Selected Issues

Abstract

Selected Issues

Social Issues in Panama: Background and Policies1

While Panama’s remarkable growth performance in recent years has been largely pro-poor and contributed to significant reductions in poverty and inequality, the country faces ongoing challenges on the shared prosperity front. Social inequities remain high relative to peers, especially when compared to countries of similar income. The new administration is well placed to redress social imbalances keeping in mind that equity and inclusion are not only socially desirable goals but important conditions to ensure that future economic growth is broad-based and sustainable. Coordinated policies to protect Panama’s resources, especially water, are of increasing importance in light of the adverse impacts of climate change on the region.

A. Background

1. Panama is a fast-growing high-income country but lags regional peers in human development. Panama has reached a relatively high level of income with per-capita output of US$26,822 in PPP terms in 2019—the highest in Latin America and the Caribbean. It has been the fastest-growing economy in the region over the last two decades and one of the most dynamic economies in the world. However, while its rapid growth accelerated poverty reduction and created economic opportunities, Panama lags the peers in its income group in many aspects of social policy, such as education, health, gender equality and social inclusion. According to the World Bank’s Human Capital Index (HCI), which measures the amount of human capital that a child can expect to attain by age 18 given the country’s health and education systems, Panama performs on par with countries with much lower per-capita income, such as Nicaragua (per capita PPP GDP of US$5,290), Tajikistan (per capita PPP GDP of US$3,589) and Paraguay (per capita PPP GDP of US$13,584).

Figure 1.
Figure 1.

Panama: A High-Income Economy that Lags Regional Peers

Citation: IMF Staff Country Reports 2020, 125; 10.5089/9781513541679.002.A006

Sources: IMF World Economic Outlook, and World Bank Human Capital Index.

2. Progress on poverty reduction has been significant in recent years, however important gaps remain. Panama saw a remarkable reduction in poverty headcounts and a rise of the middle class. The extreme poverty rate (as defined by the World Bank) dropped from 12.4 percent in 2000 to 2.5 percent in 2017, while the general poverty rate was slashed from 35.5 percent to 14.1 percent over the same period—both at a much faster pace than elsewhere in the region. Moreover, average income growth of the bottom 40 percent of earners has been faster than that of an average citizen. However, rural poverty remains high and is particularly elevated and persistent in the comarcas: territories inhabited by indigenous peoples.

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Source: World Bank Poverty and Equity database.Note: Dates for poverty data for Panama differ from those of Latin America and the Carribean due to data availability.

Poverty headcount ratio at $5.50 a day.

Poverty headcount ratio at $1.90 a day.

Latest available.

President Cortizo’s Commitments to Advance Social Policies

Poverty and inequality: El Plan Colmena “Panama libre de pobreza y desigualdad, la Sexta Frontera” (the “Beehive” plan) is a social program created by the current administration to fight poverty and inequality in Panama through the empowerment of local governments and technical boards, with help from civil society and Panamanian citizens. This plan aims to improve the lives of more than 777,000 Panamanians living in multidimensional poverty in 300 corregimientos (administrative districts) of 63 districts in the country by (i) improving public services (such as healthcare, potable water, sanitation, rural electrification, road infrastructure, education, and housing) and (ii) providing employment to lift people out of poverty. A pilot program was launched in 6 corregimientos in the Capira district with technical support from the United Nations Development Program (UNDP) and by the Food and Agriculture Organization of the United Nations.

Education and nutrition: The program Estudiar sin Hambre is an initiative put forward by the Cortizo administration with the objective of providing balanced and nourishing meals to students in primary and secondary schools of the 300 poorest corregimientos in Panama to develop healthy eating habits and improve learning outcomes. It is also designed to support local farmers by purchasing their products to provide the meals to these students. This program was approved at the end of 2019 and is expected to launch a pilot in 2 schools in the Ngäbe Buglé region and one in San Miguelito. This initiative is being executed by the Ministry of Education in coordination with the National Secretariat for the Food and Nutritional Security Plan.

Climate: The new administration’s priorities include mobilizing state and private resources to encourage “climate-friendly” investment, promoting innovation in energy generation, protecting vulnerable communities that face climate-change-related disruptions, promoting access to information and empowering civil society, and facilitating climate action among young people through projects such as the National Climate Transparency Framework and the Youth Academy on Climate Change.

