Panama

Growth exposed to global trade uncertainties

In 2025, growth rebounded thanks to the dissipation of the effect of the shutdown of the Cobre Panama mine at the end of 2023 and the dynamism of the transport sector in the first half of the year. Toll revenues from the Canal increased following the lifting of transit restrictions imposed in response to the severe droughts of 2023-2024, but also due to the anticipation of US tariffs.

In 2026, Canal traffic could ease due to a slowdown in the US and high inventory levels. However, financial and commercial services serving the region, boosted by the country's strategic geographical position, will remain pillars of growth. Credit growth will remain strong amid moderate inflation. Construction will benefit from major infrastructure projects, partly financed by foreign partners, such as the extension of metro line 3 (including a tunnel under the Canal), the rehabilitation of rural roads and the construction of a fourth bridge over the Canal. In addition, in July 2025, the Panama Canal Authority announced a vast ten-year investment plan worth USD 8.5 billion, dedicated to the construction of an 80 km liquefied petroleum gas pipeline, the creation of two new port terminals and a new water reservoir on the Río Indio. Work could begin in 2027. Funding will come from internal ACP resources, public-private partnerships and multilateral concessional loans. However, a reopening of the Cobre Panama mine is unlikely. At the end of 2023, the Supreme Court ruled that the renewal of the concession signed with First Quantum Minerals (FQM) for the operation of the mine, which contributed approximately 5% of GDP and 75% of the country's goods exports, was unconstitutional. In May 2025, the authorities approved a plan authorising the mine to remain as it is, financed by the export of more than 120,000 tonnes of stored copper concentrate (USD 300 million, 0.3% of GDP). The initiative followed on from the FQM's announcement that it was suspending arbitration proceedings against Panama, paving the way for negotiations. However, the lack of political consensus and popular opposition are likely to prevent its reopening. President Mulino will seek to quell new protests, such as the massive ones in 2023, or strikes such as the one in 2025 launched by construction workers, teachers and banana workers. It paralysed 90% of construction activity, suspended public education and led to the shutdown of the US banana company Chiquita Brands. The demands focused mainly on the reform of the pension system, and also on the bilateral security cooperation agreement with the US and the possible reopening of the mine.

Public consumption will remain limited by ongoing fiscal consolidation efforts. Conversely, private consumption (expected to grow by 4% in 2026) should be stimulated by the US Federal Reserve's (Fed) return to monetary easing, as Panama's economy is dollarised. Inflation will rise slightly, but remain structurally moderate.

Fragile fiscal consolidation

In 2025, the budget deficit narrowed significantly, after widening sharply in 2024 due to exceptional factors: the settlement of payment arrears (0.8% of GDP), election-related overspending, the decline in Canal revenues due to drought (0.3% of GDP), and the loss of mining revenues following the closure of the Cobre mine.

In 2026, debt servicing will require an additional USD 2.1 billion compared to 2025, and interest payments will require an additional USD 469 million, for totals of more than USD 8 billion and USD 3.7 billion, respectively. The gross financing requirement will thus amount to 9% of GDP. Despite this growing pressure, the deficit is expected to narrow slightly on back of continued fiscal consolidation. The government is counting on improved tax collection through stronger control mechanisms, rather than the implementation of new taxes and rate increases. It will also benefit from Canal-generated revenue in the shape of royalties and dividends (17% of revenue, or 3% of GDP). Revenue is expected to grow by 14%, despite an expected 7% decline in tolls. The government will maintain strict control over operating expenditure. However, automatic increases in civil servant salaries and pension contributions will crimp flexibility. In addition, the fiscal consolidation plan could be hampered by political challenges, with the ruling Realizando Metas (RM) party holding only 15 seats (out of 71) in a fragmented National Assembly, and by popular pressure. The pension reform enacted in 2025 aimed at absorbing the system's massive deficit by replacing the intergenerational solidarity model with a defined benefits scheme that included a system of individual accounts for new contributors, triggered a national strike. The reform, which is expected to increase public revenue by one percentage point of GDP by raising employer contributions from 4.25% to 7.25%, has been denounced by trade unions as a privatisation of the social system. The government will be able to finance its budget deficit on the capital markets. Panama has favourable conditions for accessing international markets, aided by the dollarisation of its economy. Unless its sovereign rating is downgraded again by the agencies, they should improve in 2026 thanks to monetary easing in the US. Public debt, 85% of which is external and 72% of which is held by foreign commercial creditors, is expected to stabilise.

In 2026, the current account balance could further deteriorate. A reduction in global trade could hurt revenues from transit traffic through the Canal and associated re-exports. Trade in logistics services could also be affected by global trade tensions. However, the services balance benefits from a structural surplus (15.5% of GDP in 2026), mainly driven by transport and tourism. The structural trade deficit will worsen (-10% of GDP) especially as demand for imported capital goods will increase due to major infrastructure projects. The primary income deficit will continue to be fuelled by the repatriation of dividends and interest by foreign investors. Panama will remain attractive to significant FDI inflows, which will largely finance its current account deficit, particularly in the context of the Panama Canal Authority's extensive investment plan. Its position as a logistics and financial hub, and its free trade zones, are conducive to this.

Panama at the crux of Sino-American tensions

José Raúl Mulino, candidate for the centre-right RM party, won the single-round presidential election in May 2024 with 34% of the vote, beating his main rival by ten points. However, he does not hold a majority in the National Assembly, which is highly fragmented and marked by the rise of independent and anti-establishment forces. In 2026, Mulino will have to continue battling against the other parties, on top of a turbulent public opinion. In particular, he will have to satisfy US demands but still preserve Panama's sovereignty in order to avoid fuelling popular discontent. Protests erupted in 2025 after the signing of a security agreement with Washington and a complaint of unconstitutionality was filed with the Supreme Court. The agreement, valid and renewable for three years, authorises the deployment of US troops around the Canal and provides access to three strategic facilities. The accord reflects the US’ growing influence, marked by increased pressure on sovereignty around the Canal, the presence of Chinese companies in the Panamanian economy and migration control. The agreement on the deportation of undocumented migrants from the US gives the latter greater power. The US authorities reserve the right to deport to Panama all migrants from countries in South America or other continents as they are deemed to have passed through the Darién Gap, located on the border with Colombia.

Panama also finds itself at the crux of Sino-American tensions. The country is moving closer to the White House, as evidenced by its decision not to renew its membership in China's Belt and Road Initiative and by the US’ announcement that it will replace Chinese telecommunications equipment at thirteen Panamanian sites. Nevertheless, Panama does not wish to upset Beijing. The main sticking point lies in the negotiations on the sale of the port activities of Hong Kong conglomerate CK Hutchinson to a consortium led by US asset manager BlackRock for USD 22.8 billion. The deal involves a network of 43 ports around the world, including the Balboa and Cristóbal terminals at either end of the Canal, operated by its subsidiary Panama Ports Company. Talks have been delayed under pressure from Beijing, and BlackRock's exclusivity period has expired. At the end of July 2025, CK Hutchinson announced its intention to bring a Chinese strategic investor into the consortium in order to preserve the country's influence. At the same time, under pressure from Washington, the Panamanian Supreme Court is examining the constitutionality of the concession renewal with the Hong Kong conglomerate, which could be cancelled or revised. In July 2025, Mulino also raised the possibility of a public-private partnership for the management of the port terminals.

Last updated:August 2025