Water pollution and the shrinking of Panama ’s watersheds are also serious problems. Raw sewage and industrial waste are dumped directly into the Bahía de Panamá (Panama Bay), for instance, turning parts of what was once a tremendously vital body of water into toxic zones.
Some older folks still remember swimming in Panama Bay right across the street from bustling Panama City . Now doing so is a serious health risk. Fishing in the bay has long been banned. At low tide, the smell wafting off the bay can be overpowering. After decades of discussion, a plan to treat sewage and clean up the bay was finally approved in 2006. The project is expected to cost at least US$350 million, and work will take years.
The most remote, untouched islands and beaches of Panama sometimes have a ring of trash on the shores, carried there by currents that pass near cities and towns where garbage is dumped indiscriminately. Pollution and deliberate destruction are also decimating coral reefs, and over-fishing is doing even more damage to the biodiversity of the seas.
Mangroves are a vital and fragile component of marine ecosystems, and they help prevent coastal erosion. Panama has the most extensive mangrove forests in Central America. But in the last three decades, Panama lost well over half its mangroves, which were cut down to make way for construction projects, resorts, cattle ranches, shrimp farms, and the like. Mangroves have also been lost through pollution.
The Panama Canal  watershed is the most important in Panama. It supplies the water needed to run the Panama Canal and provides drinking water to the greater metropolitan areas of Panama City  and Colón, where most of the country’s people live. Slash-and-burn agriculture, urbanization, and pollution have done considerable damage to the watershed, diminishing the quantity and quality of its fresh water.
The purity of Panama’s drinking water, a legacy of the Panama Canal Company’s strict hygiene standards, has long been a source of pride. One can turn on a tap almost anywhere in the country and be sure the water is safe to drink. However, studies have concluded that if immediate steps aren’t taken to curtail pollution, city dwellers may soon find themselves forced to drink bottled water.