B. Policy Priorities

Education

3. The quality of public education is key in improving social mobility and appears to be of particular concern among social outcomes. Total social spending in Panama is low and rather stable, it decreased from 10 percent of GDP in 2000 to 9 percent of GDP in 2018 and budget allocations to education remain some of the lowest in the region (see also Chapter on Structural Policies). As a result, enrollment rates (mainly in secondary education) and expected years of schooling in Panama lag the poorest countries in the Americas, Nicaragua and Haiti (per capita PPP GDP of US$5,290 and US$1,878, respectively), according to the HCI. Educational outcomes are also poor – Panamanian students underperformed in international education tests2 relative to other countries, scoring on average only 32 percent above minimal attainment. In the latest 2018 Program for International Student Assessment (PISA), Panama ranked 71 out of 77 countries, demonstrating alarming comprehension deficiency in mathematics, science and reading among 15-year-old students, which was little changed since the 2009 assessment. In the World Bank’s latest Enterprise Survey, firm owners and managers identified poorly educated local workers as the third most important obstacle to doing business in Panama.

4. Addressing these important shortcomings in education is vital for boosting Panama’s long-term competitiveness and growth potential and will require a multi-year strategy, an investment plan, and some degree of cooperation and support from experts in the field. The strategy may include better aligning academic curricula with the needs of the private sector, expanding training, monitoring and evaluation programs for teachers, offering culturally appropriate education opportunities to the indigenous communities and expanding targeted support programs for poor students (such as Beca Universal, see below). Since the HCI captures inequality of opportunity in addition to measuring the disparities in future capital accumulation, Panama’s low scores relative to peers point to productivity losses arising from income gaps and constrained social mobility. This implies that in the absence of comprehensive social policy action within-country educational gaps would widen in addition to cross-country gaps.

Figure 2.
Figure 2.

Panama: Education Spending and Outcomes in Panama are Low Compared to Peers

Citation: IMF Staff Country Reports 2020, 125; 10.5089/9781513541679.002.A006

Sources: IMF FAD Expenditure Assessment Tool (November 2019), and World Bank Human Capital Index.

5. Recent initiatives to boost tertiary training are encouraging but their scale is small. The newly-launched presidential program Academia Panamá para el Futuro, jointly supported by the Ministry of Education and the City of Knowledge foundation, signals that the value of quality training programs for talented students is increasingly recognized. It aims to provide enhanced cross-discipline curriculum for best high school pre-graduates, preparing them to enroll in various university programs in Panama and abroad. Outcomes and scalability of the program remain to be assessed – at present, the size of the 2020 cohort is limited to 90 students and the quality of training will need to be evaluated (the program was only launched in November 2019).

C. Poverty in the Comarcas

6. Poverty and lack of social services are highest among the indigenous groups, representing 14 percent of Panama’s population. Panamanian authorities have been making efforts to improve the lives of the indigenous population, however income disparities and lack of social inclusion with the rest of the country persist. Strikingly, while the national poverty rate in Panama was 20.7 percent in 2017, the poverty rate in the comarcas was 79.6 percent the same year3. Indigenous people living in the comarcas have the lowest incomes, access to basic services, infrastructure and human capital compared to the general population. According to the World Bank, Panama’s indigenous population has the lowest level of electricity coverage in Latin America and the largest gap in terms of access to clean water and sanitation between indigenous and non-indigenous residents.

Figure 3.
Figure 3.

Panama: Poverty Reduction in Indigenous Territories Is Well Behind the Rest of the Country

Citation: IMF Staff Country Reports 2020, 125; 10.5089/9781513541679.002.A006

Sources: Ministry of the Economy and Finance (MEF), and InterAmerican Development Bank.

7. Addressing problems of social inclusion, poverty and income inequality in the comarcas requires a multipronged strategy. Sustainable solutions should be based on: (i) better provision of basic infrastructure and public services in the comarcas; (ii) delivery of culturally appropriate economic opportunities (namely, jobs), developed in close cooperation with tribal leaders and service providers who are attuned to the cultural specificities of the population; and (iii) a higher degree of inclusion of the indigenous population in national decision-making processes. Implementing the policy plans presented in the Comprehensive Development Plan for Indigenous Peoples in Panama – designed by the National Indigenous working group with support from the Panamanian government and UNDP – should provide a starting point that is socially acceptable to all parties as it presents the consensual vision of the goals and priorities of the 12 indigenous congresses on economic development, social development, and legal rights. In addition, it is important to conduct continuous evaluation of the effectiveness and quality of education, social assistance and health programs conducted in the comarcas to ensure priorities are being met.

