Scotsman Guide > Commercial > May 2018 > Department

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Commercial Department: Beyond Our Borders: May 2018

 

Beyond Our Borders

Panama boasts one of the fastest-growing economies in Latin America. The challenge for the country in the near future is ensuring the benefits of its growing economy trickle down to its most impoverished citizens, particularly its struggling indigenous population.

The country is famous for its namesake canal, which connects the Atlantic and Pacific oceans and facilitates global maritime trade. Work began in 2007 on an ambitious $5.3 billion effort to expand the canal.

The project was completed in 2016. In the first full year after the expansion, the canal recorded more than 22 percent growth in cargo volume over the previous year — facilitating a record-setting 400 million tons of cargo shipments, according to a report from real estate research company JLL.

The foundation of Panama’s economy is its services sector, which accounts for more than three-quarters of its gross domestic product (GDP), according to the CIA World Factbook. Included in the services sector are the operation of the Panama Canal, logistics, banking, insurance, container ports, flagship registry and tourism, according to the CIA.

The country’s GDP grew 4.9 percent year over year in fourth-quarter 2017, bringing the annual growth rate for 2017 to 5.4 percent, up from 5 percent in 2016, according to Reuters. The government forecasts 5.6 percent annual GDP growth in 2018.

The office market in Panama is one of the most oversupplied in the world, with a vacancy rate of more than 40 percent, according to JLL. Because of favorable tax laws, Panama was seen as an attractive location for real estate investment during the global financial crisis, which led to overbuilding.

Panama’s deficits have risen in the wake of high levels of infrastructure spending, however, according to the JLL report. In 2016, its fiscal and current-account deficits rose to 4 percent and 5.7 percent of GDP, respectively, the JLL report stated.

Panama’s public debt exceeded $37 billion in 2016. Revenue from the canal helped reduce the budget deficit to 1.4 percent of GDP in 2017, according to JLL, but the current account balance remains high. The country has taken measures to alleviate its debt, including scaling back energy subsidies. These efforts have caused inflation to tick up from last year.

Poverty remains a challenge in the country. Although Panama has made great strides in reducing poverty, rural and indigenous areas still struggle, according to the World Bank. Indigenous territories lack essential services like access to water and sanitation.

Panama also faces political struggles that could impact its economy. The country, for example, has taken steps to tighten its financial regulations in the wake of the Panama Papers — documents leaked from a Panama law firm showing how politicians, celebrities and billionaires used offshore accounts to evade taxes and even launder money.


 

Steven Wyble is the former online content editor of Scotsman Guide Media. For questions about this article, call (800) 297-6061 or articles@scotsmanguide.com.

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