Introduction
This report examines Panama’s economic, social, political, environmental, and business contexts. Given our project's focus on the Guna people, it emphasizes urban-rural differences and highlights challenges faced by comarcas, or Indigenous communities, stressing the need for a holistic approach to address intersecting issues. We consistently observe that Panama struggles to balance its climate, development, and economic goals while controlling spending.
Economic Conditions
· National Economy: Between the early 2000s and 2019, investments boosted Panama’s GDP to $69.78 billion (Panama: Selected Issues, 2023), but the COVID-19 pandemic caused a drop to $57.06 billion in 2020 (World Bank Development Indicators). GDP rebounded to $83.32 billion in 2023, yet economic concerns persist with the closure of the Cobre Panama copper mine, which previously contributed 4.8% of GDP and 2% of employment. The IMF projected a 2.5% GDP slowdown in 2024, with tax revenue and social security losses of $375 million and $120 million, respectively (IMF Press Release No. 24/244; IMF Article IV). Such losses in GDP and tax revenue will continue to hurt Panama’s ability to balance its budget and provide social services to its citizens.
· Rural Economy: Despite being the fastest growing economy in Latin America, most key industries and most jobs are centered in the urban areas surrounding the Panama Canal corridor (World Bank Climate Risk Country Profile, 2024). Because of this concentration, formal employment in rural areas is low, and the poverty rate in comarcas remains high at 79.6% compared to the national average of 20.7% (IMF Article 4; IMF Staff Country Reports, 2020). Comarcas need social investments in education and job training for long-term stability, but Panama’s economic turmoil may hinder progress.
Social and Political Considerations
· Social Equality and Wealth Distribution: Panama has made significant social progress since the end of the 20th century. For example, lower secondary education completion rising from 45% in 1990 to 66.6% in 2021 (World Development Indicators). As for wealth distribution, its GINI Index improved from 58.6 in 1989 to 48.9 in 2023. While the UN SDGs considers Panama on track to reduce poverty, disparities in clean water, electricity, sanitation, and literacy persist in comarcas, especially post-COVID-19 (IMF Article IV). To alleviate systemic poverty and invest in social safety nets within comarcas, various policy efforts have been announced (i.e. the 2018 Comprehensive Development Plan for Indigenous Peoples in Panama), however, gaps between urban and rural outcomes persist across multiple indicators, reflecting the need to reevaluate how best to tackle these disparities.
· Political Corruption: Panama ranks low in corruption control and rule of law (28.30 and 40.09 percentiles in 2023) (World Governance Indicators). As a reference point, the United States ranked 83.02 and 88.679. While such low scores should have a business-dampening effect, FDI inflows across key sectors remain strong (IMF Article IV). Research suggests enterprises experienced in corruption may have a competitive advantage, explaining steady FDI growth despite governance issues (Thede et al, 2023). Those without such experience should take extreme care in understanding this interplay before starting any new business relationships in Panama.
Climate and Environmental Context
· Climate Change Readiness: Panama has experienced rising climate-related disasters, with 32 incidents from 1982-2008 causing $86 million in damages and 33 more occurring between 2008-2020 (World Bank Climate Knowledge Portal). Floods account for 58.18% of these events, threatening urban infrastructure and economic stability (World Bank Climate Risk Country Profile, 2024). Since joining the NDC Partnership in 2016, Panama has sought support in creating effective climate change policies, yet its latest NDC lacks significant adaptation goals (World Resources Institute, 2024), raising concerns about its commitment to tackling these issues. If Panama does not adequately finance and legislate climate change solutions now, it will continue to face higher costs in damages, threatening its ability to meet its fiscal promises and development goals.
· Considerations for Indigenous Areas: Many comarcas are isolated in flood-prone areas and are at an increased risk of being impacted by disasters. Panama responded to these concerns by initiating its first climate-related relocation of the Guna people living on a small island onto the mainland (Bower, 2024). While this move was largely celebrated, critics question the socioeconomic welfare and living conditions of those living in the new community (Escalante, 2024). Without addressing these concerns, comarcas face the possibility of paying the largest price for the Panama’s inaction on climate concerns.
Business and Public Policy Backdrop
· Policy Responses to Business Concerns: Panama's weak corruption and judicial oversight rankings, along with its past inclusion on FATF’s grey list, have made it a risky business environment. Despite being removed from the grey list in 2023 after legal reforms, the 2024 closure of the Cobre Panama mine, social unrest, and a new government led its loss of investment grade status by Moody’s and S&P (U.S. Department of State, 2024). Without addressing investor concerns, Panama faces high borrowing costs and potential business losses. Increased rates and business loss would further cripple Panama’s financial sustainability and development goals, which would mostly be felt by the most marginalized groups.