Panama City, 11 October 2017 - Panama stands to benefit from unlocking new drivers for growth and from investing more and better in social policy and territorial development to make growth more sustainable and inclusive, according to the OECD Multi-dimensional Country Review (MDCR) of Panama (phase 1) released today on the occasion of a joint event hosted by the Panama’s Ministries of Foreign Affairs and Economy and Finance in Panama City and the OECD Development Centre.

The country relies strongly on few sectors, such as construction, the financial sector and the activities of the Canal of Panama, which will be insufficient to sustain further socio-economic progress and inclusion. Many of those who escaped poverty in recent years remain vulnerable and an economic slowdown would make them slip back into poverty. Furthermore, the expanding middle class expresses new and evolving demands, regarding public services including education, health, housing, infrastructure and transportation.

“The challenge for Panama in the medium term is to take advantage of economic growth in order to continue working to reduce inequality gaps. The Government of Panama is focused on promoting inclusion that is why it has allocated public resources towards improving the quality of life of all Panamanians.” said Dulcidio De La Guardia, Minister of Economy and Finance of Panama during the launch of the report.

The economic improvements of the last decade have contributed to reduce poverty, but they have not benefited all groups in society equally. GDP per capita has grown considerably since 2006 at a 4.5% per year on average, faster than the 2.8% average in Latin America and Caribbean and narrowing the gap with developed economies. Poverty, defined as the share of people living on less than USD 3.10 purchasing power parity (PPP) per day, was cut in half to 8% between 2004 and 2014. Yet, people living in rural areas and especially in the comarcas (indigenous territories) are much more likely to live in poverty and to report lower levels of satisfaction about their living conditions.

The MDCR shows that Panama has significant weaknesses in the area of education and skills, innovation and infrastructure gaps, particularly at sub-national level, that directly affect productivity and inclusiveness. Almost half of Panamanian formal firms report difficulties finding workers with the skills they need, compared to close to 38% in OECD countries. This highlights the importance of focusing on a wider range of skills in the curriculum as well as improving vocational education, training and mechanisms to better match the demand and supply of skills. Additionally, low investment in research and development and the ineffective diffusion of knowledge affect innovation outcomes. Although Panama has made considerable progress in infrastructure investment and stronger international connectivity, more equal access to infrastructure is still needed at the local level.

Informality continues to hold back job quality and aggravates socio-economic and territorial inequalities, especially among indigenous populations. Better jobs also require enforcement of labour regulation but also further competitiveness and productivity gains across economic sectors. In the 2004-14 period, labour productivity has been driven mainly by the accumulation of physical capital, while human capital and total factor productivity have contributed less than 15% of labour productivity growth. Furthermore, large productivity disparities exist between economic sectors. Low industrial and agriculture productivity growth translate into high inequalities at the regional level. A conventional investment-driven growth, Panama stands to benefit from shifting to a knowledge-driven growth and a more diversified economic structure so as to expand the benefits of the Canal to other sectors and regions, and ultimately reach its target of becoming a high-income economy by 2021.

Additionally, higher fiscal revenues should play a significant role in shaping income distribution in Panama. Total tax revenue and social security contributions, at 16.2% of GDP in 2015, are low compared to both OECD (34.3%) and Latin American (22.8%) economies. Improvements in the effectiveness and efficiency of the tax-and-transfer system should promote income redistribution. And further resources are needed to finance the investment in key social areas, including education and skills.

Finally, Panama stands to benefit from strengthening institutions’ capacity to improve evidence-based decision making and increase its capacity for long-term strategic foresight to move forward on these reforms. Although the country has a comprehensive National Development Plan (Plan Estratégico de Gobierno, 2015-19), planning and evaluation processes could be improved by strengthening technical capabilities within most ministries.

 

For more information on the OECD Multi-dimensional Country Reviews (MDCR), visit: http://www.oecd.org/development/mdcr/. 

 

To request an interview or a copy of the report, journalists are invited to contact Bochra Kriout (+33 145 24 82 96) at the OECD Development Centre.

 

 

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About the MDCR Panama:

 

After, Peru and Uruguay, the MDCR of Panama is the third review to be undertaken by the OECD in Latin America with the aim of providing recommendations to achieve a more inclusive and sustainable path. This first volume presents a diagnosis of some of the main impediments to development. Forthcoming volumes will present an in-depth analysis of the main constraints, accompanied by specific policy recommendations to carry out structural reforms and create the conditions for making reform happen. The MDCR will contribute to the design and effective implementation of the strategic plan with a 2030 horizon.

 

The second phase of the Panama Multi-dimensional Country Review (MDCR) will develop in-depth policy recommendations and provide OECD expertise on: promoting social inclusiveness at the provincial level, boosting formal jobs and better public and private financing policies for development.