A Multi‑dimensional Approach to the Post-COVID‑19 World for Panama

3. A strong recovery: Supporting economic growth and business dynamics

Abstract

Panama’s economy suffered one of the largest contractions in the region due the COVID-19 pandemic but rebounded quickly, supported by strong public action. Encouraging economic diversification and overcoming the duality of the country’s economy remain key objectives for strong, broad-based growth. This chapter examines how measures established during the crisis and recovery period can support the country in tackling structural challenges. The strengthened support system for MSMEs can play an important role as part of a broader strategy to develop and formalise this important segment of the economy. Progress in digitalisation also offers promise to boost productivity across the economy.

Box 3.1. A strong recovery: Main findings and assessment

Benchmark data

• Panama was the country in which GDP fell the most in 2020 (-17.7%, compared with ‑4.3% OECD countries), but rebounded strongly with growth rates of 15.8% in 2021, 10.8% in 2022 and 7.3% in 2023. Growth was driven by Panama’s copper mining, construction, manufacturing and commerce sectors. The economy slowed down (to 2.9%) in 2024 primarily due to the closure of the Cobre Panamá mine.

• The share of Panamanian citizens with a lot or some confidence in the national government was 30.8% in 2022. This value is relatively low when compared with the OECD average of 47.4%. It is much lower than OECD top performers, such as Switzerland (84%), Norway (77%) and Finland (71%).

• Panama lags behind in broadband coverage, having just 13.2 fixed lines per 100 people against 33.6 in OECD countries. Relatively high (91.6) mobile broadband penetration does not fully compensate for the lag in fixed lines.

• Renewable energy production is a sizeable share (26%) of energy supply, above the OECD average of 12%. Hydroelectricity already represents the biggest source of electricity generation in Panama.

Main findings on the impact on COVID-19

• The sectoral composition of Panama’s economy, with commerce, construction, transport and real estate accounting for 64% of GDP, shows a high share of sectors highly exposed to the economic shock caused by the pandemic and explains the strong contraction of GDP in 2020. The sectors hit hardest were hotels and restaurants (contraction of 61.7%), construction (47.6%) and manufacturing (20.7%).

• Panama’s current account posted a surplus in 2020 of 2.7% of GDP, as imports declined more than exports.

• Economic activity was hit hardest in 2020Q2, but it picked up relatively quickly. The index of monthly economic activity increased from October 2020, aided by the gradual reopening of the economy and the global economic recovery.

• Micro, small and medium enterprises (MSMEs) represented around 72.2% of the productive structure of Panama in 2016;¹ this sector faced several difficulties despite government support measures (CNC/UTP, 2021[1]).

Policy responses

• Panama adopted a series of liquidity and income-support measures, including: temporary suspension of payment for some services for MSMEs; electricity subsidies for households and SMEs; tax amnesties and discounts for the prompt payment of taxes; measures to prevent eviction of commercial tenants; and tax relief for MSMEs.

• Employment support measures included the temporary suspension of contracts in firms affected by the lockdown in March 2020, followed by measures to support gradual reintegration of workers with suspended contracts starting from February 2021.

• Initiatives to attract foreign investment were included a new special regime for multinationals (EMMA) and the creation of ProPanamá.

• Production support measures, in particular to support adoption of e-commerce.

• Credit support measures included the expansion of existing credit lines (strengthened guarantee fund and access to seed capital) and the creation of new credit programmes (Plan Panama Agro Solidario, the Banca de Oportunidades programme, and the Global Credit Programme for the Defence of the Productive Fabric and Employment).

Strategies for the recovery

To ensure a strong and resilient recovery, these strategies should be brought forward in future Government Strategic Plans (PEG). Considerations to take into account while planning a long-term reactivation strategy in Panama are:

• The importance of continuing to promote targeted tools and a flexible approach to support MSMEs. The learning and experimentation processes generated within the government in response to the COVID-19 crisis should continue in the recovery phase.

• Encouraging digital solutions and e-commerce uptake in businesses, particularly MSMEs. The COVID-19 crisis and social distancing measures have shown the importance of continuing to invest in digital technologies for businesses.

• Ensuring that the Canal activities act as an engine of inclusive growth. As global trade is recovering, ensuring that Canal activities benefit other regions and provinces beyond Panama and Colón will be key for an inclusive recovery.

• The importance of sustaining investment in science, technology and innovation. Further investments in education and innovation are important to increase the country’s competitiveness and move towards a more diversified and knowledge-driven growth (OECD, 2018[2]).

• The importance of regional integration to sustain the recovery. Strategic considerations should be made when choosing the model of insertion in the post-COVID-19 global economy.

Note: 1. This is based on calculations made by CNC (2019[3]) on the basis on INEC data.

Figure 3.1. Strong dimension of the OECD COVID-19 Recovery Dashboard

Source: All data for OECD countries have been extracted from the OECD COVID-19 Recovery Dashboard (OECD, 2022[4]). As for the data for Panama: Panel A is from the World Development Indicators (World Bank, 2024[5]); Panel B is from the Gallup World Poll (Gallup, 2022[6]); Panel C is from the World Development Indicators (World Bank, 2024[5]) and the ITU ICT database (ITU, 2023[7]); and Panel D is from the OECD Green Growth Database (OECD, 2017[8]).

The Panamanian economy was hit hard by the pandemic but rebounded swiftly

After two decades of sustained progress, GDP fell sharply in Panama in 2020 (-17.7%), more dramatically than the Latin American and the Caribbean (LAC) average of -8.9% (Figure 3.2). As Panama is a small, open economy, it was negatively impacted by the global slowdown in economic activity and in international trade in goods and services. The balance of payments current account deficit in Panama contracted to 0.3% of GDP in 2020 as imports declined more than exports (Figure 3.3). In particular, increased exports of copper contributed to improve the balance on goods while the balance on services deteriorated but remained positive, thanks to higher revenues from the Panama Canal in the second half of 2020. Foreign direct investment (FDI) flows plummeted by 85%, from USD 4 062.9 million in 2019 to USD 606.7 million in 2020. FDI flows to the Colon Free Trade Zone fell the most (-106%) with net outflows of USD 31.4 million. FDI flows to general licence banks were more resilient, with a reduction of 33% (from USD 297.6 million to USD 200.7 million (INEC, 2022[9]). In subsequent years FDI picked up, reaching USD 1 927 million in 2021 and USD 2 721 million in 2022, but remain well below pre-pandemic levels.

Figure 3.2. Panama’s economy contracted sharply in 2020

GDP growth in constant prices (%)

Source: Data for Panama are from IDB (2025[10]), Mapa de Información Económica de la República de Panamá, https://minerpa.com.pa/; data for other countries are from IMF (2024[11]), World Economic Outlook Database, October 2024, https://www.imf.org/en/Publications/WEO/weo-database/2024/October.

Figure 3.3. Panama’s current account improved in 2020 as imports declined more than exports

Balance on goods and services (USD million) and current account balance (% of GDP)

Source: IMF (2023[12]), IMF Balance of Payments and International Investment Position Statistics (BOP/IIP), https://data.imf.org/?sk=7a51304b-6426-40c0-83dd-ca473ca1fd52.

The sectoral composition of Panama’s economy, with commerce, construction, transport and real estate accounting for 58% of GDP, shows a high share of sectors highly exposed to the economic shock caused by the pandemic (Figure 3.4). The physical distancing measures and the lockdown imposed in early March 2020 particularly affected those face-to-face activities that depend on tourism and travel, as well as the activities not amenable to teleworking. Among the sectors hit hardest in 2020 were hotels and restaurants (contracted by 61.7%), construction (47.6%) and manufacturing (20.7%). In contrast, increases were posted in mining (28.6%) and in agriculture, hunting, forestry and fishing (1.9%) (Figure 3.5). The government responded to this economic shock by putting in place a mix of liquidity, credit, and production support measures targeting MSMEs and the agriculture sector. These measures seem, however, to lack sectoral targeting (e.g. measures to support most hard-hit sectors such as tourism and hospitality), with the exception of Panama Agro Solidario.

In March 2020, the government of Panama decreed that firms affected by the lockdown could temporarily suspend the contracts of their workers. Workers with suspended contracts and those laid off during the emergency were included among beneficiaries of the emergency social assistance programme, Panamá Solidario. In February 2021, the government set a gradual path for the reinsertion of workers with suspended contracts until October 2021. Still, unemployment rose sharply from 7% in 2019 to 18.5% in 2020, and remained around 9.9% as of April 2022, above pre-pandemic levels (see Chapter 2).

