Panama’s achievements, innovations, and challenges in eradicating poverty

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Kids from Panama near a water sanitation project
Kids from Panama near a water sanitation project. Source: World Bank

The 2023 International Day of the Eradication of Poverty theme—access to decent work and social protection—resonates deeply in Panama, both because of the achievements that have already been realized in the country, and because of the innovations that are still needed in order for it to continue to progress in poverty and equity matters.

Panama’s recent economic history has been marked by outstanding job creation. The country’s rapid economic growth between 1990 and 2019, at an average of 5.8 percent, largely outpaced the region’s, which grew at 2.6 percent. In Panama, economic growth has been a catalyst for improved labor conditions. Between 1989 and 2019, mean hourly real wages increased by 60 percent; the employment rate rose from 48 to 63 percent; and women’s labor force participation increased from 34.1 to 55.5 percent .

As a result, the percentage of people living in poverty, defined as living with a daily income per person of less than USD 6.85, plummeted from 50.2 percent in 1989 to 12.9 percent in 2021. Not only that, but Panama also has the third-largest middle class in the region, defined as living with a daily income per person between USD 14 to USD 80,  as a share of its population, coming in after only Uruguay and Argentina. 

Panama has also introduced important social protection programs, such as PASE-U, the universal education grant, and Panamá Solidario, the emergency program that has helped to mitigate the economic impacts of the pandemic among Panamanian households. 

Structural challenges are still on the horizon

Despite these significant achievements, Panama continues to grapple with income inequality, ranking third in the region, after only Brazil and Colombia . This inequality is partly rooted in an uneven labor market, where jobs are of low quality for some groups, especially low-education and rural workers. Panamanian workers have lower levels of benefits and job security than they did before the pandemic, and the Job Quality Index has dropped from 72 percent in 2008 to 67 percent in 2021. 

Nearly half of Panama's workers do not have social protection, and the Panamanian labor market exhibits substantial disparities in income . For example, in 2019, the poorest 20 percent earned just 1.2 percent of the total labor income of the country, while the wealthiest 20 percent claimed 32.7 percent. Informal workers earn less than half of what formal workers earn, and agricultural workers make only a quarter of the average amount of labor earnings among urban workers.

Geographic disparities in Panama are also significant. People experiencing poverty are underrepresented in urban areas (5.9 percent) and overrepresented in rural areas (17.7 percent) . In the indigenous comarcas, 69.4 percent are living in poverty. Furthermore, the comarcas are still largely underserved, with limited access to basic services such as electricity, water, and sanitation. 

Moreover, Panama is greatly exposed to the effects of climate change. We have recently seen in the news how the Panama Canal has reached historically low water levels and restricted its traffic. Poor Panamanians are disproportionately exposed to the effects of climate change: according to the 2019 Encuesta de Propositos Múltiples, about 19 percent of the poor reported being affected by natural hazards in the previous 12 months, compared to 8 percent of people in the middle class. Furthermore, due to rising sea levels, members of the Guna ethnic group are being forced to relocate from their ancestral islands to the mainland.

Innovations to address Panama’s remaining challenges

In recognition of the importance of addressing these challenges, Panama has made them a central element in its national agenda. 

For example, the government's Strategic Plan 2020-2024 outlines priorities such as closing regional and ethnic gaps in social and economic indicators. In 2022, the government launched Plan Colmena, an intersectoral initiative to strengthen local capacity and promote community participation in the delivery of public services. It also developed the National Strategic Plan for Science, Technology and Innovation (2019-2024) to boost innovation capacity and entrepreneurship. Moreover, Panama has taken important steps toward promoting resilience in the wake of disasters with the Caribbean Catastrophe Risk Insurance Facility (CCRIF SPC), its excess rainfall parametric insurance policy; it should now aim to develop an adaptive social protection system by building on its recently developed national registry of beneficiaries.

The World Bank is helping to address these challenges. For example, it has financed policy foundations in Panama to foster low-emission and sustainable economic growth and climate change resilience, and it is preparing a Poverty and Equity Assessment to address knowledge gaps around the most pressing barriers to poverty and shared prosperity in Panama. 

Panama's economic growth and poverty reduction journey thus far is impressive, yet the battle against inequality and other persistent issues continues to be a challenge 

 

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Authors

Kiyomi Cadena

Economist Consultant at the World Bank’s Poverty Global Practice

Joelle Dehasse

Operations Manager for Central America and Dominican Republic

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