D. Social Support Programs

8. Social protection programs have been an important tool for poverty reduction, but their efficiency needs to be improved. Panama’s social protection system consists of various support programs targeting the most vulnerable. Among them are: (i) Red de Oportunidades, a flagship conditional cash transfer program introduced in 2006 to support families in extreme poverty; (ii) 120 a los 65 program (originally 100 a los 70) in operation since 2009 providing a benefit of US$120 per month to individuals over 65 years of age who do not receive contributory pensions; (iii) Beca Universal put in place in 2010 to provide a cash transfer to children for school achievements; and (iv) Angel Guardian established in 2012 to provide social assistance to people with severe disabilities in poverty or vulnerable conditions. While these programs, a key fiscal tool for poverty reduction, contributed to improved social outcomes over time, some gaps in coverage, targeting mechanisms and cross-program coordination remain to be addressed by the authorities with assistance from the World Bank and other social partners4.

E. Gender Equality

9. Gender inequality in Panama is high relative to regional peers and countries with similar income levels. As in other areas of social development, Panama achieved substantial progress in improving women’s lives and opportunities since 2000, such as raising life expectancy through better access to healthcare and sanitation, lowering female unemployment rates, and increasing the number of high-level positions held by women. Despite these improvements, in 2017 Panama ranked 108 out of 160 countries in gender equality—tied with Namibia and Laos—scoring worse than average outcomes for the region, high-income peers and the world overall. Areas of particular concern, according to the United Nations and the World Bank, appear to be a relatively high labor force participation gap (fewer females in the labor force than males, as a share of their respective populations), very high rates of adolescent births, elevated maternal mortality rates compared to peers, and political underrepresentation. In addition, while educational outcomes for girls are higher than for boys – in terms of both attendance and test scores – these outcomes do not translate into higher wages or better access to financial products for women.

Figure 4.
Figure 4.

Panama: Economic and Social Opportunities for Women are Limited Compared to Peers

Citation: IMF Staff Country Reports 2020, 125; 10.5089/9781513541679.002.A006

Source: United Nations Gender Inequality Index.

10. Reducing the gender gap requires coordinated actions from the public and private sectors, as well as the public at large. Panama’s authorities demonstrated their political commitment to gender equity through the creation in July 2018 of the Gender Parity Initiative (GPI),5 a private-public alliance, and the launch of the National Council for Gender Parity in July-October 2018. The GPI’s plan is comprised of 12 measures and 59 actions, ranging from promoting job opportunities for young women and women in conditions of greater vulnerability, to the implementation of equal opportunity measures within companies. While this plan is comprehensive and targeted, it will require committed follow-through, political support, some technical assistance, and increased public awareness of gender issues and women’s rights. In addition, existing social assistance programs should continue supporting women in poverty, especially those residing in rural and indigenous areas, as they are most vulnerable to poor health outcomes.

11. Improving socioeconomic opportunities for women also requires legal reform. In the World Bank’s Women, Business and the Law 2020 Index Panama scored 79.4 (close to the average score for Latin America and the Caribbean)6, which implies that women in Panama are not on equal legal footing as men (a score of 100 translates into equal legal rights). Specifically, while Panamanian women are awarded the same rights as men in the dimension of economic participation (for example, physical mobility and asset ownership), they fall short in the financial dimension (especially pension and pay, scoring only 50 out of 100 on both). This means that in Panama work of equal value is under-remunerated for women7, and that women generally retire with lower pension benefits (for example, due to lower mandatory retirement age8 or no pension contribution during maternity leave). In addition, Panama’s score of 75 on entrepreneurship implies that relative to men, women are more constrained by the regulatory framework when it comes to starting and running a business (including access to financing)9. All of these shortfalls can only be addressed by modernizing the legal framework, such as by introducing and enforcing equal-pay legislation, equalizing the mandatory retirement age, establishing pension credits for periods of childcare, and prohibiting gender-based discrimination in access to financial services. The report documents a positive correlation between gender equality and income per capita as well as such development outcomes as larger investment in health and education (both for women themselves and for the next generation) and lower maternal mortality rates, underscoring that equal rights yield long-term economic benefits.

F. Climate Change

12. Without policy action, adverse effects of climate change will unduly affect the poor. Climate change affects a broad spectrum of economic activities (e.g. agriculture, tourism, energy and transport sectors) and impacts long-term growth and productivity. In addition, it has a direct impact on the population, especially those lacking adaptation resources. Recent cross-country research confirms that “initial inequality causes the disadvantaged groups to suffer disproportionately from the adverse effects of climate change, resulting in greater subsequent inequality” (Islam and Winkel, 2017; authors’ italics). In Panama, those facing imminent displacement due to rising seawater levels are often indigenous communities residing on island clusters and along the shoreline (e.g. the Guna people in the Guna Yala region), as well as many residents of the Panama City and Colón metropolitan areas. A committed policy strategy is required to protect Panama’s resources, both human and natural.

