Making Panama´s economic growth more inclusive: OECD Development Centre provides action plan
Panama City, 22 March 2019 - Panama became a high-income economy in 2018, but it still faces the challenges of improving the lives of its citizens remaining in poverty and consolidating its middle class. A new OECD Development Centre report proposes action in three areas: foster the development of all regions; create more formal jobs while investing in better skills; and improve financing for development.
As a member of the OECD Development Centre, Panama has access to a wide range of experience, dialogue platforms – at the global, national and regional levels - and benefits from support to assess and design policy reforms. This third instalment of the Multi-dimensional Country Review (MDCR) of Panama builds on two previous volumes, which respectively identified the main constraints to achieving development and provided recommendations to address these challenges.
Panama’s dual economy structure largely explains the vulnerability of the middle-class and income inequality in the country. On the one hand, Panama’s strong, productive, modern tradeable service sector has been steering the country’s recent economic growth. This sector is mainly composed of skill-intensive activities that create relatively little employment. On the other hand, the less-productive service sector, agriculture and to some extent the manufacturing sector, where own-account workers and micro-productive units have proliferated, offers subsistence and informal jobs to the majority of workers.
“Modernising Panama’s drivers of economic growth, boosting labour productivity across all sectors and improving social policies could set in motion a process of transformation. We are happy to participate in the implementation of the action plan proposed in this report to tackle the persistent inequalities among people and regions in Panama”, said Federico Bonaglia, Deputy Director of the OECD Development Centre while launching the report today in Panama City.
Furthering socio-economic progress and inclusion requires tackling the economy’s dependence on few formal sectors, such as construction, finance and the activities of the Canal. Outside of those sectors, about 40% of the non-agricultural labour force work informally, with low job quality, productivity and wages. Facilitating their transition into the formal economy demands a better balance between enforcing labour regulations, and reducing red tape and administrative costs that discourage independent, micro, small and medium enterprises (MSMEs) from operating formally.
Another key obstacle to better jobs is the absence of an adequately skilled workforce. Almost half of Panamanian formal firms report difficulties finding the skilled workers they need, compared with about 38% in OECD countries. The economy needs to provide students with a wider range of skills; better secondary education, as well as technician and vocational training; and new mechanisms to match the demand and supply of skills on the labour market.
Panama should also pursue more active regional development policies to stimulate investment across all regions, especially in the lower-performing ones. This means devising new regional development plans, with adequate capacity – including at the municipal level – funding mechanisms and performance measurement systems.
Finally, fiscal revenues should play a more significant role in financing effective public policies for development and tackling income inequality. In 2016, total tax revenue and social security contributions amounted to 16.6% of GDP, far less than the average in OECD (34%) and Latin American (22.7%) economies. A more effective and efficient tax system would help improve income redistribution and provide stable, long-term resources to finance social and productive policies. Finally, Panama should adopt and implement new norms for public-private partnerships with sound regulatory and institutional frameworks.
The MDCR of Panama is the result of a consultative process with local stakeholders including policy makers, government officials and members of both NGOs and the private sector. It also benefited from the insights of Panama’s peers in the OECD Development Centre.
The MDCR of Panama is the third such OECD review in Latin America, after Peru and Uruguay. Other MDCRs are underway in Paraguay and will soon begin in the Dominican Republic, as well as in other regions of the world including Africa and Asia. The MDCR process supports the development agenda of Panama to achieve a better future for its citizens.
For more information on 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 Sebastian Nieto Parra (Sebastian.email@example.com; Telephone: +3 (0) 6 46 45 09 00).