Social unrest significantly impacts economic activity and weakens government leverage for future reforms
Panama is navigating a complex landscape of social unrest, fiscal challenges, and policy shifts. The economy has been hit by month‑long strikes from SUNTRACS, teachers, and banana workers—driven by grievances over the pension law reform, the proposed reopening of the copper mine, ACP’s Río Indio watershed project, and a US–Panama security MoU. Although SUNTRACS’ action is waning and the banana strike is set to end imminently, concrete output has plunged 16% in Q1, with mortgage markets also contracting after the expiration of a US $10,000 housing bonus and squeezed rate subsidies. President Mulino’s confrontational style has complicated the dialogue, and the likelihood of reversing the pension reform is negligible. Nevertheless, so far, IMAE data for Q1 report 6.6% growth—beating expectations—driven by the external demand: the Canal’s recovery, tourism, and air transportation.
On the fiscal front, Q1 NFPS data show the deficit steady at 1.6% of annual GDP. Revenues rose 9.4%, buoyed by an 11.8% jump in direct taxes and an 8.4% boost in CSS contributions, while expenditure grew 10.8%—notably from a 20.5% surge in interest payments and a 17.6% rise in capital expenditure. Central Government current revenues climbed 14.4% year to date through April, led by a 27.6% spike in direct taxes, although indirect tax receipts fell 2.3%, underscoring administrative gaps in VAT collection.
Looking ahead, one‑off CSS inflows from the pension reform could add US $500 million in 2025, but compliance with the fiscal rule will require at least a 20% cut in capital spending in the coming quarter. Moody’s decision on Panama’s credit rating hinges on progress in reopening the copper mine and narrowing the fiscal deficit—each contingent upon legal and political developments. Meanwhile, ACP‑led Canal projects remain insulated from government cuts and are slated to begin investment in 2026, but they are not insulated from political and social pressure. However, despite the unrest, the most forceful protests appear to be losing momentum, and strategic negotiations with allies of former President Martinelli may help solidify support ahead of crucial legislative votes.
In addition to our macro, political and fiscal analysis, in this report, we also answer questions that time precluded us from addressing during last week's webinar "Panama in Focus: US Relations, Canal Strategy and Fiscal Discipline", held on May 13, 2025. Please see our Calendar Page for a replay of our webinar.
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