World Bank-Panama Partnership

The Bella Vista community in Las Lomas, Panama now have access to water. Despite being one of the top economic performers in the Latin American and Caribbean region, certain segments of the country's population still have limited access to basic services such as water, sanitation electricity and other social services. Photo by: Gerardo Pesantez / World Bank / CC BY-NC-ND Panama is one of the top economic performers in the Latin American and Caribbean region. From 2001 to 2013, its real gross domestic product averaged 7.2 percent — double the region’s GDP. Its high growth trajectory is mainly driven by the rise in public and private investments, influx of foreign direct investments and the transfer of full control of the Panama Canal from the United States to Panama. Strong economic activity led to substantial progress in human development indicators. The poverty rate significantly declined from 33.5 percent in 2007 to 20.9 percent in 2012. Meanwhile, per capita income of the bottom 40 percent of the population has increased 8.2 percent. Social welfare generally improved — life expectancy increased, child mortality and malnutrition rates declined, and rate of enrollment in education increased in all levels. Still, the benefits of Panama’s growth have not been equally shared. Certain segments of the population, especially the indigenous people residing in comarcas, or indigenous reservations, have limited access to basic services such as water, sanitation, electricity and other social services. The largest comarca, Ngäbe-Buglé, is also the poorest, registering a poverty rate of 93 percent and an extreme poverty rate of 83 percent. Several bottlenecks were identified that could slow growth if left unaddressed. These are poor infrastructure, education and skills mismatch, and ineffective public institutions. The need to manage the impact of climate change is also crucial in sustaining the country’s growth. The World Bank, Panama’s long-term development partner and largest donor, developed its country partnership framework 2015-2021 to address the key challenges and ensure sustained growth over the medium to long term. Funding level The three agencies of the World Bank Group — International Bank for Reconstruction and Development, International Finance Corp. and Multilateral Investment Guarantee Agency — are working together in Panama to support the government’s development agenda of inclusion and competitiveness. IBRD has three active lending operations amounting to $161 million, targeting water and sanitation, rural livelihoods, and disaster risk management and public sector. IFC, on the other hand, is focused on developing the financial market and infrastructure, and has invested $1.2 billion in 28 projects from 2007 to 2014. MIGA has $626.1 million in two projects in the transport sector. Below are IBRD and IFC commitments to Panama from 2009 to 2014. The bank’s indicative allocation for Panama for 2015 amounts to $300 million, with lending for 2016-2021 depending on country demand and overall performance. It will also consider global economic developments that might affect the bank’s lending capacity and demand of other borrowing countries. Funding priorities The seven-year partnership framework was developed in dialogue with the government and other stakeholders through a series of consultations. Three selectivity filters were applied in deciding the key objectives under the framework: alignment with the government program, focus on strategic country diagnostics’ priority areas, and comparative advantages of the bank. The framework underpins three strategic areas with seven objectives. Pillar 1: Supporting continued high growth. This pillar aims to bolster investments in selected sectors and address challenges to growth, especially in the energy and public sectors. Objective 1: Support enhanced logistics and connectivity. To encourage high levels of investments and increased connectivity and accessibility, the bank will provide support to the private sector through IFC investment operations and MIGA guarantees. Bank intervention will focus on improving urban design, infrastructure and public transit service provision, as well as institutional strengthening for strategic planning, policy formulation and regulatory action for land use and multimodal transport in Panama City. Objective 2: Increase reliability of energy supply. The World Bank will support government efforts to address power shortages and inefficiencies in the energy sector. Apart from new development policy lending series and technical assistance, reimbursable advisory services will be provided to develop a program for comprehensive policy reform and institutional strengthening, and a national energy efficiency initiative. Objective 3: Improve budget management transparency. Panama needs to improve its regulatory frameworks to promote adequate oversight, enforce consistent social and environmental safeguards and standards, and strengthen financial sector regulation. The bank will provide loans to finance technical assistance projects on public investment selection and project design. It will also support government efforts to strengthen regulatory frameworks in mining natural resources. Pillar 2: Ensuring inclusion and opportunities for marginalized and indigenous groups. Panama’s growth is not equally inclusive, thus the need to improve service delivery mechanisms, engage communities more effectively, and strengthen the capacities of agencies involved in service delivery. Apart from the two objectives under this pillar, the bank will also build country knowledge on education and develop policy agenda on reasons behind secondary school dropouts, and on technical and vocational training designs and implementation issues. Objective 4: Complement social assistance with productive inclusion. The bank will implement a social expenditure, institutional review and a new social protection project, which will aim to improve the efficiency and effectiveness of social programs. It will also implement various technical assistance projects in the education sector and the Indigenous People’s National Development Plan. Further, IFC will expand its coverage to the poorest segments and explore innovative approaches on microbanking and finance systems with commercial service providers. Objective 5: Improve access to water and sanitation services. To close the gaps in service delivery, the bank will provide Panama with various lending and knowledge products. In the next six years, the bank will implement the Metropolitan Water and Improvement Project — Metro Agua and new WSS projects in rural and urban areas (second phase of Metro Agua). Pillar 3: Bolstering resilience and sustainability. Panama is vulnerable to climatic risks and natural disasters hence the need to adapt fiscal and policy management to be able to rapidly respond to emergencies. Objective 6: Strengthen resilience to natural disasters. The World Bank will prioritize the mainstreaming of risk and disaster management by providing budget support, investment lending and technical assistance. The bank will work with the Development Bank of Latin America, Inter-American Development Bank and Swiss Cooperation Agency to meet this objective. Objective 7: Support integrated water resource management in priority areas. The institutional and legal framework for water resources management are weak. The bank will support government efforts to develop a road map to strengthen water resources and environmental management. Devex analysis The World Bank has identified three potential risks — uncertain political and governance traction, weak institutional capacity, and fiduciary risk — which may have a negative impact on the implementation of this partnership framework. The government, headed by President Juan Carlos Varela, is seeking to tackle sensitive and difficult issues — including expanding social programs, catalyzing opportunities for indigenous groups and strengthening the framework for their inclusion — but the National Assembly may not pass all of the relevant bills needed to effectively address these issues. Should this happen, the bank’s programs and projects to promote inclusion will certainly be affected. The World Bank will work closely with implementing institutions and provide capacity building to efficiently implement the programs and yield better results. To mitigate the fiduciary risk, the bank will support the strengthening of public financial management systems and simplify procedures in the project design. The bank admits that it will not be able to cover all priority areas identified in the strategic country diagnostics. Education, housing and health, and land management and environment were not prioritized for now. But since only the first years of the partnership framework are well-defined, some of these areas might be addressed in coming years. To scale up its relations with Panama, the World Bank will remain flexible throughout the duration of the partnership framework to ensure prompt and effective delivery of its services. IFC, MIGA and IBRD will continue to explore where they can collaborate and cooperate to address the key challenges in Panama, and at the same time, accelerate progress toward the twin goals. Contact Tel: (507) 831-2000 Email: