2015 Index of Economic Freedom

Panama

overall score64.1
world rank68
Rule of Law

Property Rights30.0

Freedom From Corruption35.0

Limited Government

Government Spending78.8

Fiscal Freedom84.5

Regulatory Efficiency

Business Freedom71.5

Labor Freedom41.5

Monetary Freedom76.4

Open Markets

Trade Freedom78.4

Investment Freedom75.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 3.7 million
  • GDP (PPP):
    • $62.0 billion
    • 8.0% growth
    • 8.2% 5-year compound annual growth
    • $16,658 per capita
  • Unemployment:
    • 4.0%
  • Inflation (CPI):
    • 4.0%
  • FDI Inflow:
    • $4.7 billion
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Panama’s economic freedom score is 64.1, making its economy the 68th freest in the 2015 Index. Its score has increased by 0.7 point since last year, with improvements in six of the 10 economic freedoms, led by trade freedom and labor freedom, outweighing a decline in business freedom. Panama is ranked 14th out of 29 countries in the South and Central America/Caribbean region, and its overall score is above the world average.

Panama’s economic freedom has stagnated over the past five years. Large declines in property rights and the management of government spending have undercut a substantial increase in investment freedom, and Panama has dropped from 59th to 68th place in the rankings.

Development of a vibrant logistics, financial, and international business sector has been facilitated by openness to international trade and investment. The financial sector remains open to investment and has been shielded from the global financial crisis by prudent regulations. However, a rigid labor market and corruption undermine the entrepreneurial environment. Business regulations and the rule of law need to be improved to enable the non-urban population to escape from poverty.

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Background

Panama’s incumbent Vice President Juan Carlos Varela won the May 2014 presidential election and took office in July. Varela’s win was unexpected, and the ruling Panameñista Party has only 11 of the 71 seats in Congress. A week after inauguration, the center-right Varela announced price controls on 22 items in the basic food basket, generating concerns about his economic policy plans. Since the opening of the Panama Canal in 1914, Panama has been a strategic hub for commerce and security in the Americas, with transportation, services, and banking serving as the main engines of economic growth. Following a series of setbacks, the Panama Canal Authority hopes to complete its expansion by late 2015. A third set of locks will enable the canal to handle post-Panamax ships, essentially doubling its capacity.

Rule of LawView Methodology

Property Rights 30.0 Create a Graph using this measurement

Freedom From Corruption 35.0 Create a Graph using this measurement

President Juan Carlos Varela took office in July 2014, promising to fight corruption and return strength and credibility to Panama’s democracy and institutions. The judicial system remains overburdened, inefficient, politicized, and prone to corruption. Its capacity to resolve contractual and property disputes is weak. Most land in Panama (and almost all land outside of Panama City) is not titled.

Limited GovernmentView Methodology

Panama’s top individual and corporate income tax rates are 25 percent. Other taxes include a value-added tax and a capital gains tax. Overall tax revenue equals 17.4 percent of domestic income. Public expenditures are equivalent to 26.6 percent of domestic production, and public debt equals 41 percent of gross domestic product. A canal-funded sovereign wealth fund helps to support public spending.

Regulatory EfficiencyView Methodology

The overall regulatory environment is efficient, but the pace of reform has slowed in recent years. With no minimum capital requirements, starting a business takes six days and five procedures. Despite some improvement, the labor market lacks flexibility. The new president announced that one of his first orders would be to regulate prices for staple food products.

Open MarketsView Methodology

Panama’s average tariff rate is 7.6 percent, and the country is relatively open to international trade. The government generally welcomes foreign investment, but investment levels in several sectors are capped. The financial sector, vibrant and generally well-regulated as a regional financial hub, provides a wide range of financing options. Capital markets are relatively sophisticated and continue to expand.

Country's Score Over Time

Bar Graph of Panama  Economic Freedom Scores Over a Time Period

Country Comparisons

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Regional Ranking

rank country overall change
1Chile78.5-0.2
2Colombia71.71.0
3Saint Lucia70.2-0.5
4The Bahamas68.7-1.1
5Uruguay 68.6-0.7
6Saint Vincent and the Grenadines681.0
7Barbados67.9-0.4
8Peru67.70.3
9Jamaica 67.71.0
10Costa Rica 67.20.3
11Dominica66.10.9
12El Salvador 65.7-0.5
13Trinidad and Tobago64.11.4
14Panama 64.10.7
15Paraguay 61.1-0.9
16Dominican Republic61-0.3
17Guatemala 60.4-0.8
18Nicaragua 57.6-0.8
19Honduras 57.40.3
20Belize56.80.1
21Brazil56.6-0.3
22Guyana55.5-0.2
23Suriname54.20.0
24Haiti51.32.4
25Ecuador49.21.2
26Bolivia46.8-1.6
27Argentina44.1-0.5
28Venezuela 34.3-2.0
29Cuba29.60.9
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