Economic activity in Panama was hit hardest during the second quarter of 2020; but picked up relatively quickly. The index of monthly economic activity (IMAE in Spanish) increased, especially since October 2020, aided by the gradual reopening of the economy and the global economic recovery (Figure 3.6). Based on estimated data, the IMAE presented a positive rate of change of 13.35% in February 2022 and 12.23% in September 2022 relative to the same month in the previous year. The accumulated IMAE for January-September 2022 also showed an increase of 11.08% against the same period in 2021. Activities that contributed to growth in 2021 include mining (especially exports of copper) (+104%), construction (mainly driven by public investment) (+29%), wholesale and retail trade (+19%), and manufacturing (+11.4%), among others (Figure 3.5). Slow recovery in tourism continued to negatively affect the hotel and restaurants sector (Figure 3.5) (INEC, 2022[13]). Overall, GDP rebounded by 15.8% in 2021 (Figure 3.2), but the Russian invasion of Ukraine and lockdowns in the People’s Republic of China (hereafter “China”) negatively influenced the global recovery in 2022 (OECD, 2022[14]), with the effect of slowing GDP growth in Panama, especially in 2023, even though it remaining above the LAC average. Despite these headwinds, Panama closed the year 2022 with 10.8% growth, attaining a level of GDP 6% above that of 2019 in real terms. In 2023, Panama's economy recorded a GDP growth of 7.3%, surpassing the regional average for LAC (2.2%) and the OECD member countries average (1.7%).

Panama's economic growth slowed down in 2024 but still grew above the regional average. The Supreme Court's decision to declare the contract with Cobre Panamá unconstitutional will have significant economic impacts on the country. The economy grew by 2.9% in 2024, down from 7.4% in 2023 but above the estimated regional average of 2.2% (World Bank, 2025[15]). The copper mine generated about 3% of GDP in the years before its closure (MEF, 2025[16]). Therefore, its closure explains a large part of the fall in growth. However, value added in non-mine activities also slowed down in 2024, growing 4.6% compared to 7.6% in the previous year (INEC, 2025[17]).

Figure 3.4. The composition of GDP for Panama shows a high share of sectors highly exposed to the negative effects of the COVID-19 crisis

Composition of GDP by economic activity (%), 2023

Source: Own calculations based on (INEC, 2023[18]), Avance de cifras del Producto Interno Bruto: Anual 2022, https://www.inec.gob.pa/publicaciones/Default3.aspx?ID_PUBLICACION=1187&ID_CATEGORIA=4&ID_SUBCATEGORIA=26.

In 2020, MSMEs represented around 97% of the productive structure of Panama. Despite government support measures, they were hit hard by the crisis (AMPYME, 2020[19]). A study of 430 MSMEs conducted in February-March 2021 shows that 81.6% suffered reduced sales with an impact of 3.9 on a scale from 1 (low) to 5 (high); 79.1% had liquidity problems, with an impact of 3.5; and 76.5% had to stop investments, with an impact of 3.7. The government put in place specific actions to support MSMEs during the pandemic, including electricity subsidies, tax amnesties, a special tax regime and specific credit lines. However, only 5% of MSMEs surveyed reported receiving support from the government and 3.1% reported receiving subsidies or economic support (CNC/UTP, 2021[1]).

Figure 3.5. Hotel and restaurants, construction and manufacturing sectors were hit hardest in Panama

Rate of growth of annual GDP by activity at constant prices, selected sectors, 2019-24

Note: *2023 and 2024 data are estimates provided by INEC.

Source: (INEC, 2025[17]) Avance de cifras del Producto Interno Bruto: Anual 2024, https://www.inec.gob.pa/publicaciones/Default3.aspx?ID_PUBLICACION=1316&ID_CATEGORIA=4&ID_SUBCATEGORIA=26.

Figure 3.6. Economic activity in Panama picked up after contracting in 2020Q2

Monthly economic activity index (IMAE) of Panama, January 2019 to December 2023

Note: The IMAE index measures the overall performance of national production on a monthly basis. P= preliminary data. E= estimated data. R= revised data.

Source: (INEC, 2024[20]), Índice Mensual de Actividad Económica de Panamá, https://www.inec.gob.pa/avance/Default2.aspx?ID_CIFRAS=49&ID_CATEGORIA=1&ID_IDIOMA=1.

Policies to sustain MSMEs, preserve jobs and attract investment played a major role in the crisis response and recovery phases

Liquidity and income support measures

• Measures to prevent eviction of commercial tenants. Any process of eviction of commercial tenants was considered illegal from the declaration of the state of emergency until two months after the lifting of the restrictions on the opening of the respective activities, allowing the start of operations that apply to commerce. Rents and surcharges for late payments were also frozen until then (Executive Decree 145 of May 2020 modified by Executive Decree 314 of 7 August 2020).

• Tax relief for MSMEs. Establishment of a Special Regime of reduced income tax (Impuesto Sobre la Renta) for firms or entrepreneurs whose gross yearly income is below USD 500 000 (thereby increasing the previous limit set in article 699-A of the Fiscal Code at USD 200 000) (HLB, 2021[21]). The law also exempted legal entities duly registered in the Business Register of AMPYME from the payment of supplementary tax (Impuesto complementario)1 and was made retroactive to 1 January 2020 (see Law 189 of 17 December 2020 that reforms the Fiscal Code).

• Temporary suspension of payment for some services for MSMEs (see Chapter 2).2

• Electricity subsidies for households and SMEs (see Chapter 2).

• Tax amnesty and discount for the prompt payment of taxes (see Chapter 4).

Employment support measures

• Temporary suspension of contracts. Firms affected by the lockdown could temporarily suspend the contracts of their workers. Firms could benefit from a reduction in the employer's contribution (cuota patronal) payable based on the number of employment contracts suspended. Suspended workers were eligible for the benefits of Panamá Solidario. To ensure their continued medical assistance, the suspended workers could continue to use the medical services offered by the Caja de Seguro Social (CSS) during the time of suspension (see Executive Decree 81 of 20 March 2020).

• Gradual reintegration of workers with suspended contracts. Law 201 of 25 February 2021 sets a staggered reinstatement of suspended workers by economic sector. The primary sector had until May 2021 to reintegrate suspended workers. The secondary sector had until August 2021. The tertiary sector had until October 2021. As of 1 November 2021, all suspended workers had to be reintegrated.

Attraction of foreign investment

• New special regime for multinationals. A Special Regime for the Establishment and Operation of Multinational Enterprises for the Provision of Manufacturing-Related Services (EMMA) was created. As in the Sedes de Empresas Multinacionales (SEM) regime, manufacturing firms can enjoy legal certainty and migration, labour and fiscal benefits (e.g. full income tax exemption during first five years and a 5% rate thereafter) (see Law 159 of 31 August 2020). This is part of the actions set out in the government’s Economic Recovery Plan (Plan de Recuperación Económica).

• Creation of ProPanamá. in April 2021, ProPanamá was elevated from “agency” to “authority” and became the new National Authority for the Attraction of Investments and Promotion of Exports of Panama (Autoridad Nacional para la Atracción de Inversiones y Promoción de Exportaciones de Panamá). This is part of the 12 actions of the Economic Recovery Plan.

Production support measures

E-Commerce support measures

• E-Commerce Reactivation Fund, SICA Emprende. Financed by the Regional Centre for MSMEs Promotion (CENPROMYPE) of the Central American Integration System (Sistema de Integración Centroamericana, SICA), this fund is aimed at companies that have adapted to the new market conditions due to the COVID-19 situation; are in the Business Registry of the Autoridad de la Micro, Pequeña y Mediana Empresa (AMPYME); have experience in e-commerce platforms; and have been in the market for at least three months, even discontinuously. Beneficiaries include at least ten companies for a maximum amount of USD 2 400 per company.

• Programme Emprendiendo en el comercio electrónico. Free online training courses on e‑commerce to MSMEs provided by the Ministry of Industry and Commerce (MICI) and AMPYME. They benefited more than 3 000 entrepreneurs in 2020.

• Programme Artesano digital. Training to the craftmanship sector on e-commerce and access to marketplace platforms provided by the Ministry of Culture (MiCultura), MICI and AIG.

Credit support measures

The main interventions to support access to credit in Panama included new credit lines and guarantee funds. Other policies also included simplifying procedures and requirements to access credit, together with creating preferential rates for specific sectors of the economy. Overall, as of 27 May 2020, Panama had announced credit support measures equivalent to 2.1% of 2019 GDP vs. 3.8% of 2019 GDP on average in LAC (Figure 3.7). Unlike other LAC countries, Panama put in place targeted credit lines for MSMEs, but did not implement strong support measures directed at the most hard-hit sectors (e.g. construction or tourism) or at sectors that were strategic during the pandemic (e.g. medical supplies), with the exception of the agriculture sector.

