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PANAmA

Economic Freedom Score


25
Least free 0

50

75 100 free
Most

World Rank:

71

Regional Rank:

13

62.5

economic freedom score is making its econP anamas 71st freestduethesubstantial62.5,score is 2.7 points omy the in 2013 Index. Its worse than last year to deteriorations in six

Freedom Trend
67 66 65 64 63 62 61

of the 10 economic freedoms including property rights and control of government spending. Panama is ranked 13th out of 29 countries in the South and Central America/Caribbean region, and its overall score is above the world and regional averages. Registering the fifth largest score decline in the 2013 Index, Panamas overall economic freedom has been undercut by institutional shortcomings that weaken the rule of law and undermine prospects for dynamic long-term economic expansion. Anti-corruption laws seem to have little impact, and the judicial system remains vulnerable to political interference. In other areas, however, the competitiveness of the economy is sustained by a continued high degree of openness to global commerce. Previous pro-growth reforms, including a simplified business start-up process and the reduced corporate tax rate, have enhanced the commercial environment and contributed to solid economic expansion over the past five years. The service-oriented economy continues to be a vibrant international business and banking hub. backgRound: Since the opening of the Panama Canal in 1914, Panama has been a strategic hub for commerce and security in the Americas. President Ricardo Martinelli of the center-right Democratic Change party has used pro-business, pro-growth rhetoric but is fond of big government projects. He has drawn intense criticism for his caudillo style, his disregard for the rule of law, and his attempt in 2012 to pack the high court. Banking and services account for 80 percent of jobs in the formal economy. Panama now has sole responsibility for operating the canal and has developed former U.S. bases for commercial and tourism usage. The U.S.Panama Trade Promotion Agreement, approved by the U.S. Congress in 2011, is expected to encourage further economic growth and development. Panama works closely with the U.S. in counternarcotics.
How Do We Measure Economic Freedom?

2009

2010

2011

2012

2013

Country Comparisons
Country World Average Regional Average Free Economies
0 20 40 60 80

62.5 59.6 59.4 84.5


100

Quick Facts
population: 3.6 million gdp (ppp): $50.6 billion 10.6% growth in 2011 5-year compound annual growth 8.8% $14,097 per capita unemployment: 4.5% inflation (cpi): 5.9% fdi inflow: $2.8 billion public debt: 37.8% of GDP
2011 data unless otherwise noted. Data compiled as of September 2012.

See page 477 for an explanation of the methodology or visit the Index Web site at heritage.org/index.

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PANAmA (continued)
THE TEN ECONOMIC FREEDOMS
Country World Average Rank

RULE OF LAW

Property Rights 30.0 Freedom from Corruption 33.0


0 20 40 60 80 100

94th 84th

The rule of law has been weakened by increasing politicization of the judiciary. The court system remains inefficient, with severe backlogs and weak capacity to resolve contractual disputes. Public perception of public-sector corruption has been growing. The presidents closest adviser was forced to resign in 2012 after being implicated in a corrupt land titling deal involving the expropriation of beachfront property without compensation.

LIMITED GOVERNMENT

Fiscal Freedom 86.2 Government Spending 77.8


0 20 40 60 80 100

40th 56th

The top income and corporate tax rates are 25 percent. Other taxes include a value-added tax (VAT) and a capital gains tax. The overall tax burden equals 11.4 percent of total domestic income. Government spending is equivalent to 27.2 percent of GDP. The budget deficit has widened, although public debt has been below 40 percent of GDP. Despite poor tax collection in certain areas, fiscal health remains bolstered by a growing financial sector.

REGULATORY EFFICIENCY

Business Freedom 72.5 Labor Freedom 40.1 Monetary Freedom 75.9


0 20 40 60 80 100

62nd 160th 79th

Earlier reforms have enhanced the regulatory framework, but the pace of reform has slowed in comparison to other emerging economies. With no minimum capital requirements, starting a business takes six procedures. However, licensing requirements continue to be time-consuming and costly. The labor market lacks flexibility, and the non-salary cost of hiring a worker is relatively high. Monetary stability has been fairly well maintained.

OPEN MARKETS

Trade Freedom 74.8 Investment Freedom 65.0 Financial Freedom 70.0


0 20 40 60 80 100

99th 56th 17th

The trade-weighted average tariff rate is 7.6 percent, and there are few non-tariff barriers to add to the cost of trade. Foreign investment is officially welcome and subject to national treatment, but there are sector-wide restrictions. The investment regime is not particularly conducive to spurring growth in new investment. The financial sector, vibrant and generally well regulated, provides a wide range of services. Banking continues to expand.

Score Changes
RULE OF LAW
Property Rights Freedom from Corruption
354

LIMITED GOVERNMENT
Fiscal Freedom Government Spending +1.6 10.4

REGULATORY EFFICIENCY
Business Freedom Labor Freedom Monetary Freedom 1.9 1.4 1.9

OPEN MARKETS
Trade Freedom Investment Freedom Financial Freedom

10.0 3.0

0 0 0

2013 Index of Economic Freedom