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Mining industry

Panama's Economy Faces Challenges Amidst Recovery

Strategic Insights

— 2 min read

The International Monetary Fund (IMF) has published a staff report after completing the Article IV Consultation for Panama. The country's GDP growth slowed down due to the closure of the Cobre Panama copper mine, which directly and indirectly accounted for around 5% of GDP and 2% of employment. However, non-mining GDP growth accelerated in 2024 as the services sector continued its post-pandemic boom. Inflation has declined sharply, reaching 0.2% year-on-year at end-2024 and turning negative in May 2025. The 2024 fiscal deficit reached 7.4% of GDP, up from 3.9% in 2023, despite corrective measures by the government. The economy is expected to continue its recovery, but the outlook is subject to significant downside risks and high uncertainty.

Key Takeaways:

  • The closure of the Cobre Panama copper mine led to a slowdown in GDP growth from 7.3% in 2023 to 2.9% in 2024.
  • Non-mining GDP growth accelerated in 2024 as the services sector continued its post-pandemic boom, driven by strong capital formation.
  • Inflation declined sharply to 0.2% year-on-year at end-2024 and turned negative in May 2025.
  • The 2024 fiscal deficit reached 7.4% of GDP, up from 3.9% in 2023, despite corrective measures by the government.
  • The economy is expected to continue its recovery, with GDP growth projected to increase to 4.5% in 2025 due to the impact of the mine closure dissipating.
  • Downside risks to the outlook include the loss of investment-grade status, delays in implementing the reform agenda, natural disasters, and heightened global policy uncertainty.
  • Successful implementation of the government's ambitious reform package, including ongoing mine negotiations, could bolster the outlook.
  • Executive Directors welcomed Panama's vibrant private sector and sound economic policies, but emphasized the importance of maintaining fiscal sustainability and financial stability.
  • 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% of GDP by 2029 are considered appropriate.
  • The pension reform is a welcome adjustment that addresses the financial shortfalls of the defined benefit scheme and improves Panama's social safety net.

Statistics:

  • GDP growth slowed from 7.3% in 2023 to 2.9% in 2024, mainly due to the closure of the Cobre Panama copper mine.
  • The mine directly and indirectly accounted for about 5% of GDP and 2% of employment.
  • Unemployment increased from 7.4% in August 2023 to 9.5% in October 2024.
  • Inflation declined sharply from its mid-2022 peak to 0.2% year-on-year at end-2024.
  • The 2024 fiscal deficit reached 7.4% of GDP, up from 3.9% in 2023.
  • GDP growth is projected to increase to 4.5% in 2025 as the impact of the mine closure dissipates.
  • Non-mining GDP growth is expected to decelerate due to fiscal consolidation, but overall GDP growth will increase due to base effects.
  • Over the medium term, GDP growth is projected at about 4% per annum.

Sources:

[1] International Monetary Fund. (n.d.). Country Reports: Panama. Retrieved from

[2] International Monetary Fund. (n.d.). Staff Reports: Panama. Retrieved from

[3] International Monetary Fund. (n.d.). Executive Board Assessment: Panama. Retrieved from

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