Figure 3.7. Total credit support measures announced by Panama are equivalent to 2.1% of GDP

Total credit support measures announced as of 27 May 2020, as a share of 2019 GDP

Note: The estimation includes only policies for which a quantifiable amount could be identified.

Source: (ECLAC, 2020[22]), Sectores y empresas frente al COVID-19: emergencia y reactivación, https://repositorio.cepal.org/server/api/core/bitstreams/96d52d67-9907-4af8-b115-b613046f0ffe/content.

• Seed Capital Law. Access to non-refundable seed capital was increased from USD 1 000 to USD 2 000 per MSME. Funding targets entrepreneurs and micro-entrepreneurs that have participated in AMPYME's Training and Technical Assistance Programmes. It will also benefit the programme Mejorando mi negocio, which derives from this project (see Draft Law 363 approved in August 2020 that modifies the amount allocated in Law 33 of 2000).

• Plan Panama Agro Solidario. This programme supports small agricultural producers with loans at zero or low interest rate and provides technical assistance. The National Bank of Panama received USD 150 million to provide loans between 2020-22. The loans, up to a limit of USD 100 000 and destined to small producers in agriculture and fishing, were administered by the Banco de Desarrollo Agropecuario. The duration of the programme will be two years for agricultural projects and three years for livestock projects. Unless otherwise stipulated, at the end of this period, the interest rate will return to 2% (Resolution 051-2020 and 052-2020 of 11 May 2020). In addition, the Agricultural Development Bank approved reducing the interest rate to 2% for current loans with rates higher than 5% (Resolution 050-2020 of 11 May 2020). This is one of the 12 actions of the Economic Recovery Plan.

• Banca de Oportunidades programme. This financing programme is directed to microenterprises that are less than two years old or are in the process of starting their activities, and that generate less than USD 150 000 in annual revenues. Loans range from USD 2 000 to USD 5 000 with repayment terms up to 84 months and interest rates between 6% and 9%. The loans were available since August 2020. The programme is managed by the AMPYME and loans are administered by the Banco Nacional de Panama and Caja de Ahorros to those firms that have participated in AMPYME training. The government initially assigned USD 20 million to this project and aims to support around 5 000 enterprises (see Executive Decree No. 191 of 31 July 2020). This is one of the 12 actions of the Economic Recovery Plan.

• Strengthened guarantee fund. The name of AMPYME's first guarantee fund, “Programme for the Financing of Small and Medium Enterprises” (PROFIPYME), was changed to “Programme for the Financing of Micro and Small Enterprises” (PROFIMYPE) in order to encourage the creation of new enterprises and expand the productivity of existing MSMEs. The coverage of guarantees for informal entrepreneurship and informal microenterprises was increased up to 90%, raising the amount to be guaranteed to USD 5 000. For formal microenterprises, the guaranteed amount went up to USD 35 000 and coverage up to 80%. For small enterprises, the guarantee increased to USD 70 000 and coverage up to 80% (see Executive Decree No. 233 of 4 September 2020).

• Global Credit Programme for the Defence of the Productive Fabric and Employment. The Banco Nacional de Panamá (BNP) is responsible for administering USD 300 million obtained from the Inter-American Development Bank (IADB) and acts as a second-floor bank to channel funds to financial institutions. The programme includes: i) advance lines for working capital financing to avoid bankruptcy of viable companies; and ii) loans for the recovery, improvement and maintenance of productive activity, at a maximum interest rate of 6% with a term of up to 84 months. Microenterprises are eligible to receive up to USD 25 000; small enterprises can receive up to USD 100 000; and medium enterprises can receive up to USD 250 000 (see Programa Global de Crédito para la Defensa del Tejido Productivo y el Empleo and Cabinet Decree No. 19 of 9 June 2020). A first tranche of USD 150 million was disbursed in June 2020. The is one of the 12 actions of the Economic Recovery Plan.

Panama can build on the legacy of the pandemic response to foster formalisation and productivity among MSMEs, harness digital solutions and foster diversification in the economy

The Economic Recovery Plan presented by the Panama government in July 2020 and the Reactivation Plan elaborated in 2021 under the leadership of the National Council for the Private Enterprise (CoNEP) put important focus on promoting employment-generating activities to facilitate economic recovery. The Economic Recovery Plan included with 12 priority actions, such as: Panamá Solidario; short-term liquidity and credit support measures for households and MSMEs; a series of infrastructure projects, including Line 3 of the metro; and investment attraction initiatives. Most have been implemented or are currently in progress. Further law proposals, including a special regime for multinational manufacturing enterprises and further support measures for MSMEs, have also been approved (see section above on Main policies adopted). The government is also planning on equating the benefits of the Colón Free Trade Zone (FTZ) with those offered by the FTZ of the Área Panamá Pacífico, in line with the modernisation strategy of the Colón FTZ.

The major business associations in Panama presented an Economic Reactivation Plan to the government in April 2021. This initiative led to the creation of a High-Level Public-Private Commission for Economic Reactivation (Comisión de Alto Nivel Público-Privada para la Reactivación Económica), made up of private and public sector representatives, which then (May-September 2021) assessed and validated the proposals presented. In the end, 43 of 51 initial proposals were validated, with a focus on energy, finance, agriculture, industry, construction and tourism. Some transversal proposals also include the creation of a Public-Private Unit to evaluate and validate economic reactivation policies and the promotion of a more agile and efficient state bureaucracy (CONeP, 2021[23]).

The proposals elaborated by the High-Level Public-Private Commission for Economic Reactivation can complement the short-term strategy set out in the government’s Recovery Plan with a medium-term vision. The high-level leadership and broad private sector commitment behind the initiative, as well as the collaboration with the public sector, can provide the credibility and broad support needed for a successful implementation strategy. The development of indicators and creation of public-private teams will also help monitor implementation of the proposals as part of the second phase of the initiative. However, the major business associations are now calling for a concrete follow-up to the Economic Reactivation Plan, which is advancing slowly. Moreover, lack of civil society consultation may further slowdown the proposed reforms.

The following considerations should be taken into account while planning for a long-term reactivation strategy in Panama.

Promoting targeted tools for to develop and formalise MSMEs remains key in post-COVID-19 Panama

Given their central role in economy, formalising MSMEs is a central objective of Panama’s post-COVID recovery. During the pandemic, several policies were implemented to contain its impacts on the most vulnerable enterprises. The following section analyses these policies, main lessons learned and challenges that still lie ahead. Based on these findings, the next section discusses alternatives to deepen the efforts to formalise and strengthen MSMEs.

Box 3.2. Policy workshop on formalising and strengthening MSMEs

As part of the process documented in this report, the OECD and the governments of Panama and Paraguay organised the international workshop Policies to support and formalise MSMEs for a new model of sustainable development for the post-COVID era (13 November 2023). In an online format, the workshop gathered representatives from the public and the private sectors from both countries as well international experts. The workshop aimed to facilitate exchange, at a regional level, on policies for formalising and strengthening MSMEs and identifying actions to promote this agenda in Paraguay and Panama.

Participants coincided on the importance of formalising and strengthening MSMEs as, together with independent workers, they are major contributors to employment in both countries, but also have the highest levels of informality. Also, their productivity is low compared to large companies.

The workshop noted the commitment of participating actors – governmental and non-governmental – to strengthen MSMEs through a multiplicity of actions and instruments, several of which were bolstered during the COVID-19 pandemic. The following were discussed among key issues in supporting productivity in MSMEs:

• An institutional strategy based on multistakeholder participation is essential to integrate the views and tools from each key sector.

• Access to credit is a key mode of intervention, as MSMEs typically have low access to credit from the formal financial sector. Clear communication campaigns are key to expand demand for credit and establish the basis for a culture of entrepreneurship.

• Support programmes that respond to the specificity of firms’ needs are needed. Different programmes and approaches are needed across different sectors and throughout the life cycle of firms and their positioning, such as providing quality advice and service to MSMEs for management training. Diverse types of training can play multiple roles in supporting the formalisation and strengthening of MSMEs. In addition to building capacity (for example, in the use of digital tools), they can contribute to a culture of entrepreneurship that values opportunity and innovation while conveying the importance of formalisation.

• Simplification of procedures can promote business registration and thus contribute to the formalisation of MSMEs. Digitalising basic procedures and creating new categories of firms that better adapt to the reality of MSMEs are examples of possible measures.