  • Adaptation policies. Due to its vulnerability to extreme-weather events10, a sustainable growth model for Panama must incorporate climate change adaptation policies. The authorities have already demonstrated their high-level commitment to these adaptation strategies by developing a number of policies,11 each in collaboration with international agencies with expertise in the field. In addition, the government initiated the creation of a Joint Task Force and a Regional Satellite Visualization and Monitoring System to respond to extreme weather events; the adoption of a National Water Security Plan 2015–50; vulnerable community reallocation programs; and national and regional plans for climate-change resilience of the agricultural sector. Currently, Panama’s Ministry of the Environment is preparing its Climate Action Plan 2020–25. However, many of these initiatives remain at the stage of feasibility studies, vulnerability maps and definitions of line of action, with long-term fiscal implications of a resilience-building strategy not yet budgeted and sources of financing not fully identified.

  • Mitigation policies. Although Panama’s per-capita and aggregate contributions to global greenhouse gas emissions are relatively low, adherence to its Doha commitments12 and climate-change mitigation policies is important. In order to pursue a low-carbon growth model and fulfill its Sustainable Development Goals, Panama must adhere to its commitment to meet the growing electricity demand with mostly renewable energy, capitalizing on its endowment of hydroelectric resources. In addition to “green” energy provision, the country committed to: (i) promote the use of new technologies for improving the efficiency, generation, storage, transmission and distribution of energy; (ii) sustainably manage its forest resources, including through reforestation and agroforestry; and (iii) protect its water resources.

  • Water management. Despite ample rainfall, fresh water is becoming an increasingly scarce resource in Panama due to a combination of rising demand, volatile rainfall, sizable technical losses and a lack of storage infrastructure. An estimated one-half of drinking water is currently lost before reaching the consumer, while a growing population and expanded Canal operations demand more freshwater resources. While these concerns led the authorities to create the 2015 National Water Plan, further policy action, including urgent upgrades of the water infrastructure and prudent resource management, is crucial to secure water supply—the most fundamental human need—not only to support agricultural needs and sustainable functioning of the Canal, but to protect Panama’s population, including its most vulnerable segments (also see Chapter on Structural Policies).

Figure 5.
Figure 5.

Panama: Fresh Water Is Becoming Scarce Despite Generous Endowment

Citation: IMF Staff Country Reports 2020, 125; 10.5089/9781513541679.002.A006

Sources: Food and Agriculture Organization, AQUASTAT data; National Public Services Authority (ASEP).1/ Potable water losses registered by the Institute of National Aqueducts and Sewers (IDAAN). They include physical and commercial losses.

G. Conclusions

13. The timing for reform is opportune. The incoming administration should capitalize on Panama’s existing strengths—such as its stable macroeconomic environment, strong growth and relatively favorable demographics—to address such pressing domestic issues as poor quality of public education; high poverty rates among remote and indigenous populations; inequality of opportunity for disadvantaged gender and ethnicity groups; a wider and more robust social safety net; and the adverse impact of climate change. Doing so in a timely and targeted manner is imperative to: (i) take full advantage of Panama’s existing economic potential; and (ii) expand its potential output in the long-to-medium term by raising the social capital and harnessing the full extent of its human resources.

References

  • Consejo de la Concertación Nacional para el Desarrollo, 2017, “Plan Estratégico Nacional con Visión de Estado Panama 2030.” (United Nations Development Programme, ISBN 978-9962-663-33-1).

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  • Displacement Solutions, 2016, “An Overview on the Relocation of Guna Indigenous Communities in Gunayala, Panama.”

  • Human Development Report, 2019, “Human Development for Everyone.” (United Nations Development Programme, New York).

  • Interamerican Development Bank, “Gender Parity Taskforce (English)https://www.iadb.org/en/gender-and-diversity/gender-parity-taskforce

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  • Interamerican Development Bank, “Economic Information Map of the Republic of Panama (English)https://minerpa.com.pa/inicio/indicadores-sociales/

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  • International Monetary Fund, 2019, World Economic Outlook Database. (Washington, DC, October)

  • S. Nazrul Islam and John Winkel, 2017, “Climate Change and Social Inequality.” (United Nations Department of Economic and Social Affairs, Working Paper No. 152, New York).

