With nearly 7 million inhabitants, Paraguay is a country of vast natural resources. It is crisscrossed by several rivers that form the River Plate Basin, enabling clean energy to be produced by the binational hydroelectric plants of Itaipú and Yacyretá, a leading economic activity in the country. Other key activities include highly automated agriculture and livestock production.
The Paraguayan economy is small and open, with an average growth rate of 5% over the past decade, despite the volatility of that period. This growth has been based mainly on the heavy dependence on agricultural production and foreign trade, particularly soybean and beef, which comprised 38% of exports in the first eight months of 2015.
Hydroelectric energy production has fluctuated in response to changing climate conditions and the course of the Paraná River. This affected electric power exports, which together with beef and soybean, accounted for nearly 62% of all Paraguayan exports in August 2015.
In June, the Central Bank of Paraguay adjusted economic growth forecasts downward for 2015, to approximately 4.0% annually rather than the 4.5% originally estimated. This reduction mainly reflects the decline in international commodity prices, which directly affects the value of Paraguayan exports. Another contributing factor is the lower volume of beef and electric power production due to adverse weather conditions, in addition to the fall in re-exports to Brazil given that country’s currency devaluation and increased border controls. Moreover, China and Latin America are experiencing an economic slowdown and growth forecasts for many countries in the region are now lower than they were six months ago.
Although economic growth is expected to approach its potential (between 4% and 5%), the deceleration of emerging economies and the less dynamic regional performance pose major challenges for the Paraguayan economy in the coming years. The weight of Brazil and Argentina in Paraguayan exports (totalling 39% in August 2015) and foreign direct investment in the country could have a significant impact on growth.
Over the past decade, the country has made significant progress on the macroeconomic front to address these challenges with the implementation of major social reforms. For example, international reserves continue at historically high levels, totaling more than US$ 6.8 billion in late August 2015. Noteworthy social reforms include free access to primary health care and basic education and the expansion of conditional cash transfer programs to benefit vulnerable populations.
Nevertheless, high levels of poverty and inequality remain significant development challenges. Although poverty rates have declined over the past decade, especially since 2011, one in four Paraguayans is still poor while one in 10 is extremely poor.
In response to the country’s economic and social challenges, the government prepared the first National Development Plan for the period 2014-2030 in an effort to eliminate extreme poverty and promote the income growth of the poorest 40% of the population.
The National Development Plan is organized around three pillars: i) poverty reduction and social development; ii) inclusive economic growth; and iii) Paraguay’s inclusion in global markets. It also supports a medium-term economic framework emphasizing sustainable fiscal policies; improved tax collection; increased effectiveness of social protection policies and their targeting; and broader financial inclusion.
In September 2015, the Law of Public Information Access was enacted. This important instrument was the result of collaborative efforts between the government and civil society.
Last Updated: Sep 30, 2015