MSMEs programmes and productivity support programmes should be better aligned. Efforts in both areas often run on parallel tracks despite many areas of overlap. In particular, the access to credit, markets and services provided through entrepreneurship and MSME support programmes can be incentives to formalise. Workshop participants also noted that formalisation remains an important challenge, requiring:

• Legal frameworks adapted to the capacity of MSMEs, in terms of incorporation, tax and social security regulation and sector regulations.

• Easy procedures that limit the cost and bureaucratic burden of formalisation.

• Efforts to convey that formalisation brings benefits and is not only a cost for entrepreneurs and MSMEs.

Source: Authors’ elaboration.

A multistakeholder strategy proved instrumental to contain the impacts of COVID-19 on the formalisation and strengthening of MSMEs

Actions taken by Panama in response to the COVID-19 pandemic have strengthened the MSME support system, complementing existing institutional provisions. Following the creation (2017) of the National Entrepreneurship Council, the Panamanian government – with input from representatives from trade unions, the private sector, academia and the banking system – implemented a co-ordinated strategy to face the challenges imposed by the COVID-19. The original objective of the National Entrepreneurship Council was to co-ordinate and follow up the implementation of the National Pact for Entrepreneurship, and to evaluate and present its results. During the pandemic, the existence of this multistakeholder strategy facilitated a first-hand understanding of diverse perspectives around entrepreneurship and the specific needs and challenges faced by each actor. It also created the opportunity to build stronger consensus around the measures taken to alleviate the impacts on MSMEs.

Similarly, AMPYME’S main mission of promoting the formalisation and sustainability of MSMEs has benefited from close collaboration of key stakeholders and the development of tools, such as training programmes and different products from the banking system. By working closer to MSMEs and expanding the network of stakeholders, AMPYME managed to better precise the tools and policies needed. Four overarching achievements are noteworthy. 1) Establishing a legal framework, which included the creation of a new type of legal company specific to MSMEs and limited liability companies of entrepreneurship, which enjoy particular benefits such as a single window to present documents. 2) Creating business and sanitary registers for MSMEs. 3) Providing financial aid in close collaboration with the banking sector and the tax system, including not only the creation of financing programmes but also implementing income and municipal tax exemptions. 4) Providing digitalisation tools for rural MSMEs and training and technical assistance for entrepreneurs with a gender perspective, promoting knowledge sharing and networking

Looking forward, a further step to support the recovery of MSMEs in Panama could include transforming the role of AMPYME. In particular, the classification of firms with turnover between USD 1 million and USD 2.5 million as medium-sized firms can be problematic. Including these firms under the MSME umbrella can raise difficulties in policy implementation as they face different constraints and challenges than firms with a turnover of USD 150 000 (OECD, 2018[2]). A further step could also include increasing the funding sources of AMPYME to enable it to better promote entrepreneurship and innovation.

Finally, working more closely with local governments can expand the efforts of AMPYME, helping ensure that MSME policies are truly inclusive and leave no one behind. Implementing more and better tools for multilevel governance can help ensure policy coherence throughout the provinces of Panama and avoid the concentration of beneficiaries in the larger cities. Following the allocation of funds by Banca de Oportunidades during 2019 and 2020, most grants and guarantees were concentrated in Panama (20%), Herrera (17%), Chiriquí (15%) and Panamá Oeste (10%). Some provinces, such as Comarca Kuna Yala or Comarca Ngabe-Buglé, received no funding and key touristic and commercial provinces, such as Bocas del Toro and Colón, received only 1% and 4% respectively. Strengthening the localisation of programmes for MSMEs can democratise access to opportunities while also promoting diversification of national products and strengthening interprovincial value chains (AMPYME, 2020[19]).

Further evaluation is needed to understand the impacts of policies implemented during the pandemic and adapt them to the evolving needs and challenges of MSMEs. More efforts are needed to ensure that the expansion of credit is truly inclusive of smaller businesses. As 39% of the working population in Panama works in firms with fewer than 50 employees, continuing to support this sector is key (Figure 3.8, Panel A). Access to credit does not seem to have benefited all firms equally, even though Panama reported the second-highest level (100.1% vs Chile at 124%) of domestic credit to the private sector in LAC in 2020 (Figure 3.8, Panel B) (World Bank, 2022[24]). A survey carried out among 430 MSMEs in February-March 2021 found that 44.9% of those firms, mainly microenterprises, did not try to access financing although they needed it, because they were convinced they would not get it (borrower discouragement). Of those that tried to access financing (32.2% of the total), 59.7% did not get it or did not accept the credit. For another 14.7%, the credit was being processed and for 25.6%, the credit had been conceded (for over half, the conditions of credit had deteriorated with respect to previous years). A significant difference in access to financing emerges in relation to firm size: 64.7% of micro enterprises and 50.9% of small enterprises were not granted credit vs. 28.6% of medium enterprises (CNC/UTP, 2021[1]). As of April 2020, average interest rates charged by banks were around 10.22% for micro, 9.18% for small and 8.62% for medium enterprises (SBP, 2020[25]). In next steps, active communication campaigns can help explain the conditions for accessing credit and thus encourage particularly small MSMEs to take an interest in the process.

Figure 3.8. The importance of micro, small and medium enterprises and access to credit

Note: Panel B should be interpreted with caution as the increase in credit to the private sector as a share of GDP may be due to a decrease in the denominator rather than an increase in the numerator.

Source: INEC (2023[26]), Encuesta de Mercado Laboral, August 2023; (World Bank, 2024[5]), World Development Indicators (database), https://data.worldbank.org/indicator.

To maximise opportunities, the Panamanian government worked closely with the banking system and merged several lending initiatives to create the Banca de Oportunidades, significantly enlarging the number of MSMEs accessing credit. During 2019 and 2020, 6 974 enterprises benefited from some kind of lending and USD 31.1 million was granted in loans. Similarly, USD 28.0 million was granted in guarantees with an average of USD 4 018 per guarantee. The largest share (84%) of these benefits was used in the tertiary sector, with much lower shares for the primary (15%) and secondary (1%) sectors. Regarding the aims of the loans and guarantees, 77% were used to start a new business, 22% to reactivate and 2% to reinvent existing businesses (AMPYME, 2020[19]). Working with key stakeholders can strengthen sustainable public policy design by incorporating different perspectives and expanding the range of responses and tools. In the case of lending banks, such collaboration generates benefits for all parties.

Adapting to the specificities of each group of firms will be essential to deepen the effects of policies implemented during the COVID-19 pandemic

Continuing to promote targeted tools and flexible approaches to support MSMEs is important during Panama’s recovery. The learning and experimentation processes generated within the government response to the COVID-19 crisis should continue in the recovery phase. The crisis prompted the government to adopt financial approaches that are more targeted to specific sectors in difficulty (e.g. Plan Panama Agro Solidario) or to certain types of enterprises (e.g. specific instruments for MSMEs). To ensure that the lending policies are truly inclusive, such targeting of programmes and policies could go beyond specific economic sectors to also focus on the most vulnerable social groups (e.g. rural workers or women). In many LAC countries, women hold the largest portion of MSMEs, highlighting the importance of adopting a gender perspective when designing support policies for financing (UNDP, 2023[27]).

The COVID-19 crisis also generated learning processes in the public sector. Most notably, in relation to the difficulties encountered by MSMEs in the initial months of the emergency. Regarding provision of goods and services to the State, priority was given to MSMEs – even choosing them in the event of a tie. To lower liquidity constraints in responding to public procurement calls for tender, payment terms were set at no longer than 30 days. Continuing to develop strategies to adapt public procurement processes to encourage local suppliers can strengthen MSMEs already in the providers circuit and encourage the participation of new bidders, in turn nurturing the business climate at the sub-national level.

Similarly, taking steps to gain a clear understanding of the challenges MSMEs face at each stage of their trajectories can improve the policies and tools offered. This requires setting up dedicated programmes for firms in start-up, consolidation and expansion phases. For example, strengthening the financial literacy of MSMEs can play a transformative role for businesses. Combining credit policies with educational programmes can further strengthen MSMEs by ensuring that funds received are used strategically. Expanded access to credit combined with financial education has been shown to directly improve the survival of MSMEs in their early years. In LAC, 70% of entrepreneurs fail to survive the first three years of their venture while in Panama, where financial aid is combined with the development of financial skills and training programmes, this probability is reduced to 13% (AMPYME, 2020[19]).

