Panama: Locking in Success
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Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized PANAMA: LOCKING IN SUCCESS A SYSTEMATIC COUNTRY DIAGNOSTIC Public Disclosure Authorized JANUARY 16, 2015 ACKNOWLEDGEMENTS We would like to thank the members of the Panama Country Team from all Global Practices and IFC, as well as all the partners and stakeholders in Panama, who have contributed to the preparation of this document in a strong collaborative process. (A full description of this process is found in Annex 1). We are very grateful for the generosity exhibited in providing us with substantive inputs, knowledge and advice, particularly given the time limitations. The team is co-led by Friederike (Fritzi) Koehler-Geib (Sr. Economist) and Kinnon Scott (Sr. Economist). Ayat Soliman (Program Leader) provided overall coordination. In addition, the following people provided substantive inputs and guidance: Humberto Lopez (Country Director), Frank Sader (Principal Strategy Officer), Louise J. Cord (Practice Manager), Auguste Tano Kouame (Practice Manager), Maryanne Sharp (Country Operations Adviser), Oscar Calvo- Gonzalez (Program Leader), and Kathy A. Lindert (Program Leader). Peer reviewers are: Pablo Fajnzylber, Practice Manager; David Gould, Lead Economist; and Jennifer J. Sara, Director. The table below identifies the full list of team members that have contributed their time, effort and expertise, and their affiliations. CMU/Global Practice/Cross Team Member Cutting Solution Area/IFC Agriculture Irina I. Klytchnikova, Norman Bentley Piccioni Caribbean CMU Francisco Galrao Carneiro Central America CMU Jovana Stojanovic, Kathy A. Lindert, Mary Rose Parrish, Maria del Camino Hurtado, Oscar Calvo-Gonzalez, Anabela Abreu, Sara Paredes Ponce, Meilyn Gem, Michelle Mccue, Sonia Molina, Desiree Gonzales Climate Change Luiz T. A. Maurer Education Rita Almeida Energy and Extractives Fernando Javier Anaya Amenabar, Javier Aguilar, Mark Lambrides, Susana Moreira Environment and Natural Carter J. Brandon, Karen I. Martinez Ona, Klas Sander Resources Finance and Markets Ana Fiorella Carvajal, Rekha Reddy Global Partnerships Ashruf Mohammad Megahed Governance Diego R. Dorado Hernandez, Francisco Lazzaro, Svetlana I. Proskurovska Health, Nutrition and Population Carmen Carpio, Christine Lao Pena IFC Angela M. Fonseca Arango, Eduardo Wallentin, Gabriel B. Goldschmidt, Irene Arias, Luv Jhangimal Khemchand, Sofia Stefanelli LAC Chief Economist Office Jaime R. de Pinies Bianchi Macroeconomics and Fiscal Jennifer Keller, Diana M. Lachy Castillo, Miguel Angel Saldarriaga Noel, Management Rong Qian, Silvia Gulino, Susana M. Sanchez, Jennifer Keller Poverty Mateo Salazar Rodriguez, Liliana Sousa, Bernarda Erazo Social Protection and Labor Edmundo Murrugarra, Emma M. Monsalve Montiel, Pablo Ariel Acosta Trade and Competitiveness Alejandro Espinosa-Wang, Jose Eduardo Gutierrez Ossio, Transport and ICT Lincoln Flor, Shomik Mehndiratta, Doyle Galegos Treasury Concepcion Aisa Otin, Hector Ibarra Pando Urban, Rural and Social Armando Guzman Escobar, Agustin Maria, Carmen Bernardo Garcia, Catalina Development Marulanda, Dianna M. Pizarro, Kimberly Vilar, Yoonhee Kim, Luis-Felipe Dulchicela, Ramon Anria i Water Antonio M. Rodriguez Serrano, Carmen Rosa Yee-Batista, Charles Delfieux, Elvira Cusiqoyllor Broeks Motta, Laura Maratou-Kolias, Miguel Vargas Ramirez ABBREVIATIONS AND ACRONYMS ACP Panama Canal Authority ANAM National Environmental Authority ASEP National Authority of Public Services (Autoridad Nacional de Servicios Públicos) CBI Panamanian Centro Bancario Internacional CEDLAS Center for Distributive and Social Studies CGE Computable General Equilibrium CND National Dispatch Center DISAPAS Directorate of Water and Sanitation of the Ministry of Health DICRE Dirección de Inversiones, Concesiones y Riesgos del Estado. DIPORP National Integrated Development Plan of the Indigenous Peoples of Panama ECLAC Economic Commission for LAC EML Encuesta de Mercado Laboral ENASSER Encuesta Nacional de Salud Sexual y Reproductiva ETESA National Electricity Transmission Company FARC Revolutionary Armed Forces of Colombia FDI Foreign Direct Investment GDP Gross Domestic Product GMM General Method of Moments IBC International Banking Center IDB Inter-American Development Bank IDAAN National Water Supply and Sanitation Administration IFC International Finance Corporation ILO International Labor Organization IMF International Monetary Fund INEC National Institute of Statistics and Census IPCC International Panel on Climate Change IRHE Institute of Water and Electrification LAC Latin America and the Caribbean LAPOP Latin American Public Opinion Project LSCI Liner Shipping Connectivity Index MAPAS Monitoring Country Progress in Water Supply and Sanitation MDG Millennium