At first glance, it would seem like a global health crisis like COVID-19 would have a dire impact on a nation like Panama. After all, the country is considerably exposed to fluctuations in global trade, and the Panama Canal constitutes a significant portion of the government’s revenues.
And yet, while Panama’s growth forecasts have been revised by institutions such as the World Bank and the IMF, Panama has proven more resilient than many economies, not only in the Latin American region, but in the world at large. While GDP growth is projected to contract slightly, the IMF expects a strong rebound in 2021.
Here a some reasons why Panama has remained resilient despite the strain that COVID-19 has placed on the world economy.
Access to Capital Markets
Panama has one of the highest rates of FDI inflows in Latin America, and the country has deep ties to international financial bodies both private and sovereign. These ties helped the country to quickly sell $2.5 billion worth of sovereign bonds last week, offering 36-year notes with a coupon of 4.5%. Orders reportedly exceeded three times the value of the bonds offered, and Credit Suisse, JP Morgan, and HSBC were bookrunners on the deal. The issuance was sold out almost immediately.
Panama will also receive a $515 million emergency loan from the IMF, through the institution’s Rapid Financing Instrument.The loan is intended to ease concerns over fiscal financing and balance of payments issues. The government has also passed legislation temporarily allowing deficit limits to be surpassed.
FDI Inflows into Panama, 2010-present (Trading Economics)
Panama’s high capacity to secure capital inflows has allowed the country to protect its small businesses and informal laborers through a series of support programs. The funds will also be used to increase liquidity in the financial sector and for tax-deferment provisions.
Panama’s use of the dollar as legal tender is a huge boon in this effort. Panama has no central bank, and regulates its money supply through the use of international financial assets by its commercial banks. This helps protect the Panamanian economy from inflation, which has been a common problem for its regional peers.
Tumbling oil prices will also be a net boost for the economy of Panama. The services sector, which is largely dedicated to transportation. It will see lower energy costs and higher margins, especially once global trading resumes on a larger scale.
Panama’s economy has taken a hit from the COVID-19 crisis – but the country’s strong fundamentals will help it regain its footing quickly, and, once the crisis is over, Panama will likely go back to being one of the fastest growing economies in the region. The country’s commendable response to the situation, combined with its strong connections to international financial bodies, foretell a promising future for Panama in the post-Corona world.
Revision of GDP Growth Forecasts (World Bank)
Strong Pre-Crisis Growth
IMF officials explained in a press briefing that, “over the last 10 years, Panama has been among the top two countries in Latin America in terms of economic growth. After a year of slow growth in 2019, due to what we consider to be transitory phenomena, we were expecting Panama to return to strong levels of growth in 2020.”
The official went on to state that although Panama is vulnerable in terms of its services and logistical sectors, the nation’s well-managed financial institutions and access to capital markets have made all the difference in mitigating the effects of the crisis. In addition, Panama’s high level of foreign direct investment has been a boon to the country during these difficult times.
Panama is a hub for regional and global logistics, due not only to the Panama Canal, but thanks to its highly developed transport services sector and modern maritime and air transport infrastructure. Numerous free trade zones have also attracted international business to the region.
These benefits have been diminished by Coronavirus, but not eliminated. Once the global economy gradually comes back online, Panama’s position as a logistical hub backed by a strong financial sector will allow the country to resume its pattern of strong growth.
Panama’s GDP in USD (2010 Constant) Source: World Bank
Decisive COVID-19 Reaction
Panama’s reaction to the global pandemic has been lauded by the international community as decisive and well-coordinated, and has helped limit not only the health impact of the virus but the economic impact as well.
One of the first countries in the region to realize the seriousness of the situation, Panama implemented a nationwide quarantine on March 25th, allowing only essential industries such as agriculture to remain operational. Panama was also the first nation to develop a digital hub for government officials to conduct state business online. And has provided citizens with access to a virtual health portal to help determine who requires treatment.
Panama’s swift reaction has garnered praise for president Laurentino Cortizo, who has been appearing on television every day to deliver updates to the Panamanian people. Often appearing in military garb, the president has outlined plans for the distribution of medical supplies and promised harsh repercussions for anyone found guilty of corruption or the embezzlement of response funds.
Panamanian President Laurentino Cortizo delivers remarks on the COVID-19 situation.
Roberto Eismann, founder of leading Panamanian newspaper La Prensa, has said that, “Panama has been ahead of the curve, taking tough decisions and for the first time in many years we can see a unity of public opinion behind the government.” Indeed, Cortizo’s popularity is at an all-time high.
Although the national lockdown policy has been strict, strategic sectors such as logistics, transport, and agriculture have remained open. Allowing the foundation of Panama’s economy to remain strong. Panama’s swift, effective response to the crisis has given the international community confidence that the nation will recover quickly.