Panama’s Growing Debt Burden Leaves Little Room for Public Investment

Panama’s government has announced a new proposed budget for 2026 of $34.9 billion—the largest in its history—according to official figures from the Ministry of Economy and Finance.

The country will increase its budget by 13.6% over last year, but not because it plans to launch exciting new projects or expand public services. Instead, most of the extra money will go to pay past debts.

Five years ago, Panama owed about $26.6 billion. By mid-2024, that number nearly doubled to $51.8 billion. The annual interest payments alone rose over 150% in that time, now totaling about $3.1 billion each year.

For 2026, Panama will need to set aside an extra $3.66 billion just for debt payments. Of that, $2.05 billion will pay down the money it borrowed, while $469 million will cover interest.

These payments are unavoidable and take up so much of the budget that there is very little left to spend on other needs. At the same time, Panama faces other fixed costs, such as guaranteed raises for government workers.

It also needs cash injections for the financially struggling social security fund. New laws passed in 2025 have reformed social security on paper, but did not increase the retirement age or fix deeper problems. These cash demands will only grow in the future.

Despite these pressures, government officials say operating expenses grew by only 1% and that they cut nearly 4,900 public jobs since last year. Even with these cuts, the budget is squeezed.

Panama expects to see its economy grow by about 4% next year, but the country will still run a fiscal deficit, borrowing more to cover expenses.

Government debt now exceeds 56% of GDP, an unusually high level for Panama, and debt payments make up over 16% of gross national income according to official data.

The reality, confirmed by government reports and budget documents, is that Panama’s record budget is not a story of growth or investment.

Rather, the government finds itself trapped by past borrowing, ever-higher interest, and legal obligations that limit its choices for the future.

If the economy falters or borrowing gets more expensive, the squeeze could get tighter still, affecting everyone from businesses to ordinary citizens.