2017 Index of Economic Freedom

Panama

overall score66.3
world rank54
Rule of Law

Property Rights61.1

Government Integrity40.9

Judicial Effectiveness21.5

Government Size

Government Spending83.1

Tax Burden85.2

Fiscal Health84.9

Regulatory Efficiency

Business Freedom74.4

Labor Freedom43.0

Monetary Freedom78.4

Open Markets

Trade Freedom77.8

Investment Freedom75.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 4.0 million
  • GDP (PPP):
    • $87.2 billion
    • 5.8% growth
    • 7.9% 5-year compound annual growth
    • $21,765 per capita
  • Unemployment:
    • 5.2%
  • Inflation (CPI):
    • 0.1%
  • FDI Inflow:
    • $5.0 billion
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Panama has been working to expand trade by exploring entry into the Pacific Alliance and negotiating a trade agreement with South Korea. Reforms such as simplification of business start-ups and reduction of the corporate tax rate have contributed to economic growth.

Following the April 2016 Panama Papers scandal, the government reaffirmed its commitment to implementing anti–money laundering reforms. Despite this, persistent corruption continues to undermine the rule of law. Although economic growth has been strong in recent years, its benefits have not been felt by the entire population. More than 25 percent of Panamanians in rural areas live in extreme poverty.

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Background

Panama’s isthmian canal in Central America connecting the Caribbean and the Pacific Ocean has been a vital conduit for global commerce since it opened in 1914. In 2016, an ambitious expansion project was completed that more than doubles the canal’s capacity. President Juan Carlos Varela began his single five-year term in 2014. His popularity has waned, however, in the wake of negative fallout from publication of the Panama Papers, sanctions by the U.S. government in May 2016 related to an extensive drug money-laundering network based in Panama, and a deadly outbreak of swine flu in June 2016. Panama’s U.S. dollar-based economy rests primarily on a well-developed services sector.

Rule of LawView Methodology

Property Rights 61.1 Create a Graph using this measurement

Government Integrity 40.9 Create a Graph using this measurement

Judicial Effectiveness 21.5 Create a Graph using this measurement

Panama’s weak capacity to resolve contractual and property disputes is illustrated by its low rating for judicial independence (119th out of 140 countries) in the World Economic Forum’s 2015–2016 Global Competitiveness Report. Corruption is widespread, especially in the security services, customs, and justice system. The Panama Papers scandal tarnished the current president politically, and his predecessor is being investigated for corruption.

Government SizeView Methodology

The top personal income and corporate tax rates are 25 percent. Other taxes include a value-added tax and a capital gains tax. The overall tax burden equals 15.2 percent of total domestic income. Government spending has amounted to 23.8 percent of total output (GDP) over the past three years, and budget deficits have averaged 2.7 percent of GDP. Public debt is equivalent to 38.8 percent of GDP.

Regulatory EfficiencyView Methodology

The overall freedom to form and operate a business is relatively well protected within an efficient regulatory environment. The labor market lacks flexibility, and the nonsalary cost of hiring a worker is relatively high. About 75 percent of subsidies to the energy sector are untargeted, and electricity subsidies have been increasing. The IMF urged Panama to end price controls on food and fuel; instead, the government extended them twice.

Open MarketsView Methodology

Trade is extremely important to Panama’s economy; the value of exports and imports taken together equals 115 percent of GDP. The average applied tariff rate is 6.1 percent. In general, the government does not screen or discriminate against foreign investment. The financial sector, vibrant and generally well regulated, provides a wide range of services. Banking continues to expand, albeit slowly.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Canada78.50.5
2Chile76.5-1.2
3United States75.1-0.3
4Colombia69.7-1.1
5Uruguay 69.70.9
6Jamaica 69.52.0
7Peru68.91.5
8Panama 66.31.5
9Saint Vincent and the Grenadines65.2-3.6
10Saint Lucia65-5.0
11Costa Rica 65-2.4
12El Salvador 64.1-1.0
13Dominica63.7-3.3
14Mexico63.6-1.6
15Guatemala 631.2
16Dominican Republic62.91.9
17Paraguay 62.40.9
18Trinidad and Tobago61.2-1.7
19The Bahamas61.1-9.8
20Nicaragua 59.20.6
21Honduras 58.81.1
22Belize58.61.2
23Guyana58.53.1
24Barbados54.5-13.8
25Brazil52.9-3.6
26Argentina50.46.6
27Haiti49.6-1.7
28Ecuador49.30.7
29Suriname48-5.8
30Bolivia47.70.3
31Cuba33.94.1
32Venezuela 27-6.7
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