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  • Andreas Schleicher, 2019, “PISA 2018: Insights and Interpretations.” (OECD Programme for International Student Assessment).

  • World Bank, 2018, “Panama – Support for the National Indigenous Peoples Development Plan Project (English).” (Washington, D.C. World Bank Group).

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  • World Bank, 2019, “Human Capital Project: First Year Annual Progress Report (English).” (Washington, D.C. World Bank Group).

  • World Bank, 2020, “Women, Business and the Law 2020 (English).” (Washington, D.C. World Bank Group).

  • World Bank, “World Bank Enterprise Surveys (English).” https://www.enterprisesurveys.org/

1

Prepared by Marina Rousset and Paola Aliperti F. Domingues.

2

TIMSS (Trends in International Mathematics and Science Study), PIRLS (Progress in International Reading Literacy Study), PISA (Program for International Student Assessment), PASEC (Program of Analysis of Education Systems), LLECE (Latin American Laboratory for Assessment of the Quality of Education) and EGRA (Early Grade Reading Assessments), whichever applicable.

3

According to the national sources and the Interamerican Development Bank (see Figure 3). These estimates differ methodologically from the World Bank’s poverty headcount ratios mentioned in ^[2 for cross-country comparison.

4

The World Bank and other development partners are currently working with the Ministry of Social Development (MIDES) on updating Panama’s conditional cash transfer programs, including through full recertification of beneficiaries to improve targeting and enhance coverage.

5

The GPI is made up of 9 public institutions (Panama’s Vice-Presidency and Ministry of Foreign Affairs, the Ministry of Economy and Finance, the Ministry of Labor and Labor Development, National Women’s Institute, Small and Medium Enterprise Authority, the Panama Canal Authority, the Superintendence of the Securities Market, National Secretariat of Science and Technology, and National Institute of Vocational Training and Training for Human Development), the leaders of 7 business groups and private companies, 5 economic and social organizations, and 3 IFIs (UNDP, UN Women and ILO), in addition to the IDB – the founding IFI in LAC.

6

While Panama’s score of 79.4 may sound high, it is equal to that of Burkina Faso, Belize and Fiji (in all cases, with per capita PPP GDP less than half that of Panama).

7

To reduce the wage gap between men and women, Panama was the first country in the region to join the International Coalition for Salary Equality and to launch the International Coalition for Equal Remuneration in January 2018, promoted by the International Labor Organization (ILO), UN Women and the Organization for Economic Cooperation and Development (OECD).

8

In Panama, the retirement age for women is 57 years, and that of men is 62 years.

9

To support female entrepreneurs, Panama introduced the Women Entrepreneurs Platform (Canal de Empresarias) at the City of Knowledge in 2015 (co-funded by the IDB) to provide technical support and mentorship to women-led startups and existing SMEs. The low entrepreneurship score however reflects legal, not logistical, deficiencies.

10

Including intense and protracted rainfalls, windstorms, floods, droughts, wildfires, earthquakes, landslides, tropical cyclones, tsunamis and El Niño-La Niña events, whose combined annual cost is estimated to range between US$ 125 and 150 million (0.36% to 0.42% of GDP), according to the Strategic Government Plan “Panama 2030”.

11

Including the National Climate Change Policy, along with the National Adaptation Plan, the National Plan for Coastal Erosion Processes, the Integral Plan for Sustainable Urban Mobility, National Energy Plan 2050, National Strategy for Sustainable Livestock, National Forest Strategy 2050, Emission Reduction Plan for the Aviation Sector, and the Panama Resilience Strategy.

12

Panama ratified the Kyoto Protocol in 1999 and, in 2015, the Doha Amendment on the reduction of greenhouse gas emissions by December 31, 2020. Furthermore, the authorities ratified the Paris Agreement on climate change in 2016 and pledged to ratify the Kigali Amendment to the Montreal Protocol in September 2018.

Panama: Selected Issues
Author: International Monetary Fund. Western Hemisphere Dept.
  • View in gallery

    Panama: A High-Income Economy that Lags Regional Peers

  • View in gallery

    Panama: Education Spending and Outcomes in Panama are Low Compared to Peers

  • View in gallery

    Panama: Poverty Reduction in Indigenous Territories Is Well Behind the Rest of the Country

  • View in gallery

    Panama: Economic and Social Opportunities for Women are Limited Compared to Peers

  • View in gallery

    Panama: Fresh Water Is Becoming Scarce Despite Generous Endowment