International and regional collaboration can also be a source of training for MSMEs of specific sectors. Funded by the Spanish Fund-SICA, the Regional Centre for the Promotion of MSMEs and the Secretariat for Central American Tourism Integration provide regional dialogue spaces to strengthen MSMEs in the tourism sector and promote regional value chains (SITCA, 2020[28]). International co‑operation can also help mutualise resources to better support MSMEs at key stages of their development. The IADB programme Conecta is building a network of entrepreneurship support organisations across Central America to help pool resources and experiences in strengthening the start-up ecosystem in the subregion (Bridge for Billions/BID Lab, n.d.[29]).

Simplification of procedures proved effective and should continue towards their consolidation

The digitalisation of procedures facilitates interaction with enterprises and should be continued. The pandemic accelerated some planned processes, including the digital transformation of the Panama government, as in the case of the digitalisation of the Business Register of AMPYME. Inscription in the Business Register was among the main requirements for MSMEs to benefit from the credit support programmes put in place. Digitalisation helped simplify the business registration procedure and resulted in 4 444 new registered firms between March and October 2020 (Heredia Zurita and Dini, 2021[30]).

The simplification of requirements, processes and costs can incentivise formalisation, particularly of small businesses. To promote the registration of MSMEs in the Business Register, the government of Panama created (2013) a form of incorporation aimed at sole proprietorships (microempresa de responsabilidad limitada) with a low inscription fee (USD 15 dollars). It also simplified registration requirements through a single window. The new category of sole proprietorships (natural persons) provides a tax exemption for incomes below USD 11 000 and establishes two categories of income, to be taxed progressively: 15% between USD 11 000 and USD 50 000 and USD 5 850 for the first USD 50 000 and a rate of 25% on the excess of USD 50 000 (AMPYME, 2020[19]). In 2020, a new form of incorporation, the Entrepreneurship partnership (Sociedad de emprendimiento [SE]) scheme was created to accommodate limited liability partnerships in the MSME sector with turnover up to USD 1 million. SE status grants enterprises several benefits, including registration through a single window and a 2-year tax holiday, after which firms can benefit from the specific tax rates determined by their size.

Digitalisation of the Business Register, the decision to allow registration of natural persons, and use of the Register to grant a number of benefits (including freedom to operate at certain points of the COVID pandemic), led to a significant number of new registrations. In 2021, the number of completed applications submitted reached 20 128. While overall numbers fell in subsequent years, it is notable that the share of legal persons registered increased: indeed, between 2022 and 2023, it increased in absolute terms despite a slowdown in new registrations (AMPYME, 2023[31]).

Figure 3.9. Simplification of requirements, processes and costs, combined with digitalisation, had direct impacts on the number of business registrations

New registrations of MSMEs by AMPYME (2021-23)

Source: (AMPYME, 2023[31]), AMYPYME Estadísticas, https://ampyme.gob.pa/?page_id=25740.

Several examples across the LAC region can serve as guidance for policy makers in Panama facing the need to continue simplifying regimes and systems for MSMEs. In Brazil, combining simplified tax regimes SIMPLES (Sistema Integrado de Pago de Impuestos y Contribuciones de las Microempresas y las Pequeñas Empresas), support systems to MSMES SEBRAE (Servicio brasileño de apoyo a las Micro y Pequeñas Empresas) and appropriate legal frameworks contributed to reducing informality by 25%. It also helped generate 19.8 million additional jobs and raise formalisation in the private sector to 30% in 2014 (Salazar and Chacaltana, 2018[32]). Advisory services and one-stop shops have also contributed to formalisation. To simplify incorporation procedures and reduce associated costs in Colombia, Confecámaras set up the Business Assistance Centres (Centros de Atención Empresarial, CAE) to provide integrated information and advisory services for creating enterprises. Cities in which the CAE programme was implemented had 5% more registered companies than cities without these services (ILO, 2014[33]). Advisory centres capable of raising awareness about the benefits of registering a business could prove particularly useful in Panama, where very large gaps exist between central urban areas and the rest of the country in terms of the number of finalised business inscriptions. During December 2023, most inscriptions (88%) were concentrated in the central area of Panama (15 in Panama Centro, 2 in Panama Este, 14 in Panama Oeste and 7 in Panama San Miguelito), while the regions of Coclé, Darién and Veraguas had 1 registration each (AMPYME, 2023[31]).

Beyond the LAC region, the European Commission's Small Business Act offers lessons on how to implement comprehensive approaches for MSMEs that reduce the rigidities of different specific programmes. Established in 2008, the Act seeks to simplify regulations and remove barriers to MSME development. It is based on ten principles that include: promotion of entrepreneurship; access to finance; innovation; and other key aspects for the growth and international projection of MSMEs (European Parliament, 2023[34]). To create further synergies, all of these stages are organised under the Once Only Principle, implemented in December 2023, which allows citizens and businesses to simplify their administrative burden. The principle states that information can only be required once, allowing MSMEs to apply to different programmes and aids without having to duplicate administrative procedures.

Productivity of MSMEs could be fostered by improving their linkages with the national productive system

Productive Development Programmes (PDPs), focused on innovation, supplier and linkage development, can prove strategic to strengthen MSMEs and increase their productivity. Following the example of Costa Rica, implementing PDPs (such as PROPYME and CR Provee) can have direct positive impacts on strengthening MSMEs. By focusing on upgrading competitive capacity and shifting factors of production, these programmes can promote job creation, higher average wages, increased productivity and the probability of exporting (IDB, 2013[35]). Similarly, the Supplier Development Programme (SDP) in Chile stood out as having the highest number of beneficiaries between 2002 and 2008, gathering a large share of MSMEs (more than 90% of the 3 036 firms participating in 2021). Impacts recorded (in one, two and three years) after the programme was approved for MSMEs in the agribusiness suppliers sector include: an average increase in sales (16%, 11% and 9%); an increase in employment (8%, 9% and 10%); and increased wages (9%, 16% and 8%) (World Bank, 2010[36]; Ministerio de la Producción del Perú, 2020[37]; Arraiz, Stucchi and Henriquez, 2011[38]).

Value chains have strategic potential for sustainable and inclusive development of MSMEs. Local and regional value chains could help increase productivity and have positive effects on formalising MSMEs. An active strategy from the centre of government is needed to facilitate the insertion of MSMEs as vendors within value chains, including: i) promoting demand; ii) reducing supply-side gaps and positioning MSMEs appropriately in markets; and iii) articulation with public, private, and civil society actors to achieve greater impact (UNDP, 2023[27]). Peru has made good progress in achieving strategic planning that connects MSMEs development with the broader productive system. As part of its Competitiveness Agenda 2014-2018, the Peruvian government developed both a Supplier Development Programme and a Cluster Support Programme. The main aim was to improve the quality and productivity of MSME suppliers to ensure stronger ties to their respective value chains. This was achieved, for example, by ensuring that suppliers acquire the competencies and skills required by tractor companies in terms of product quality, punctuality of delivery, costs, inputs, and services, among others. This resulted in productive development for both suppliers and tractor companies (Consejo Nacional de la Competitividad de Perú, 2015[39]).

Coherent plans to integrate MSMEs programmes are still needed to maximise productive synergies, both in Panama and across the LAC region (Salazar and Chacaltana, 2018[32]). Despite efforts made so far to simplify procedures for MSMEs, analysis shows that many programmatic rigidities persist within overarching productive strategies. While MSMEs and productive policies share many objectives, the programmes to achieve them could be better aligned. In Brazil, Local Productive and Innovative Clusters (APL) were integrated into the federal government's guidelines through the Pluriannual Plan (PPA) for the periods 2004-2007 and 2008-2011. Simultaneously, an inter-ministerial group was established in 2004 to implement these policies, giving rise to the Permanent Working Group for Local Productive Agglomerations (PGTP-APL). The main objective of the PGTP-APL is to adopt methodologies to comprehensively support these local productive clusters by, for example: avoiding duplication; facilitating interaction among institutions; maximising resources; avoiding fragmentation of initiatives; and promoting better co-ordination between government programmes. Brazil's LPA policy prioritises traditional and labour-intensive activities, seeking to improve competitiveness through dissemination of better management and technological practices while also strengthening productive synergies and market insertion (ECLAC, 2011[40]).

Harnessing digital solutions is important for boosting firms and business productivity

Encouraging e-commerce and uptake of digital solutions by businesses, particularly MSMEs, remains key to reap the benefits of the digital transformation. The COVID-19 crisis and social distancing measures have shown the importance of continuing to invest in digital technologies for businesses. E-commerce and online delivery platforms allowed many businesses, including MSMEs, to continue operations during the lockdown. In Panama, for instance, sellers on Mercado Libre.com multiplied by four between August 2019 and August 2020 (although they remained well below the levels reached in comparable countries such as Costa Rica and the Dominican Republic) (Figure 3.11, Panel A).