Development Goal MEF Ministry of Economy and Finance MICI Ministry of Commerce and Energy MINSA Ministry of Health OECD Organization for Economic Co-operation and Development PAHO Pan American Health Organization PCW Panama Canal Watershed PISA Program for International Student Assessment SCD Systematic Country Diagnostic SEDLAC Socio-Economic Data Base data base for Latin America and the Caribbean SEM Sedes de empresas multinacionales ii SIEPAC Sistema de Interconexión Eléctrica de los Países de América Central SSEIR Social Sector Expenditure and Institutional Review UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Program UNHR United Nations Human Rights UNODC United Nations Office on Drugs and Crime U.S. United States USG United States Government WDI World Development Indicators WBES World Bank Enterprise Surveys WEO World Economic Outlook WSS Water and Sanitation Services iii TABLE OF CONTENTS I. Executive Summary................................................................................................................. 1 The Nature of Growth in Panama ............................................................................................... 1 Inclusion and Economic Growth ................................................................................................. 2 Sustainability: Economic, Social and Environmental ................................................................. 4 Priority Areas and Complementarities ........................................................................................ 6 Knowledge Gaps ......................................................................................................................... 6 II. Poverty and Shared Prosperity in Panama............................................................................... 8 III. The Nature of Panama’s Economic Growth .......................................................................... 18 The Canal and Trends in World Trade ...................................................................................... 18 The Impact of the Canal on Growth in Specific Sectors ........................................................... 21 The Increasing Role of Public Investment ................................................................................ 28 FDI and Private Investment ....................................................................................................... 28 Panama’s Stable Macroeconomic Environment ....................................................................... 32 Outlook ...................................................................................................................................... 33 IV. Prioritization Linked to Growth ............................................................................................ 35 Prioritization Process ................................................................................................................. 35 Benchmarking the Determinants of Growth ............................................................................. 36 a. Cross Country Benchmarking ........................................................................................ 36 b. Perception Data .............................................................................................................. 39 c. Firm-Level Micro Data .................................................................................................. 39 d. Synthesis......................................................................................................................... 40 Priority Areas ............................................................................................................................ 40 Identified Opportunities ............................................................................................................ 47 V. Inclusiveness of Panama’s Growth ....................................................................................... 51 Positive Trends .......................................................................................................................... 52 Limitations of Growth’s Effects ................................................................................................ 54 Drivers of Poverty Reduction .................................................................................................... 62 VI. Prioritization Linked to Inclusion .......................................................................................... 68 Benchmarking ........................................................................................................................... 68 Priority Area .............................................................................................................................