2013 Index of Economic Freedom

Panama

overall score62.5
world rank71
Rule of Law

Property Rights30.0

Freedom From Corruption33.0

Limited Government

Government Spending77.8

Fiscal Freedom86.2

Regulatory Efficiency

Business Freedom72.5

Labor Freedom40.1

Monetary Freedom75.9

Open Markets

Trade Freedom74.8

Investment Freedom65.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 3.6 million
  • GDP (PPP):
    • $50.6 billion
    • 10.6% growth
    • 8.8% 5-year compound annual growth
    • $14,097 per capita
  • Unemployment:
    • 4.5%
  • Inflation (CPI):
    • 5.9%
  • FDI Inflow:
    • $2.8 billion
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Panama’s economic freedom score is 62.5, making its economy the 71st freest in the 2013 Index. Its score is 2.7 points worse than last year due to substantial deteriorations in six of the 10 economic freedoms including property rights and control of government spending. Panama is ranked 13th out of 29 countries in the South and Central America/Caribbean region, and its overall score is above the world and regional averages.

Registering the fifth largest score decline in the 2013 Index, Panama’s overall economic freedom has been undercut by institutional shortcomings that weaken the rule of law and undermine prospects for dynamic long-term economic expansion. Anti-corruption laws seem to have little impact, and the judicial system remains vulnerable to political interference.

In other areas, however, the competitiveness of the economy is sustained by a continued high degree of openness to global commerce. Previous pro-growth reforms, including a simplified business start-up process and the reduced corporate tax rate, have enhanced the commercial environment and contributed to solid economic expansion over the past five years. The service-oriented economy continues to be a vibrant international business and banking hub.

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Background

Since the opening of the Panama Canal in 1914, Panama has been a strategic hub for commerce and security in the Americas. President Ricardo Martinelli of the center-right Democratic Change party has used pro-business, pro-growth rhetoric but is fond of big government projects. He has drawn intense criticism for his caudillo style, his disregard for the rule of law, and his attempt in 2012 to pack the high court. Banking and services account for 80 percent of jobs in the formal economy. Panama now has sole responsibility for operating the canal and has developed former U.S. bases for commercial and tourism usage. The U.S.–Panama Trade Promotion Agreement, approved by the U.S. Congress in 2011, is expected to encourage further economic growth and development. Panama works closely with the U.S. in counternarcotics.

Rule of LawView Methodology

Property Rights 30.0 Create a Graph using this measurement

Freedom From Corruption 33.0 Create a Graph using this measurement

The rule of law has been weakened by increasing politicization of the judiciary. The court system remains inefficient, with severe backlogs and weak capacity to resolve contractual disputes. Public perception of public-sector corruption has been growing. The president’s closest adviser was forced to resign in 2012 after being implicated in a corrupt land titling deal involving the expropriation of beachfront property without compensation.

Limited GovernmentView Methodology

The top income and corporate tax rates are 25 percent. Other taxes include a value-added tax (VAT) and a capital gains tax. The overall tax burden equals 11.4 percent of total domestic income. Government spending is equivalent to 27.2 percent of GDP. The budget deficit has widened, although public debt has been below 40 percent of GDP. Despite poor tax collection in certain areas, fiscal health remains bolstered by a growing financial sector.

Regulatory EfficiencyView Methodology

Earlier reforms have enhanced the regulatory framework, but the pace of reform has slowed in comparison to other emerging economies. With no minimum capital requirements, starting a business takes six procedures. However, licensing requirements continue to be time-consuming and costly. The labor market lacks flexibility, and the non-salary cost of hiring a worker is relatively high. Monetary stability has been fairly well maintained.

Open MarketsView Methodology

The trade-weighted average tariff rate is 7.6 percent, and there are few non-tariff barriers to add to the cost of trade. Foreign investment is officially welcome and subject to national treatment, but there are sector-wide restrictions. The investment regime is not particularly conducive to spurring growth in new investment. The financial sector, vibrant and generally well regulated, provides a wide range of services. Banking continues to expand.

Country's Score Over Time

Bar Graph of Panama  Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Panama  to other economic country groups

Regional Ranking

rank country overall change
1Chile790.7
2Saint Lucia70.4-0.9
3The Bahamas70.12.1
4Uruguay 69.7-0.2
5Colombia69.61.6
6Barbados69.30.3
7Peru68.2-0.5
8Costa Rica 67-1.0
9Jamaica 66.81.7
10El Salvador 66.7-2.0
11Saint Vincent and the Grenadines66.70.2
12Dominica63.92.3
13Panama 62.5-2.7
14Trinidad and Tobago62.3-2.1
15Paraguay 61.1-0.7
16Guatemala 60-0.9
17Dominican Republic59.7-0.5
18Honduras 58.4-0.4
19Brazil57.7-0.2
20Belize57.3-4.6
21Nicaragua 56.6-1.3
22Guyana53.82.5
23Suriname52-0.6
24Haiti48.1-2.6
25Bolivia47.9-2.3
26Ecuador46.9-1.4
27Argentina46.7-1.3
28Venezuela 36.1-2.0
29Cuba28.50.2
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