Panama's Economic Outlook: Growth, Challenges, and Strategic Planning for 2025

Panama has made significant strides in economic recovery, but challenges remain as the country aims to regain pre-pandemic growth levels. Insights from recent reports and government strategies reveal a complex picture of resilience, potential, and pressing needs for reform.

Foreign Investment on the Rise, but Below Peak Levels

Between January and September 2024, Panama attracted $2.337 billion in Foreign Direct Investment (FDI), a remarkable 69.7% increase compared to the same period in 2023. This growth is largely driven by reinvested earnings, accounting for $1.48 billion, with key contributions from general license banks and corporate sectors.

Despite this progress, FDI levels remain significantly lower than pre-pandemic figures. In 2019, FDI reached $4.735 billion during the same period—nearly double the current amount. The economic contraction during the COVID-19 pandemic, which saw Panama's GDP shrink by 17.9% in 2020, disrupted this crucial investment channel. While recovery is underway, the road back to previous highs requires sustained efforts to bolster investor confidence and attract capital.

Projections and Key Challenges for 2025

Looking ahead, Panama’s economic growth is projected to range between 2% and 5% in 2025, with institutions like Moody’s, JP Morgan, and the International Monetary Fund offering varied forecasts. The Ministry of Economy and Finance (MEF) anticipates a real GDP growth of 4%.

Key factors influencing these projections include:

• Social Security Reforms: Addressing the fiscal sustainability of the Social Security Fund (CSS) remains a critical issue.
• Cobre Panamá Mine: Decisions regarding this major asset in Colón province will significantly impact economic outcomes.
• Fiscal Consolidation: With deficits expected to surpass fiscal responsibility limits, the government faces pressure to balance growth with financial discipline.

The Strategic Government Plan 2025-2029

In December 2024, the MEF unveiled the Strategic Government Plan (PEG) 2025-2029, a comprehensive framework designed to propel Panama toward inclusive and sustainable growth. Key highlights include:

• Economic Sector Growth: Strengthening logistics, tourism, agriculture, and financial services while promoting exports and attracting foreign investment.
• Equitable Opportunities: Expanding access to quality education and healthcare, particularly in underserved regions.
• Institutional Strengthening: Enhancing transparency, accountability, and governance efficiency to rebuild public trust.
• Environmental Sustainability: Emphasizing responsible natural resource management and climate resilience.

The plan also incorporates an ambitious public investment program, including major infrastructure projects such as the fourth bridge over the Canal, the San Miguelito cable car, new hospitals, and expanded potable water systems. These initiatives aim to stimulate local consumption, create jobs, and position Panama as a regional economic leader.

What's next..

While Panama's economy shows promising signs of recovery and future growth, achieving its full potential will depend on addressing structural challenges and implementing strategic reforms. The government’s PEG 2025-2029 reflects a commitment to fostering inclusive growth, strengthening institutions, and promoting sustainability.

Panama's unique position as a logistical and financial hub continues to attract international attention. By leveraging its strengths and addressing key challenges, the country is well-positioned to secure long-term prosperity for its citizens and solidify its role as a leading economic player in the region.