Given the high reliance on commerce activities in Panama, harnessing digital solutions could facilitate business and consumption even in the post-pandemic period. In 2017, 35% of the Panamanian population aged 15+ had made or received digital payments. This share further increased to 36% by 2021, thanks to improvements in connectivity and the changes caused by the pandemic (World Bank, 2022[41]). In particular, by 2021, 14% of those aged 15+ had used a mobile phone or the internet to buy something online (against just 6% in 2017) and 18% had made a digital in-store merchant payment, with 31% of those having done so for the first time after COVID-19 started (Figure 3.10).

Figure 3.10. Digital payments and e-commerce are increasing in Panama

Share of population age 15 and over (%)

Source: (World Bank, 2022[41]), The Global Findex Database 2021, https://globalfindex.worldbank.org/.

These digital solutions could translate in efficiency and productivity gains for MSMEs (OECD et al., 2020[42]). Panama already planned to encourage electronic payments and e-commerce. As detailed in the Plan of Digital Alphabetisation of Panama’s Digital Agenda 2021, digital skills development is important to ensure that all Panamanians can benefit from the digital transformation (AIG, 2021[43]; OECD et al., 2020[42]). Equally important is continued investment in infrastructure, both in rural and urban areas, to ensure the digital transformation does not accentuate inequalities. Panama performs above the LAC average in terms of access to an active mobile broadband, but below other high-income countries in the region. Similarly, it performs poorly in access to a fixed broadband (Figure 3.11, Panel B).

Figure 3.11. The COVID-19 crisis encouraged e-commerce and highlighted the importance of investing in an inclusive digital transformation

Note: Fixed-broadband subscriptions per 100 people. Refers to fixed subscriptions to high-speed access to the public Internet (a TCP/IP connection), at downstream speeds equal to, or greater than, 256 kbit/s divided by population and multiplied by 100. Active mobile-broadband subscriptions, count. Refers to the sum of active handset-based and computer-based (USB/dongles) mobile-broadband subscriptions that allow access to the Internet. Total population is based on the de facto definition of population, which counts all residents regardless of legal status or citizenship. The values shown are midyear estimates.

Source: (OECD et al., 2020[42]) based on (ITU, 2023[44]), World Telecommunication/ICT Indicators Database 2020; and (ECLAC, 2021[45]), Post Pandemic COVID-19 Economy Recovery: Enabling Latin America and the Caribbean to Better Harness E-Commerce and Digital Trade, https://www.cepal.org/sites/default/files/publication/files/46858/S2100269_en.pdf.

Measures to develop and support digital connectivity and e-readiness of enterprises stand out among the achievements of the Panama government during the pandemic. The programmes Emprendiendo en el comercio electrónico (provided by the MICI and AMPYME), for example, benefited more than 3 000 entrepreneurs in 2020. Artesano digital (an inter-institutional initiative between the MiCultura, MICI and AIG) provided training to the craftmanship sector (MICI, 2021[46]). Pursuing additional public-private alliances in this field is key. One example is a project promoted by Visa and AMPYME for 2022 that aimed to support adoption of digital technologies by MSMEs, including digital payments in the tourism sector (AMPYME, 2021[47]).

Going forward, measures related to facilitating cross-border trade and logistics for MSMEs, along with continuous updating of the regulatory environment in line with new trends, will be vital to creating a successful digital economy ecosystem. Panama’s personal data protection regulation (approved in 2021) provides a further pillar to support the development of a trustworthy and strong digital trade environment, as it closely follows the pioneering model of the EU General Data Protection Regulation (GDPR). Trust in the digital environment – with respect to digital security, personal data and consumer protection – is important to accelerate digitalisation and make Panama an attractive location for digital services industries (OECD, 2020[48]).

Towards more inclusive and diversified growth in the post-pandemic period

Ensuring that Canal activities act as an engine of inclusive growth is vital. Ensuring that Canal activities benefit regions and provinces beyond Panama and Colón will be key for inclusive growth. Since its opening in 1914, Panama’s economy has been tightly linked with Canal activities, especially transport and logistics services. Nationalisation of the Canal (in 1999) and its expansion (in 2016) have increased its importance as a source of both high-quality jobs for Panamanians and government revenues through the Canal Authority (Autoridad del Canal de Panama, ACP). The Canal was estimated to represent 40% of total activity including direct and induced output (OECD, 2017[49]). Non-tax revenues from the Canal represented 21% of total central government revenues in 2019 and climbed to 27.6% in 2020 as tax revenues plummeted (MEF, 2021[50]). Activities related to the Canal and the Colón FTZ have contributed to the demand for high-skilled workers and to salaries increases in the Panama and Colón provinces.

Unless the benefits of the Canal are extended to the rest of the country, the risk remains that growing concentration of production and income may exacerbate inequality. In the period 2018‑21, just two provinces represented the lion’s share of the country’s GDP: Panama (57.8%) and Colón (15.9%). By comparison, Coclé, which has around the same population as Colón, represented only 3.1% (Figure 3.12, Panel A). This results in high heterogeneity in salaries between provinces that benefit from international linkages and depend heavily on the service sector (e.g. Panama and Colón), and provinces that remain highly dependent on agriculture (e.g. Darién and Bocas del Toro). Further integration of the Comarcas is also critical (Figure 3.12, Panel B).

Figure 3.12. The concentration of productive activities in Panama and Colón have contributed to salary differentials with agriculture-dependent provinces

Note: The indigenous’ Comarcas value added is included in that of neighbouring provinces in Panel A: Ngäbe Buglé in Bocas del Toro, Chiriquí and Varaguas, Kuna Yala in Colón and Emberá in Darién.

Source: INEC, (2021[51]), Encuesta de Mercado Laboral, October 2021, https://inec.gob.pa/publicaciones/Default3.aspx?ID_PUBLICACION=1106&ID_CATEGORIA=5&ID_SUBCATEGORIA=38 and INEC (2023[52]) , Cifras Estimadas del Producto Interno Bruto Provincial (PIBP), https://www.inec.gob.pa/publicaciones/Default3.aspx?ID_PUBLICACION=1289&ID_CATEGORIA=4&ID_SUBCATEGORIA=76.

Articulating production reactivation strategies is important, as is ensuring they align with multisectoral strategies that promote territorial development and poverty reduction. A good example includes the Plan Colmena with the programme Agro Vida. In particular, reactivation strategies should promote greater linkages among the modern tradeable services sector in Panama and Colón and the rest of the country, with a view to boosting productivity in other sectors (e.g. agriculture and industry) and provinces (i.e. beyond Panama and Colón). Given the low complexity of Panama’s exports, these strategies could promote investment in higher value-added and greater diversification, such as agro-industry products or services as in the project Agroindustria Competitiva of the National Programme of Industrial Competitiveness (Programa Nacional de Competitividad Industrial, PNCI) directed to MSMEs (MICI, 2022[53]).

Further investments in science, technology and innovation are also important to increase competitiveness in Panama and move towards more diversified and knowledge-driven growth (OECD, 2018[2]). Strategic Pillar V of the PEG 2019-24 had set the ambitious objectives of increasing public investment in innovation to 1% of GDP and converting Panama into a hub for innovation, technology and knowledge. At present, investment in research and development (R&D) still lags behind most LAC countries and has been volatile in the past decades. Most notably, it decreased from 0.36% of GDP in 2000 to 0.18% in 2022 compared to 0.56% in LAC and 2.7% in the OECD area on average for the same year (Figure 3.13, Panel A). Moreover, lack of effective co-ordination within the National System of Science, Technology and Innovation has meant that universities have few links with firms and R&D investment has remained largely government-led in the past ten years (Figure 3.13, Panel B).

Figure 3.13. Research and development (R&D) spending remains low and government-driven in Panama

Note: Simple averages for LAC and OECD. In Panel A, the data for Brazil refers to the year 2020, 2014 for Ecuador for 2014, 2021 for Chile, 2019 for Honduras, and 2020 for Trinidad and Tobago. The data for the OECD is from OECD (2024[54]). In Panel B, the data refers to 2021 for Chile, 2014 for Ecuador, 2019 for Honduras, 2015 for Puerto Rico, and 2016 for Venezuela.

Source: (RICYT, 2025[55]), Network for Science and Technology Indicators: –Ibero-American and Inter-American, http://www.ricyt.org/en/category/indicators/.

