World Bank Group Approves Innovative Financing to Strengthen Panama’s Economy

The Development Policy Loan will support a wide set of strategic reforms aimed at boosting investment, improving public finances, and enabling long-term macroeconomic resilience.

 

The World Bank’s Board of Executive Directors has approved a landmark financial operation for Panama that combines three World Bank Group instruments to strengthen fiscal sustainability, mobilize private investment, and drive long-term economic growth and job creation.

This innovative package includes a US$500 million Development Policy Loan (DPL) focused on fiscal management and growth reforms, alongside two powerful guarantee instruments that jointly support a commercial loan of up to US$1.4 billion.

The guarantees include:

• A US$600 million Policy-Based Guarantee (PBG) from the International Bank for Reconstruction and Development (IBRD)

• A second-tier Sovereign Financial Obligation Guarantee from the Multilateral Investment Guarantee Agency (MIGA)

Together, these guarantees cover 95% of the loan and associated interest, enabling Panama to borrow at more favorable terms, reduce financing costs, generate fiscal savings, and strengthen its public debt management strategy.

Advancing Key Fiscal and Structural Reforms

The Development Policy Loan will support a wide set of strategic reforms aimed at boosting investment, improving public finances, and enabling long-term macroeconomic resilience. These include:

• Updating and strengthening Panama’s Fiscal Responsibility Law

• Enhancing the pension system to improve long-term sustainability

• Improving tax administration, compliance, and revenue collection

• Developing the local public debt market to diversify funding channels

• Facilitating public-private partnerships (PPPs) for infrastructure and service delivery

• Expanding national capacity for 5G and broadband services, especially in strategic and underserved areas

These reforms are expected to expand opportunities for private-sector investment, modernize key sectors of the economy, and improve the overall quality of public services available to Panamanians.

Government and World Bank Group Leadership Reactions

Panama’s Minister of Economy and Finance, Felipe Chapman, said the operation reflects renewed trust from international partners:

“The confidence that the World Bank Group places in Panama reflects our commitment to fiscal discipline and transparency. This operation strengthens the economy and signals to international markets our determination to advance structural reforms that improve people’s well-being.”

He emphasized that the government will continue partnering with global institutions to bolster financial stability, job creation, and human development across the country.

Juan Pablo Uribe, World Bank Director for Central America and the Dominican Republic, highlighted the broader significance of the operation:

“This marks a milestone for Panama and for the World Bank Group, reaffirming our support for middle-income countries through key reforms and innovative financial solutions. These reforms build the foundations for more efficient and sustainable public management and better services for the people.”

Ariane Di Iorio, Director for the Financial Institutions Group at MIGA, underscored the innovative nature of the combined guarantee structure:

“Panama is demonstrating how the innovative use of the World Bank Group Guarantee Platform can unlock significant financing. By combining a World Bank policy-based guarantee with MIGA’s second-tier guarantee, we help reduce financing costs and support long-term fiscal sustainability.”

A Model for Other Countries

The US$500 million DPL has a 25-year maturity and a two-year grace period, giving Panama long-term financial flexibility. The dual-guarantee model represents a financial innovation that can be replicated globally, especially among middle-income countries seeking to expand their fiscal space while implementing critical reforms.

This operation is part of the World Bank Group’s Guarantee Platform, an initiative designed to broaden financing options, attract private capital, and help governments advance sustainable development through more efficient financial instruments.