2014 Index of Economic Freedom

Panama

overall score63.4
world rank71
Rule of Law

Property Rights30.0

Freedom From Corruption34.0

Limited Government

Government Spending78.7

Fiscal Freedom84.3

Regulatory Efficiency

Business Freedom73.0

Labor Freedom39.4

Monetary Freedom75.1

Open Markets

Trade Freedom74.2

Investment Freedom75.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 3.7 million
  • GDP (PPP):
    • $57.1 billion
    • 10.7% growth
    • 8.6% 5-year compound annual growth
    • $15,617 per capita
  • Unemployment:
    • 4.2%
  • Inflation (CPI):
    • 5.7%
  • FDI Inflow:
    • $3.0 billion
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Panama’s economic freedom score is 63.4, making its economy the 71st freest in the 2014 Index. Its score is 0.9 point better than last year, reflecting improvements in investment freedom, freedom from corruption, and the control of government spending that outweigh small declines in fiscal freedom and three other freedoms. Panama is ranked 13th out of 29 countries in the South and Central America/Caribbean region, and its overall score is above the world average.

Over the 20-year history of the Index, Panama’s economic freedom score has dropped by about 8 points, one of the 10 largest declines measured. Modest gains in four of the 10 economic freedoms, including fiscal freedom, trade freedom, and investment freedom, have been overwhelmed by declines, particularly in the rule of law as measured by property rights and freedom from corruption. Panama’s economy, once rated “mostly free,” is now rated “moderately free.”

Panama has been generally well integrated into the global marketplace as an international business and banking hub, but its overall progress has been uneven. Anti-corruption laws seem to have little impact, and the judicial system remains vulnerable to political interference.

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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. Panama now has sole responsibility for operating the canal and plans to double its capacity by 2015. President Ricardo Martinelli of the center-right Democratic Change party employs pro-business, pro-growth rhetoric but is fond of big government projects. His authoritarian style, disregard for the rule of law, and attempt to pack the high court in 2012 have drawn intense criticism. There has been high growth due to successful transportation facilities and infrastructure development, and banking and services account for 80 percent of jobs. The U.S.–Panama Trade Promotion Agreement was approved by the U.S. Congress in 2011.

Rule of LawView Methodology

Property Rights 30.0 Create a Graph using this measurement

Freedom From Corruption 34.0 Create a Graph using this measurement

Corruption remains widespread, and the fight against it is hampered by the government’s refusal to dismantle Panama’s dictatorship-era libel and contempt laws. The judicial system remains overburdened, inefficient, politicized, and prone to corruption. Its capacity to resolve contractual and property disputes is weak. The majority of land in Panama, and almost all land outside of Panama City, is not titled.

Limited GovernmentView Methodology

The top individual 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 is 17.8 percent of gross domestic income. Public expenditures equal 26.6 percent of GDP. Government debt is equivalent to about 39 percent of the gross domestic economy.

Regulatory EfficiencyView Methodology

Starting a business takes five procedures, and no minimum capital is required, but 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. The government maintains price ceilings for gasoline and diesel and has extensive subsidy programs for electricity, housing, and cooking fuel.

Open MarketsView Methodology

The average tariff rate is 7.9 percent, but non-tariff barriers are not a significant impediment to trade. Foreign investment in some sectors is restricted by the state. As a regional financial hub, the financial sector provides a wide range of services, and the banking sector has been stable. Foreign and domestic banks are treated equally. Capital markets are relatively sophisticated, although the stock market trades primarily in government debt.

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
1Chile78.7-0.3
2Saint Lucia70.70.3
3Colombia70.71.1
4The Bahamas69.8-0.3
5Uruguay 69.3-0.4
6Barbados68.3-1.0
7Peru67.4-0.8
8Saint Vincent and the Grenadines670.3
9Costa Rica 66.9-0.1
10Jamaica 66.7-0.1
11El Salvador 66.2-0.5
12Dominica65.21.3
13Panama 63.40.9
14Trinidad and Tobago62.70.4
15Paraguay 620.9
16Dominican Republic61.31.6
17Guatemala 61.21.2
18Nicaragua 58.41.8
19Honduras 57.1-1.3
20Brazil56.9-0.8
21Belize56.7-0.6
22Guyana55.71.9
23Suriname54.22.2
24Haiti48.90.8
25Bolivia48.40.5
26Ecuador481.1
27Argentina44.6-2.1
28Venezuela 36.30.2
29Cuba28.70.2
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