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Panama has made significant progress in reducing poverty in recent years, progress that compares positively to that of the rest of the Latin America and Caribbean region. This report takes stock of this progress and reflects on the constraints and opportunities that Panama faces in continuing on its path of shared prosperity and poverty reduction. The education and skills agenda, energy, public sector reform, the inclusion of indigenous peoples, and water management are identified as areas that will require attention to ensure the sustainability of Panama's success story. Following a detailed analysis of poverty - recent trends, drivers of poverty reduction, and demographic factors - the report provides foundations to answer three main questions: First, what has driven growth in Panama in recent years? Second, to what extent has this growth been, or not been, inclusive? And, finally, how sustainable is the growth and more generally, the development model of Panama?

Panama --- History.

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Do sources of volatility differ by country characteristics such as the level of development, country size, quality of institutions, and presence of restrictions on fiscal policy? This paper sets out to answer this question in a quarterly panel of 48 developed and developing countries for 1960-2015. Using individual country and panel vector autoregressions, the paper shows that factors affecting gross domestic product volatility differ systematically by country size, development level, and whether a country has adopted fiscal rule(s). The role of country size is particularly pronounced in developing countries. The paper shows that small developing countries are more prone to domestic output shocks, while shocks to the world interest rate and real exchange rate are more important in large developing countries. Small countries are also more susceptible to terms of trade shocks. These results suggest that stabilization policies must be designed with these country characteristics in mind.

Business Cycles --- Economic Conditions and Volatility --- Economic Shocks --- Exchange Rates --- Interest Rate --- Macroeconomics and Economic Growth --- Small States --- Terms of Trade --- Volatility

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This study investigates the role of domestic and external shocks in business cycle fluctuations in Paraguay during 1991-2012. Time-series methods and a structural model-based approach are used to conduct an integrated analysis of business cycles. First, structural vector autoregression is used to assess the role played by external factors and domestic shocks in driving fluctuations in gross domestic product through impulse response functions and variance decompositions. The analysis finds that external shocks such as terms of trade, world interest rate and foreign demand account for over 50 percent of real gross domestic product fluctuations. Given Paraguay's strong dependence on agriculture, an analysis is also done for the agricultural and non-agricultural sectors separately. The analysis finds that non-agricultural gross domestic product is to a large extent driven by external shocks, which account for over 50 percent of its volatility. In contrast, the volatility in agricultural gross domestic product is primarily due to shocks to domestic variables, mainly shocks to agricultural output. A further difference between the sectors is that shocks to government consumption are more important for agricultural gross domestic product, while shocks to the domestic real interest rate play a larger role in the volatility of non-agricultural gross domestic product. Second, the paper investigates the sources of business cycle fluctuations through the lens of a neoclassical growth model with an agricultural and non-agricultural sector. The analysis finds some signs of improvements, as labor market distortions have declined, firms' access to credit improved, and agricultural efficiency rose over time. Nevertheless, challenges remain, as gaps in labor and capital returns between agriculture and non-agriculture remain large, efficiency in the non-agricultural sector shows no signs of improvement, and households' access to finance has deteriorated.

Finance and Financial Sector Development --- Macroeconomics and Economic Growth --- Private Sector Development --- Social Protections and Labor

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Following the collapse of commodity prices in Latin America and the Caribbean (LAC) in 2014-15, many countries in the region were unable to cushion the impact of the shock in order to experience a more gradual adjustment, to a large extent because they had not built adequate fiscal buffers during the commodities' windfall from 2010-14. Many LAC countries entered 2020 and the COVID-19 crisis in an even more difficult position, with rising debt and limited fiscal space to smooth the negative impacts of the pandemic and adequately support their economies. Fiscal policy in most LAC countries has been procyclical. Public expenditure and debt levels have expanded in good times and contracted in severe downswings due to insufficient fiscal buffers, making crises deeper. Fiscal rules represent a promising policy option for these and other economies. If well-designed and implemented, they can help build buffers during periods of strong economic performance that will be available during rainy days to smooth economic shocks. This book-which was prepared before the COVID-19 crisis-reviews the performance and implementation of different fiscal rules in the region and world. It provides analytical and practical criteria for policy makers for the design, establishment, and feasible implementation of fiscal rules based on each country's business cycle features, external characteristics, type of shocks faced, initial fiscal conditions, technical and institutional capacities, and political context. While establishing new fiscal rules would not help to attenuate the immediate effects of this pandemic crisis, higher debt levels in the aftermath of COVID-19 will demand rebuilding better and stronger institutional frameworks of fiscal policy in LAC and emerging economies globally. Having stronger fiscal mechanisms that include fiscal rules can help countries prepare for the next crisis and should be on the front burner for policy makers in coming years. The findings and lessons discussed apply to economies of different sizes, with some differences under certain scenarios in terms of the technical design and criteria needed for implementation. In this book, policy makers will find that fiscal rules, if tailored to country characteristics, can work and be an essential fiscal tool for larger and particularly smaller economies--

Caribbean Area. --- Financial crises --- Fiscal policy --- Government policy