zone has played a crucial role in international trade, facilitating the transit of goods and attracting foreign investment. “In terms of demand factors, much of Panama’s strong growth was the result of a marked increase in the investment/GDP ratio,” the IMF highlights.
Investment is everything in Panama
Therefore, in Panama’s economy, investment has an extremely high weight. As happens in small countries that have a lot of oil (crude revenue generates a good part of the GDP), in the case of Panama this position is occupied by brick. The Panama Canal and its privileged geographical location mean that investment in infrastructure and real estate is one of the drivers of GDP. This is how the IMF explains it: “The most important factor in the recent dissociation of Panama from the rest of Latin America and the Caribbean in terms of per capita production is the growth of investment, particularly due to a construction boom (most of which is commercial real estate), which cannot outpace the growth of the rest of the economy indefinitely,” they explain.
Another determining factor has been the adoption of market-oriented economic policies and trade liberalization. Panama’s accession to the World Trade Organization in 1997 and the signing of multiple free trade agreements have opened new markets and encouraged foreign direct investment. These policies have diversified the Panamanian economyreducing its dependence on traditional sectors and promoting the development of financial services, tourism and construction.
On the other hand, political and macroeconomic stability have also been essential for Panama’s sustained growth. The dollarization of the economy has contributed to maintaining low and stable inflation, while tax reforms have strengthened public finances (the country is reducing its deficit rapidly).
These conditions have created a favorable environment for business, attracting investment and stimulating economic growth. As a result, the Panamanian economy has grown at a faster rate than most countries in the region, consolidating itself as one of the most dynamic in Latin America.
It is true that the covid hit harder than in other places, which led many analysts to believe that the Panamanian miracle had been put to an end. But the truth is that the recovery has been spectacular. After a recovery at the level of the miracle of the previous 20 years, in 2023 Panama’s economy grew by 4.4% in terms of GDP per capita: “For the third consecutive year, real GDP growth surprised upwards, reaching 7.3% in 2023. The rapid growth was driven by a rebound in construction, retail and wholesale trade, transportation and logistics. On the spending side, the growth was driven by very strong data on fixed capital, while private consumption growth lagged GDP growth GDP is now well above pre-Covid levels and unemployment is close to pre-crisis levels. GDP has grown by 39% since 2020 and 14% since 2019 and exceeded pre-crisis levels in 2022,” the IMF explains..
However, the rapid growth was fueled by an unprecedented construction and investment boom that included major projects, such as the expansion of the Panama Canal and Tocumen airport, and the expansion of the service and logistics sectors that benefited. of these engineering works,” the IMF points out. This may pose a problem in the medium term. These years and in the Last two decades, growth has come from investment and construction. Now that the Panama Canal, its remodeling and indirect works have been completed, future growth will have to come from other sectors. The income generated by this engineering work on a recurring basis gives the country time, but if it wants to maintain the very high growth rates it has shown in recent years, It will be necessary to find alternative sectors with potential, not an easy task.
#economic #miracle #richest #country #Latin #America #oil #cutting #ground
