The Executive Board of the International Monetary Fund (IMF) has concluded its 2025 Article IV Consultation with Panama, following discussions on the country's recent economic developments and policy direction. The Panamanian authorities have agreed to the publication of the IMF Staff Report related to this consultation, which will be available on the IMF's website.
Panama experienced a slowdown in GDP growth from 7.3 percent in 2023 to 2.9 percent in 2024, primarily due to the closure of the Cobre Panamá copper mine. This mine contributed about 5 percent to GDP and provided approximately 2 percent of employment. The unemployment rate rose from 7.4 percent in August 2023 to 9.5 percent by October 2024. Despite these challenges, most sectors were not significantly affected, as non-mining GDP growth increased throughout 2024 thanks to continued strength in services and robust capital formation.
Following restrictions on canal transit during a drought linked to El Niño, operations at the Panama Canal returned to full capacity in September 2024. Inflation decreased sharply from its mid-2022 peak, falling to -0.7 percent year-on-year by May 2025 after reaching just 0.2 percent at end-2024.
The fiscal deficit widened notably despite corrective actions taken by the government that assumed office in July 2024; it reached 7.4 percent of GDP for 2024 compared with a revised figure of 3.9 percent for the previous year.
Looking ahead, IMF projections suggest that Panama’s economy will recover further with GDP growth expected at around 4½ percent in 2025 as impacts from the mine closure diminish. Medium-term growth is forecasted at about four percent annually—lower than pre-pandemic years due partly to reduced contributions from construction and foreign direct investment inflows.
Risks remain significant for Panama’s outlook, including potential loss of investment-grade status, delays implementing reforms, natural disasters, and global uncertainty. However, effective execution of government reforms—including ongoing mining negotiations—could improve prospects.
In their assessment, Executive Directors “welcomed that Panama’s vibrant private sector and sound economic policies have led to a rapid convergence of its income level with that of advanced economies.” They noted modest private sector imbalances and stable inflation but emphasized ongoing risks: “While welcoming the rebound in Panama’s economy from the closure of the Cobre Panamá mine, Directors considered that downside risks remain significant amid high global policy uncertainty and emphasized that being a dollarized economy adds to the importance of maintaining fiscal sustainability and financial stability.”
Directors supported government plans under revised legislation aimed at reducing fiscal deficits over time: “Directors concurred that the government’s fiscal targets embedded in the revised Social and Fiscal Responsibility Law path to reduce the non‑financial public sector fiscal deficit to 2 percent of GDP by 2029 are appropriate.” They also endorsed spending reduction efforts for meeting near-term targets while encouraging flexibility for future shocks or priorities.
On social policy adjustments: “Directors agreed that the pension reform is a welcome adjustment that addresses the financial shortfalls of the defined benefit scheme and improves Panama’s social safety net.” They added further changes may be needed for long-term sustainability.
Banking sector stability was acknowledged but improvements were urged: “Directors agreed that while the banking system remains sound, well capitalized and liquid, further improvements are needed to the bank resolution framework.” They recognized steps taken toward establishing a financial safety net and progress on anti-money laundering standards implementation.
Further attention was called for governance improvements and addressing inequality: “Directors concurred that further improvements in governance and education are important,” highlighting rural infrastructure needs relative to urban areas as well as enhanced data transparency through macro-financial statistics development.
The next Article IV consultation between IMF staff and Panamanian authorities is expected within twelve months.