Following an especially difficult 2023, the landscape is starker.

A new concession granted to Minera Panamá, the country’s largest exporter, to operate one of the world’s largest copper mines, which is responsible for an estimated 5% of Panama’s GDP, was declared unconstitutional. Social conflict that erupted the previous year, mainly over the Minera Panamá contract, reignited and ended in nationwide protests, sector-wide strikes, and violence.

The scale of the task the new government faces was apparent after an Economics and Finance Ministry transition meeting on June 12. Speaking to reporters, Mulino said, “All the figures are in the red.”

Fitch downgraded Panama’s sovereign rating to BBB– with a negative outlook (below investment grade) in March; Assessments from Moody’s and Standard & Poor’s are expected in the second half of this year.

“The situation is complicated because we are not coming from a time of great growth,” says René Quevedo, a business integration expert and consultant. “We must show a good face to bad weather.” Attacking legal uncertainty, sluggish job creation, and teetering international confidence will be key, he argues.

Panama can still rely on the canal, a beneficial geographic position as a global trade nexus, decades of experience as a logistics hub, and a high-tech banking system. The Panama Canal Authority (ACP) expects to return to the previous norm of 38 ship passages a day by 2025, which was halved during the 2023 drought.

Sound Banking And A Plethora Of Projects

Panama’s banking system remains an attractive proposition for potential investors. The country maintains a dollarized economy, with the balboa tied to the dollar at a one-to-one ratio.

That does not mean there are no clouds overhead. In its June Article IV conclusion statement, the International Monetary Fund stated, “With no lender of last resort and deposit insurance, it is imperative that the banking system remains well-capitalized and liquid. The Panamanian banking system appears broadly resilient against severe downturn scenarios, but risks have increased amidst higher interest rates and a slowing economy.”

Currently, Panama is home to 55 banks: two state-owned, 40 domestic, 13 international, and 10 bank representational offices. The state-owned Banco Nacional de Panamá carries out some central bank roles as well as offering commercial services. Overall, they present a healthy picture.

“Panama has a capital adequacy ratio regulation of 8%; it is currently 15%,” notes Patricio Mosquera, head of the Financial Studies Department at the Superintendencia de Bancos de Panamá (SBP). “Settlement levels are well above what is required, too; 30% is the standard, but currently we are around 58% to 60%. This means that the banks are well-capitalized, well-regulated, and have sufficient liquidity both for operational issues and additionally for the issue of regulatory equations.”

Along with a solid banking sector, Panama is pinning its hopes on an array of development and industrial projects now either underway, or soon to be.

Many of these medium-term projects have an environmental, social, and governance element, given the impact of the drought on the canal and the effects of climate change. News of compliance with international backers on Panama’s ability to issue green bonds is expected in early July. Along with Bhutan and Suriname, Panama is one of three countries that describes its emissions as “carbon negative.” In April 2024, Panama issued their first blue bonds for $50 million backed by Ecuador’s Banco de Austro.

Latinex, the Panamanian stock market linked with El Salvador and Nicaragua, expects to issue the first joint Caribbean and Central American blue bond this year. Panama’s Ministry of Environment—MiAmbiente—is also working with Latinex on the nation’s Voluntary Carbon Market.

Funded by $11.5 million in government investments, the Panama Digital Gateway data center opened in June 2023; it is one of two free tech zones, Tech Valley Free Zone being the other, that the state is hoping will ultimately attract 620 companies that will add to the more than 2,000 businesses in the country’s more than 20 other free trade zones.

“The free zones are supervised as a non-financial sector,” Mosqueda notes. “They have had a very positive performance. The Colón free zone has had significant growth, exceeding 20% annually.”

Along with Costa Rica, the US selected Panama for a semiconductor partnership worth up to $500 million in July 2023, a product of the 2022 US CHIPS and Science Act, which aims to boost global manufacturing and research.

“There has not been a company that requested the subsidy from the American government to finance the establishment of semiconductor facilities and plants,” says Quevedo. “Perhaps that could be a first?”

In May, Ansberto Cedeño, associate professor of Computer Science at Florida State University’s Panama campus, estimated that semiconductors could add $7 billion to Panama’s economy by 2029.

Keeping Growth Going

All told, Panama is home to some 199 multinational companies as well as several multilateral institutions. Part of the attraction is the Sede de Empresa Multinacional (SEM), a 2007 initiative aimed at attracting administrative operations such as payroll and accounting. In August 2020, this was complemented by Empresas Multinacionales Para La Prestación De Servicios Relacionados Con La Manufactura (EMMA), which seeks to attract FDI in manufacturing, maintenance and repair. Companies that are licensed under SEM automatically qualify for EMMA.

CAF—the Development Bank of Latin America and the Caribbean—chose Panama for its regional headquarters in  2023; over the next five years, it plans to invest at least $2.5 billion in the country.