Panama's dollarised economy rests primarily on a well-developed services sector that accounts for three-fourths of GDP. Approx. 77% of the economy is supported by the service sector. Agriculture accounts for 6.8%, and industry for 15.6%. Services include operating the Panama Canal, banking, the Colon Free Zone, insurance, container ports, flagship registry, and tourism related sectors. A slump in the Colon Free Zone and agricultural exports, the global slowdown, and the withdrawal of US military forces held back economic growth in 2000-03; growth picked up in 2004 and 2005 led by export-oriented services and a construction boom stimulated by tax incentives. The government has implemented tax reforms, as well as social security reforms, and backs regional trade agreements and development of tourism. Unemployment remains high, hovering around 9.8%.

GDP (purchasing power parity): $23.33 billion (2005 est.)
GDP (official exchange rate): $14.89 billion (2005 est.)
GDP - real growth rate: 6.4% (2005 est.)
Labor force: 1.39 million (2005 est.)
Debt - external: $9.758 billion (2005 est.)

Extremely high external debt, which had led to Panama's exclusion from world capital markets, was addressed in 1996 with a Brady-bond restructuring. In parallel, the Government pursued an aggressive policy of trade and economic liberalization, including partial privatization of key assets, such as electricity, and public transportation which has had an effect on efficiency and service. This is due, in large part, to the fact that the Government has introduced so many investment incentives.

Near the Canal, the city of Colon houses the Free Zone which contains well over 1,000 companies who ship in excess of $9 billion of goods annually and account for more than 10% of the GDP. Under Panamanian law, companies in manufacturing and processing industries, which export most of their production, receive exemption from most direct taxes and from import duties on machinery and equipment. Other investment incentive schemes apply to agriculture, forestry, energy, housing development, and various aspects of the tourist industry. For example, tourist sector investments which are worth more than $300,000 (in the city) or $50,000 (in the countryside) attract exemption from import duties and real estate taxes for 20 years. They are also exempt from capital taxes, and accelerated depreciation. Also, there are no exchange controls in Panama and no Central Bank. Foreign investment may be freely repatriated, and corporate privacy is protected, to great extent, under the constitution.