Panama Faces Economic Uncertainty: Dwindling Resources and Rising Debt

Recently, Panama has faced a number of challenges that have raised concerns about its economic future. Despite maintaining political stability and a strong economy compared to neighboring countries over the years, recent events such as widespread protests, uncertainty surrounding an upcoming presidential election, and a downgrade in credit rating by Fitch have caused concern.

In March 2010, Panama was granted an investment grade status by Fitch due to factors such as the expansion of the Panama Canal, public investment, and foreign direct investment. However, the current economic landscape is vastly different from what it was then. Fiscal deficits, governance issues, closure of a copper mine, drought affecting canal revenues, and tax underperformance have all contributed to the downgrade in credit rating.

By the end of 2023, Panama’s public debt had risen to $47.4 billion, exceeding 60 percent of GDP. Critics argue that this is due to the government’s aggressive borrowing rate under President Laurentino Cortizo’s administration that took office in July 2019. The debt-to-GDP ratio surged from 44.5% at the end of 2019 to 64.7% by the end of 2020 with borrowing being used to offset revenue declines during the pandemic.