Beyond the lack of financing, another bottleneck in Panama’s innovation model is its short-term vision and the focus on the acquisition of technologies from abroad, which does not favour the emergence of a strong national knowledge economy (SENACYT, 2020[56]). To move from an economy focused on Canal activities to a knowledge economy, Panama must make important efforts to increase the resources allocated for science, technology and innovation activities, promote greater private sector involvement, strengthen innovation capacity within firms, and expand human resources and infrastructure in universities across the country to generate stronger and more inclusive development (UNCTAD, 2020[57]). Developing new skills and training will also be key to ensure that all Panamanians can benefit from the increasing demand for high-skilled professionals.

Deepening regional integration could boost the recovery through export-induced increases in value-added. Strategic considerations should be made when choosing Panama’s model of insertion in the post-COVID global economy. Beyond the potential effects of the crisis on reshoring strategies, growing geopolitical and national security considerations are reducing preferences for productive, commercial and technological interdependence among the main world economies. The net result will likely not be a reversal of globalisation, but a more regionalised world economy (OECD et al., 2021[58]). For Panama, this could offer an opportunity for deeper regional integration and a stronger recovery through export-induced domestic value-added. In fact, Panama’s exports to the LAC region represent higher value added (34%) than those to other regions (Figure 3.14).

Figure 3.14. Regional partners are important in the exports of national value added

National value added contained in exports, by main destination, 2017 or latest available year.

Note: In the cases of Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua and Panama, the calculations were based on the regional input-output table for Latin America for 2014.

Source: (ECLAC, 2020[59]), on the basis of world input-output tables for 2017.

References

[43] AIG (2021), Agenda Digital 2021, Autoridad Nacional para la Innovación Gubernamental, https://aig.gob.pa/descargas/2019/06/agenda-digital-2021-aig.pdf?csrt=1460942638057634664.

[31] AMPYME (2023), AMYPYME Estadísticas, Autoridad de la Micro, Pequeña y Mediana Empresa, Panamá, https://ampyme.gob.pa/?page_id=25740.

[47] AMPYME (2021), Visa y Ampyme se unen para promover la digitalización de las Mipymes panameñas, Autoridad de la Micro, Pequeña y Mediana Empresa, https://ampyme.gob.pa/?p=31823.

[19] AMPYME (2020), AMPYME (Micro, Small and Medium Enterprise Authority), Autoridad de la Micro, Pequeña y Mediana Empresa, Panamá, https://ampyme.gob.pa/wp-content/uploads/2020/01/GUIA-RAPIDA-EMPRENDEDORES.pdf.

[38] Arraiz, I., R. Stucchi and F. Henriquez (2011), Impact of the Chilean Supplier Development Program on the Performance of SME and Their Large Firm Customers, Inter-American Development Bank, Washington, DC, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1847123.

[29] Bridge for Billions/BID Lab (n.d.), “¿Qué es conecta?”, Conecta Centroamérica, https://conecta.bridgeforbillions.org/nuestros-programas/ (accessed on 8 March 2024).

[3] CNC (2019), Evolución y Estado de las MIPYME y el Emprendimiento, Informe, Centro Nacional de Competitividad, https://cncpanama.org/cnc/index.php/infografias/category/163-informes-especiales.

[1] CNC/UTP (2021), Impacto Económico De La Crisis COVID-19 Sobre La Mipyme En Panamá, Junio 2021, Centro Nacional de Competitividad y Universidad Tecnológica de Panama, http://faedpyme.upct.es/sites/default/files/publicaciones/149/0601.pdf.

[23] CONeP (2021), Comisión de Alto Nivel Público-Privado para la Reactivación Económica Nacional: Informe Ejecutivo, Consejo Nacional de la Empresa Privada, Panamá, https://www.conep.org.pa/wp-content/uploads/2021/10/Propuestas_Consensuadas_Comision_Alto_Nivel.pdf.

[39] Consejo Nacional de la Competitividad de Perú (2015), Agenda de competitividad 2014-2018. Avances y retos a Noviembre del 2015, Consejo Nacional de la Competitividad de Perú, https://www.cnc.gob.pe/images/cnc/Institucional/PPT-Avance-Agenda-Competitividad-A_Diciembre_2015.pdf.

[45] ECLAC (2021), Post Pandemic COVID-19 Economy Recovery: Enabling Latin America and the Caribbean to Better Harness E-Commerce and Digital Trade, UN Economic Commission for Latin America and the Caribbean, Santiago, https://www.cepal.org/sites/default/files/publication/files/46858/S2100269_en.pdf.

[59] ECLAC (2020), International Trade Outlook for Latin America and the Caribbean 2020, UN Economic Commission for Latin America and the Caribbean, Santiago, https://repositorio.cepal.org/bitstream/handle/11362/46614/1/S2000804_en.pdf.

[22] ECLAC (2020), “Sectores y empresas frente al COVID-19: emergencia y reactivación”, Informe Especial Covid-19, No. 4, UN Economic Commission for Latin America and the Caribbean, Santiago, https://repositorio.cepal.org/bitstream/handle/11362/45734/4/S2000438_es.pdf.

[40] ECLAC (2011), Apoyando a las pymes: Políticas de fomento en América Latina y el Caribe, UN Economic Comission for Latin America and the Caribbean, Santiago, https://repositorio.cepal.org/server/api/core/bitstreams/b0b8b9e1-a3c0-4d50-8ebf-a7c4df2c1b4e/content.

[34] European Parliament (2023), Las pequeñas y medianas empresas, European Parliament, Brussels, https://www.europarl.europa.eu/factsheets/es/sheet/63/las-pequenas-y-medianas-empresas.

[6] Gallup (2022), Gallup World Poll, http://www.gallup.com.

[30] Heredia Zurita, A. and M. Dini (2021), Análisis de las políticas de apoyo a las pymes para enfrentar la pandemia de COVID-19 en América Latina, Comisión Económica para América Latina y el Caribe (CEPAL), Santiago, https://repositorio.cepal.org/server/api/core/bitstreams/80534966-a18e-49c4-bbdc-c53021bbaebf/content.

[21] HLB (2021), Régimen de la micro, pequeña y mediana empresa sufre modificación, Boletín Fiscal 02 - 2021, HLB Cheng y Asociados, http://www.chengyasociados.com/regimen-de-la-micro-pequena-y-mediana-empresa-sufre-modificacion/.

[10] IDB (2025), “Producto Interno Bruto Real y Nominal”, MINERPA Mapa de Información Económica de la República de Panamá, https://minerpa.com.pa/producto-interno-bruto-real-y-nominal/.

[35] IDB (2013), “Impact Evaluation of Innovation and Linkage Development Programs in Costa Rica: The Cases of PROPYME and CR Provee”, Working Paper Series, No. IDB-WP-461, Inter-American Development Bank, Washington, DC, https://publications.iadb.org/en/impact-evaluation-innovation-and-linkage-development-programs-costa-rica-cases-propyme-and-cr.

[33] ILO (2014), Políticas para la formalización de las micro y pequeñas empresas en América Latina: Experiencias, avances y desafíos, International Labour Organization, Geneva, https://www.ilo.org/wcmsp5/groups/public/---americas/---ro-lima/---sro-santiago/documents/publication/wcms_368329.pdf.

[11] IMF (2024), World Economic Outlook Database, October 2024, International Monetary Fund, Washington, DC, https://www.imf.org/en/Publications/WEO/weo-database/2024/October.

[12] IMF (2023), Balance of Payments and International Investment Position Statistics (BOP/IIP) (database), https://data.imf.org/?sk=7a51304b-6426-40c0-83dd-ca473ca1fd52.

[17] INEC (2025), Avance de cifras del Producto Interno Bruto: Anual 2024, https://www.inec.gob.pa/publicaciones/Default3.aspx?ID_PUBLICACION=1316&ID_CATEGORIA=4&ID_SUBCATEGORIA=26.

[20] INEC (2024), Índice Mensual de Actividad Económica de Panamá, Instituto Nacional de Estadística y Censo, Panamá, https://www.inec.gob.pa/avance/Default2.aspx?ID_CIFRAS=49&ID_CATEGORIA=1&ID_IDIOMA=1.

[18] INEC (2023), “Avance de cifas del Producto Interno Bruto: Anual 2022”, Instituto Nacional de Estadística y Censo, Panamá, https://www.inec.gob.pa/publicaciones/Default3.aspx?ID_PUBLICACION=1187&ID_CATEGORIA=4&ID_SUBCATEGORIA=26.

