Panama's economy is based primarily on the tourism and services sector, which represents almost 80% of its GDP and accounts for the majority of its foreign income. Panama is a small country of about 4.4 million people. It has benefited from steady economic growth, but poverty and income inequality have been persistent and have disproportionately affected rural indigenous territories and Afro-Panamanian populations. It should be noted that the increase of protected land from 33% to 54% and strong ocean conservation efforts have made Panama one of the only three countries in the world with negative carbon emissions.
This nine-mile waterway is one of the man-made wonders of the world and the main reason for Panama's strategic importance in world trade. Panama's economy is tied to the dollar and the service industry is the largest in the country, accounting for 66% of Panama's GDP and employing 67.9% of the workforce. Panama produces mainly bananas and different varieties of vegetables, corn, sugar cane, rice, coffee, watermelons, cacao beans, pineapples, potatoes, coconuts, soybeans, wood, milk, cattle and shrimp. Fiscal policy is expected to comply with Panama's law on social and fiscal responsibility, although incoming authorities will need to enact measures to address fiscal risks stemming from imbalances in Canal and mining income and pensions, in addition to potential impacts of climate change.
With the objective of being removed from the Organization for Economic Development's gray list of tax havens, Panama has also recently signed several double taxation treaties with other nations. Panama's dollarized economy is based primarily on a well-developed service sector that represents three-quarters of GDP. With a stable macroeconomic environment, Panama is likely to need additional fiscal reforms in the medium term. Panama's economy is small, very open, highly diversified, dollar driven and highly competitive by regional standards. The project will open the waterway to a series of new vessels that have been called the “Post-Panamax” size because they are too large to pass through the current canal system.
Services include the operation of the Panama Canal, banking, the Colon Free Zone, insurance, container ports, flagship registration and tourism. Although the pandemic has had a significant impact on the Panamanian economy, the fiscal measures implemented by the government have been effective in boosting economic activity, which has been gradually recovering. Strong economic performance has not translated into broadly shared prosperity, as Panama has the second worst income distribution in Latin America. Transportation is the most important sector of the service industry, since it comprises the Panama Canal, the government's main source of revenue.
