Panama's economy is based primarily on a well-developed services sector that accounts for about 77% of GDP. Services include the Panama Canal, banking, the Colon Free Zone, insurance, container ports, flagship registry, tourism, and medical and healthcare.
In October 2006, Panamanians voted overwhelmingly in favor of a $5.25 billion Canal expansion project to construct a third set of locks, which is expected to be completed in 2014. The Government of Panama expects the project to help maintain the value of this strategic transportation asset by doubling the capacity of the waterway. The expansion is financed through a combination of loans from multilateral institutions and current revenues.
GDP growth in 2011 surpassed 10%. Recent growth has been fueled by government investment in infrastructure as well as the construction, transportation, maritime, tourism sectors, and Panama Canal-related activities. Panama maintains one of the most positive growth rates in the region. As a result of this growth and sound fiscal management, government debt as a percentage of GDP dropped to 41.2% in 2011, and government-issued debt is classified as the lowest rung of investment grade. Socially, poverty has fallen from 32.7% in 2008 to about 28% in 2011, with a reduction in the extreme poverty rate from 18.8% in 1997 to 11.4% in 2011. The distribution of income, while improving slightly in recent years, remains among the most unequal in the hemisphere.
Panama has bilateral free trade agreements (FTAs) in force with Peru, Chile, El Salvador, Taiwan, Singapore, Guatemala, Honduras, Nicaragua, and Costa Rica, and has completed negotiations with Canada and the European Union. Panama has started free trade negotiations with Colombia, and EFTA. The U.S. and Panama signed a Trade Promotion Agreement (TPA) in June 2007. The agreement was overwhelmingly approved in July 2007 by the Panamanian National Assembly. In April 2011, Panama completed indicated steps relating to labor code and tax transparency to ready the Trade Agreement for submission to the United States Congress. The Trade Agreement was passed by the U.S. Congress and signed by President Obama in October 2011, and both countries are working to bring the agreement into force. Once implemented, the agreement will promote economic opportunity by eliminating tariffs and other barriers to trade of goods and services and will provide a framework for any trade disputes.
Sources:CIA World Factbook (March 2012)
U.S. Dept. of State Country Background Notes ( March 2012)