Panama Economy and Currency

The unit of currency used in Panama is the Balboa (PAB), which is pegged at parity to the dollar. There is no Panamanian paper currency and the US dollar is the de facto official currency for all but minor transactions. As a result, the Government cannot print money, and inflation is low, estimated at 1.1% (2006 est)

The outgoing administration in 1999, that of Ernesto Balladares, had tried, with some success, to reverse the fairly dire economic situation of the 1980s which accompanied and may have been linked to national drug-dependence, culminating in the US invasion in 1989.

Extremely high external debt, which had led to Panama's exclusion from world capital markets, was addressed in 1996 with a Brady-bond restructuring. In parallel, the Government pursued an aggressive policy of trade and economic liberalization, including privatization of key assets, which has begun to have an effect.

Leaving aside the difficult subject of drugs, the economy in Panama is focused on banking, mining, commerce and tourism, with the canal and the shipping business generally playing an important role. The total value of the financial sector's assets (as at the end of June 2003) was $32.5 billion. The Government has introduced many investment incentives. Click here for more on Investments.

Copper mining began to have significance only quite recently, but Panama is now emerging as one of the world's major producers, with gold mining also making a contribution.

Economic Success Story

The Colon Free Trade Zone has enjoyed major success, and now accounts for around 10% of GNP. Other free trade areas are being created.

In the 1990s, growth had been running at 4% with low inflation, however it fell from 2.5% in 2000 to only 0.3% in 2001 and about 0.8% in 2002. Growth picked up again in 2003 to 4.1% and jumped to 6% in 2004, due partly to a one-off tax break aimed at investors in housing construction. Under Torrijos Panama is enjoying something of a boom; growth was 8.1% in 2006 and, according to some estimates, could exceed 10% in 2007.

In October, 2006, the World Bank's Board of Directors approved a $60 million loan for Panama to support the Government's public finance reform program, which represents an important step in a long-term partnership between the Bank and the Government of Panama.

"Panama's economy has grown at a rate of more than 6 percent during the past three years, and the growth rate is expected to reach 7 percent this year," said Jane Armitage, World Bank director for Central America. "This excellent growth performance in part reflects the past efforts by the Government of Panama to restore greater fiscal discipline and thereby strengthen the overall foundation for sustaining broad-based economic growth."

GDP per head is $8,200 (2006 est) at Purchasing Power Parity and unemployment levels are at 8.8% (2006 est). As of 2006, Panama's GDP was valued at $26.16 billion.

Stability

In February, 2005, ratings agency Standard & Poor's announced that it had revised its outlook on Panama's long-term sovereign credit rating to 'stable' from 'negative,' whilst also affirming its 'BB' long-term sovereign credit rating.

According to S&P credit analyst Lisa Schineller, the stable outlook reflected anticipated improvement in the government's fiscal deficit and debt situation following passage of a fiscal reform package, which introduced a tax on company revenues, in addition to a levy on firms doing business in the Colon Free Trade Zone.

"President Martín Torrijos and his economic team recognize that fiscal reform was and is necessary to stem the increase in Panama's debt burden and strengthen creditworthiness," observed Ms Schineller.

S&P expected that Panama's fiscal reforms would significantly reduce the general government deficit.

In the fall of 2005, Panama took advantage of its improved rating to file a shelf issue of $2 billion worth of debt with the US Securities and Exchange Commission (SEC). Panama said it planned to issue the securities to raise money for general refinancing and other spending needs. The 'shelf registration' allowed Panama to sell securities in one or more offerings, determining details such as size and price at the time of sale.

Full Steam Ahead