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Executive Summary
Panama: Rapid growth, Significant Poverty Reduction, and Widespread Inequality
Panama has been one of the fastest-growing countries in the region, with rapid economic expansion accompanied by significant poverty reduction. Driven by public and private investment as well as labor accumulation, the Panamanian economy grew by an annual average of 5.7 percent between 1990 and 2023, much higher than the regional average of 2.5 percent. This growth contributed to a significant reduction in poverty. Using the poverty line of US$6.85 per day per capita (2017 PPP), the share of Panamanians affected by poverty improved from one in two in 1989 to only one in ten lived in 2023 (Figure ES1 in the PDF).
Nevertheless, Panama remains one of the most unequal countries in the world. While poverty in urban areas was 4.8 percent in 2023, poverty in indigenous regions (comarcas) reached 76 percent—15 times higher. Limited progress in reducing inequality, as measured by the Gini coefficient, contrasts with Panama’s achievements in other areas. Globally, Panama ranked 11th in inequality in 2000, with a Gini coefficient of 53.8. Two decades later, it ranked 8th, with a Gini coefficient of 50.9 as of 2022 (Figure ES2).
This report examines Panama’s achievements and challenges in reducing poverty and inequality to inform policy options. With a special focus on the 2008–2023 period, the report documents progress in poverty and equity in recent decades, highlighting access to basic services, expansion of quality jobs, improvement of human capital, and promotion of household resilience as critical policy priorities.
What explains recent progress in poverty reduction in Panama?
Poverty reduction between 2008 and 2023 was largely driven by rural areas. Nationally, poverty decreased from 23.2 percent in 2008 to 12.9 percent in 2023. Urban poverty fell from 10.3 percent in 2008 to nearly 5 percent in 2015, primarily due to gains in labor income before the economic slowdown of the mid-2010s. Since then, urban poverty has largely plateaued. In turn, rural poverty decreased from 46.5 percent to 32.3 percent between 2008 and 2023. However, within rural areas, indigenous comarcas lagged behind (with poverty rates around 85 percent until the mid-2010s), poverty reduction in these areas started to accelerate, remaining at very high level of 76 percent in 2023.
Although the labor market played an important role, most of the reduction in rural poverty was due to social protection programs. New social protection programs, such as Red de Oportunidades (RdO), and non-contributory pensions were important for poverty reduction through the early 2010s. Given the lack of labor market dynamism in rural areas, migration to urban centers also contributed to poverty alleviation efforts, accounting for 22 percent of national poverty reduction. Subsequently, labor income in rural areas became the main driver of poverty reduction due increased agricultural income because of government support, a rise in coffee production, and public investment projects—mainly in the comarcas—which generated income and employment in other sectors. However, with the completion of these projects and the COVID-19 crisis, these labor improvements proved fragile, leaving rural poverty in 2023 at 2017 levels.
Panama has also seen significant growth in its middle class, but persistent inequalities remain. The middle class (defined as the population with an income of between US$14 and US$81 per day per person in 2017 PPP) increased from 45.7 percent in 2008 to 59.9 percent in 2023. This surpasses regional progress, positioning Panama as the country with the third-largest middle class in Latin America and the Caribbean (LAC), behind only Uruguay and Chile. Yet, inequality has remained persistent, with the Gini index declining more slowly than in many other countries in the region during the same period.