[52] INEC (2023), Cifras Estimadas del Producto Interno Bruto Provincial, Insituto Nacional de Estadística y Censo, Panamá, https://www.inec.gob.pa/publicaciones/Default3.aspx?ID_PUBLICACION=1289&ID_CATEGORIA=4&ID_SUBCATEGORIA=76.

[26] INEC (2023), “Encuesta de Mercado Laboral, Agosto de 2023”, Estadísticas del Trabajo, Instituto Nacional de Estadística y Censo, Panamá, https://www.inec.gob.pa/publicaciones/Default3.aspx?ID_PUBLICACION=1209&ID_CATEGORIA=5&ID_SUBCATEGORIA=38 (accessed on 12 April 2024).

[9] INEC (2022), Balanza de Pagos, Instituto Nacional de Estadística y Censo, Panamá, https://www.inec.gob.pa/publicaciones/Default3.aspx?ID_PUBLICACION=1116&ID_CATEGORIA=4&ID_SUBCATEGORIA=24.

[13] INEC (2022), Índice Mensual de Actividad Económica de Panamá, Instituto Nacional de Estadística y Censo, Panamá, https://www.inec.gob.pa/avance/Default2.aspx?ID_CATEGORIA=1&ID_CIFRAS=1&ID_IDIOMA=1.

[51] INEC (2021), Encuesta de Mercado Laboral, Agosto 2019 y Octubre 2021, Instituto Nacional de Estadística y Censo, Panamá, https://www.inec.gob.pa/publicaciones/Default3.aspx?ID_PUBLICACION=1105&ID_CATEGORIA=5&ID_SUBCATEGORIA=38.

[7] ITU (2023), “ICT Statistics (Database)”, International Communications Union, Geneva, https://www.itu.int/en/ITU-D/Statistics/Pages/stat/default.aspx (accessed on 1 July 2023).

[44] ITU (2023), World Telecommunication/ICT Indicators Database 2023, International Telecommunication Union, Geneva, https://www.itu.int/en/ITU-D/Statistics/Pages/publications/wtid.aspx.

[16] MEF (2025), Informe Económico y Social Primer Semestre de 2024, Ministerio de Economía y Finanzas de Panamá, Panama, https://www.mef.gob.pa/wp-content/uploads/2025/01/MEF-DAES.-Informe-Economico-y-Social-Primer-semestre-2024.pdf.

[50] MEF (2021), BBVA 10th Latin America Conference: Economic and Fiscal Outlook, 13 May, Ministry of the Economy and Finance of Panamá, https://fpublico.mef.gob.pa/reportes/TELECONFERENCIAS/BBVA-10th-Latin-America-Conference-May-2021.pdf.

[53] MICI (2022), Seleccionan a empresas participantes de Agroindustria Competitiva 2022, Ministerio de Comercio e Industrias de Panamá, https://www.mici.gob.pa/noticias/seleccionan-a-empresas-participantes-de-agroindustria-competitiva-2022.

[46] MICI (2021), Impulso de sectores productivos y proyectos para fortalecer la competitividad del país marcan agenda del MICI, Ministerio de Comercio e Industrias de Panamá, https://www.mici.gob.pa/noticias/impulso-de-sectores-productivos-y-proyectos-para-fortalecer-la-competitividad-del-pais-marcan-ag.

[37] Ministerio de la Producción del Perú (2020), Decreto aprobación “estrategia de homologación de proveedores mipyme en nuevos sectores - produce mipyme proveedores”, Ministerio de la Producción del Perú, https://cdn.www.gob.pe/uploads/document/file/1447078/D.%20S.%20N%C2%BA%20019-2020-PRODUCE.pdf.pdf.

[54] OECD (2024), Main Science and Technology Indicators (MSTI) database, July 2024, https://data-explorer.oecd.org/vis?lc=en&tm=msti&snb=1&vw=tb&df[ds]=dsDisseminateFinalDMZ&df[id]=DSD_MSTI%40DF_MSTI&df[ag]=OECD.STI.STP&df[vs]=&pd=2014%2C&dq=.A.G.PT_B1GQ..&to[TIME_PERIOD]=false.

[4] OECD (2022), OECD COVID-19 Recovery Dashboard, OECD Publishing, Paris, https://www.oecd.org/coronavirus/en/recovery-dashboard (accessed on 15 February 2022).

[14] OECD (2022), OECD Economic Outlook, Interim Report March 2022: Economic and Social Impacts and Policy Implications of the War in Ukraine, OECD Publishing, Paris, https://doi.org/10.1787/4181d61b-en.

[48] OECD (2020), Digital Transformation in the Age of COVID-19: Building Resilience and Bridging Divides, OECD Publishing, Paris, https://www.oecd.org/digital/digital-economy-outlook-covid.pdf.

[2] OECD (2018), Multi-dimensional Review of Panama: Volume 2: In-depth Analysis and Recommendations, OECD Development Pathways, OECD Publishing, Paris, https://doi.org/10.1787/9789264302549-en.

[8] OECD (2017), Green Growth Indicators, OECD Publishing, Paris, https://www.oecd.org/greengrowth/green-growth-indicators/ (accessed on  August 2019).

[49] OECD (2017), Multi-dimensional Review of Panama: Volume 1: Initial Assessment, OECD Development Pathways, OECD Publishing, Paris, https://doi.org/10.1787/9789264278547-en.

[58] OECD et al. (2021), Latin American Economic Outlook 2021: Working Together for a Better Recovery, OECD Publishing, Paris, https://doi.org/10.1787/5fedabe5-en.

[42] OECD et al. (2020), Latin American Economic Outlook 2020: Digital Transformation for Building Back Better, OECD Publishing, Paris, https://doi.org/10.1787/e6e864fb-en.

[55] RICYT (2025), Red de Indicadores de Ciencia y Tecnología Interamericana e Iberoamericana, Red de Indicadores de Ciencia y Tecnología Interamericana e Iberoamericana, http://www.ricyt.org/en/category/indicators/.

[32] Salazar, J. and J. Chacaltana (2018), Políticas de formalización en América Latina. Avances y desafíos, International Labour Organization, Geneva, https://www.ilo.org/sites/default/files/wcmsp5/groups/public/%40americas/%40ro-lima/documents/publication/wcms_645159.pdf.

[25] SBP (2020), Análisis de la cartera de créditos otorgados por los bancos del Sistema Bancario Nacional a la Micro y Pequeña empresa, Mayo 2020, Superintendencia de Bancos de Panamá, https://www.superbancos.gob.pa/superbancos/documentos/financiera_y_estadistica/estudios/macro_mipyme.pdf?v=1.04.

[56] SENACYT (2020), Plan Estratégico Nacional de Ciencia, Tecnología e Innovación (PENCYT) 2019 – 2024, Secretaría Nacional de Ciencia, Tecnología e Innovación, https://www.senacyt.gob.pa/pencyt-2019-2024/.

[28] SITCA (2020), Secretaría de Integración Turística Centroamericana, https://sitca.info/2020/11/elementor-4393.

[57] UNCTAD (2020), Science, Technology and Innovation Policy Review: Panama, United Nations Conference on Trade and Development, https://unctad.org/webflyer/science-technology-and-innovation-policy-review-panama.

[27] UNDP (2023), Programa ODS Cadenas de Valor, UN Development Programme, https://www.undp.org/es/sdgvaluechains/nuestros-resultados.

[15] World Bank (2025), Global Economic Prospects - Latin America and the Caribbean - January 2025, The World Bank, https://thedocs.worldbank.org/en/doc/c50bc3c87bc2666b9e5fa6699b0b2849-0050012025/related/GEP-Jan-2025-Regional-Highlights-LAC.pdf.

[5] World Bank (2024), World Development Indicators (database), World Bank, Washington, DC, https://data.worldbank.org/.

[41] World Bank (2022), The Global Findex Database 2021, World Bank Group, Washington, DC, https://globalfindex.worldbank.org/.

[24] World Bank (2022), World Development Indicators (database), World Bank Group, Washington, DC, https://data.worldbank.org/indicator.

[36] World Bank (2010), Evaluación de Impacto de los Programas para PyME en América Latina y el Caribe, World Bank, Washington, DC, http://www.grade.org.pe/upload/publicaciones/archivo/download/pubs/MJ-JJD-Evaluacion%20de%20Impacto%20Pyme.pdf.

Notes

← 1.  The supplementary tax (impuesto complementario) is an advance on dividend tax, as a result of the taxpayer not distributing at least 40% of the profit for the year being reported.

← 2.  https://www.gacetaoficial.gob.pa/pdfTemp/29016_A/78340.pdf.