Panama’s strategic location between two oceans and the engineering marvel of its canal defines this Central American country’s place in the world.

The transit of thousands of ships through this waterway is the country's main engine for economic growth.

President Ricardo Martinelli was sworn-in for a five-year term on July 1, 2009, backed by an unprecedented 60 percent election victory. The Martinelli administration took office with a strong mandate for change, an ambitious investment agenda and a battle against insecurity and corruption.

The Government has committed to address key development challenges including bottlenecks to growth as well as expanding economic opportunities for the poor. Martinelli’s administration is looking toward leveraging private sector economic development with public investment to assist with some of the country’s most difficult challenges and to improve Panama’s competitive advantages (logistics, tourism, and agriculture).

The Martinelli administration has launched initiatives such as “Las metas imperdonables” (“goals to be met with no excuses”), a number of objectives linked to the Presidential Agenda that include high profile infrastructure projects and social programs with tangible public targets.

The Government has also followed up on the implementation of the “Acuerdos de la Concertación Nacional para el Desarrollo – ACND”, agreements that identified long term strategic goals to transform Panama into a more democratic, equal, prosperous, dynamic and regionally balanced society.

Among the challenges the Government needs to address are social inequality and the country’s reputation as a major transit point for US-bound drugs and illegal immigrants, as well as a haven for money-laundering.

ECONOMY:

 

In recent years Panama’s economy has experienced a boom, with growth in real gross domestic product (GDP) averaging over 8 percent from 2006-2010. The Panamanian economy has been among the fastest growing and best managed in Latin America.

Like most countries in the region, Panama felt the impact of the global financial crisis, with a 2.4 percent growth registered in 2009 in comparison to 10.7 percent in 2008. However, in 2010 the economy resumed its growth rate, registering an increase of 4.5 percent, and it is forecasted to grow 7.4 percent in 2011.

The Panama Canal expansion project and a number of mega-projects are expected to boost and extend economic expansion for some time. This presents an historic opportunity to make progress in reducing persistent poverty and inequality.

Despite Panama’s superb growth performance, the country has not been able to exhibit a corresponding progress in poverty and extreme poverty reduction, and still over one-third of Panama’s population lives in poverty and around 15 percent in extreme poverty.

Compared to the rest of Latin America, Panama has actually underperformed in alleviating destitution. The region grew at a slower pace between 1990 and 2009, but was able to reduce poverty and extreme poverty by 28 and 41 percent, respectively. In contrast, Panama has only experienced drops of 13 and 25 percent in poverty and extreme poverty.

Challenges

Developing a more effective and pro-poor social protection system will be crucial to accelerating poverty reduction in Panama. In order to broaden the base of potential beneficiaries, the country needs to further increase private sector competitiveness and improve access to education and health. In addition, greater focus on developing skills and stimulating innovation will be needed.

The challenges of reaching Panama’s poorest, however, go deeper. Indigenous communities living in isolated areas are disproportionately more impoverished than the average Panamanian.

Around 96 percent of the indigenous population lives in poverty, while more than 84 percent lives in extreme poverty.

To address these challenges, Panama has introduced various programs to reduce poverty and increase access to services. The Red de Oportunidades conditional cash transfer program, for instance, provides US$50 to the poorest mothers so that their children can go to school and receive basic health and nutrition services.

The Martinelli administration has maintained support to these social programs as well as providing the public investment needed for greater employment and human development opportunities outside the traditional urban areas. The administration has also committed additional resources to social protection programs, such as “100 a los 70” that provides US$100 for retirees 70 years or older not covered by pension programs and a “Beca Universal” program that grants an annual US$180 scholarship to primary and secondary students enrolled in public schools as well as for eligible students in private schools with an annual fee not exceeding US$1,000.

The Bank and the Government of Panama developed the Country Partnership Strategy (CPS) (FY2011-FY14), which aims to increase the Bank’s involvement in Panama and strengthen the World Bank-Panama partnership.

This Country Partnership Strategy is characterized by a results oriented approach and is built around three pillars aimed to support Panama in confronting its development challenges:

i) Economic growth that builds on the country’s competitive advantages,
ii) Providing greater opportunities for all, and
iii) Transparent and efficient public sector that provides returns to society.

The third pillar is cross-cutting and helps support growth and provide for a more efficient and effective public sector..

In total, the Bank’s portfolio in Panama includes seven projects focused on health, social protection, rural development, environment, infrastructure and efficiency in the public sector, for US$330.4 million. Another project financed by a US$ 6 million grant for rural productivity and environmental conservation complements these investment transactions. Active projects include:

The Health Equity and Performance Improvement Project, which aims to increase access of rural communities to quality basic health services known to improve maternal and child health and to increase the capacity of primary health care networks to respond to service demand by poor and indigenous rural communities. So far, more than 200,000 people in rural areas have received health services from this project.

The objective of the Water Supply and Sanitation in Low-Income Communities Project is to increase access to sustainable water supply and sanitation services for communities in rural and poor urban areas. To date, access to water supply and sanitation services has been improved for more than 20,000 beneficiaries in rural communities.

Also, four new operations are expected to begin implementation shortly: the Enhanced Public Sector Efficiency Technical Assistance Loan, to assist public agencies in producing, using and disseminating information for a more efficient and transparent use of public funds; the Fiscal Management and Efficiency of Expenditures Development Policy Loan, to help the country consolidate the economy’s strong growth, improve tax collection, and expand key social programs; the Disaster Risk Management Development Policy Loan with a CAT DDO, to enhance Panama’s capacity to implement its Disaster Risk Management Program and provide immediate liquidity in case of a catastrophic disaster; and the  Metro Water and Sanitation Improvement Project, to increase the quality, coverage and efficiency of water supply and sanitation services in low-income neighborhoods of the Panama Metropolitan Region.

The IFC’s role in the Canal Expansion Project (see: Multilaterals Lend US$2.3 Billion for Panama Canal ) is consistent with one of IFC's strategic priorities in Central America -helping develop physical infrastructure to improve competitiveness and regional integration.

Since 2004, the partnership between the Bank and the Government of Panama has strengthened. Successful implementation of the Interim Strategy Note (ISN) for the period 2005-2007, the Country Partnership Strategy for 2008-2010, and the current CPS (2011-14) has delivered key results:

The Government launched the Red de Oportunidades program in March 2006 and the Bank provided financial backing for the initiative through the Social Protection Project, which covered around 11 percent of the population and exceeded the original target of 60,000 poor households with children. Currently, over 70,000 families benefit from this program. The Health Equity and Performance Improvement Project and the Basic Education Quality Improvement Project were also critical in helping to design and establish systems to effectively target and monitor the CCT program.

The Rural Productivity Project supplied US$39.4 million to conserve globally important biodiversity and protected forest, mountain, coastal and marine ecosystems in Panama. Another result from this operation was tangible progress in the reform of land administration. Half the country was photographed, 51,876 parcels were surveyed and 12,422 titles were issued in the provinces of Chiriquí, Veraguas, and Bocas del Toro.

Also, the Bank provided additional financing to two successful projects –Basic Education (US$5.4 million) and Public Policy Reform Technical Assistance Project ($6 million)– to scale-up activities and thus enhance their impact. In education, the preschool coverage of 4-5 year-old children increased to 61 percent in 2007 from 31 percent in 2001, while the enrollment of these children increased to 92,900 in the same period from 55,369. During 2000-2007, net enrolment in secondary school also increased to 64.6 percent from 58.5 percent. .

For more projects results, see Panama: Creating Greater Opportunities for All 

Meilyn Gem
World Bank Office in Panama
Tel: (507) 831-2000
email: mgem@worldbank.org