Panama’s Foreign Direct Investment (FDI) posted a significant recovery in the third quarter of 2025, reaching a net inflow of $676.4 million. This positive swing follows a period of substantial capital outflow in the previous quarter, according to official data released by the National Institute of Statistics and Census (Panama). The rebound, however, was not enough to erase a steep year-to-date decline, leaving the nation’s overall investment climate in a state of cautious evaluation.
The figures, compiled by the Comptroller General of the Republic (Panama), show a dramatic quarterly shift. The third quarter’s positive flow contrasts sharply with the second quarter’s net outflow of $887.1 million, marking an adjustment of over $1.5 billion in the behavior of foreign capital. The inflow from July to September partially offset the prior quarter’s loss. For the first nine months of 2025, the accumulated FDI balance stands at $315.3 million.
“The third quarter results reflect more of an accounting adjustment and the reinvestment of profits than a significant entry of new capital,” said René Quevedo, an advisor to business guilds. [Translated from Spanish]
This performance underscores a volatile year for investment. The positive nine-month total stems from a combination of relevant capital entries in the first quarter, the third-quarter rebound, and the stark outflows recorded between April and June. Analysts are now watching to see if this recovery can be sustained through the end of the year and into 2026.
Reinvestment of Profits Drives Quarterly Turnaround
The primary engine for the third quarter’s recovery was a sharp reversal in reinvested earnings. This category swung from a negative balance of $1.41 billion in the second quarter to a positive flow of $703.7 million between July and September. This change indicates that foreign-owned companies operating in Panama, which had previously withdrawn profits or recorded losses, resumed plowing earnings back into their local operations.
Non-banking companies and general and international license banks were particularly notable within this category. These entities moved from significant capital outflows to positive contributions during the period. The shift in reinvested earnings alone accounted for more than half of the total FDI flow registered in the quarter. For years, reinvested profits have been the dominant driver of Panama’s Foreign Direct Investment, a trend that continued in this latest data.
This component includes profits from companies, primarily banks, that choose not to distribute dividends to foreign parent companies or shareholders. Instead, they retain those earnings to fund further economic activities within Panama. The recent volatility in this line item highlights its sensitivity to corporate sentiment and global financial conditions.
New Equity Investment Remains in Negative Territory
While reinvested earnings surged, the category for equity and other capital participation remained in negative territory during the third quarter. It did show a slight improvement compared to the disastrous second quarter. This component groups investments that do not directly generate formal employment or pay into the social security system but are aimed at producing returns via dividends.
Its continued negative contribution, albeit less severe, meant it did not act as the main driver of the quarterly rebound. The limited activity here suggests that fresh, greenfield investment or major new capital injections from abroad are still lagging. Investors appear hesitant to commit new funds for equity stakes, preferring instead to manage existing capital within the country.
The “other capital” category, which includes inter-company financing, also showed a slowdown. It maintained positive flows related to assets and liabilities with direct investors, but these were considerably smaller than those observed between April and June. This indicates reduced dynamism in this type of internal corporate funding, often used to support expansion or operations.
Long-Term Regional Standing Erodes
Despite the quarterly improvement, the broader picture reveals a challenging landscape for Panama’s investment appeal. The total balance for the first nine months of 2025 is 84% lower than the $2.06 billion reported in the same period last year. This steep decline continues a longer-term trend that has seen Panama lose its regional leadership in attracting foreign capital.
Before the pandemic, Panama consistently ranked as the top recipient of FDI in Central America and the Caribbean. It reported inflows of $4.75 billion in 2018 and $3.89 billion in 2019. Since then, the country has been overtaken by Costa Rica and the Dominican Republic. These two nations have alternated the top position in recent years, leveraging different economic strategies and stability to attract multinational companies.
The loss of this leading position points to deeper competitive challenges. Other countries in the region are perceived to offer more attractive or stable conditions for certain types of manufacturing, services, and technology investments. Panama’s traditional strengths in logistics and banking now face stiffer regional competition.
“The figures reflect that Panama’s recovery is slow and has not yet managed to consolidate a sustained trend of growth in foreign investment,” Quevedo added. [Translated from Spanish]
Market observers are now looking for signs of a sustained recovery underpinned by greater confidence and economic stability. The performance in the final quarter of 2025 will be critical in determining whether the third quarter was a genuine turning point or merely a temporary correction. The government’s economic policies and its ability to project a stable, predictable business environment are seen as key factors for rebuilding investor confidence and attracting new capital beyond just retained earnings.