With nearly 7 million people, Paraguay is a small and open economy. Over the past decade, the Paraguayan economy grew at an average of 5%, a level of growth higher than that of its neighbors, although very volatile. This was due mainly to its heavy reliance on natural resources. Electric energy through the hydroelectric binationals Itaipu and Yacyreta, along with the highly productive and modern agriculture and livestock production are leading economic activities, having represented more than 60% of all Paraguayan exports in 2015.

Sustained economic growth helped reduce poverty and promote shared prosperity. The income of the bottom 40% increased by 8% annually between 2009 and 2014 and the proportion of Paraguayans who live on less than US $4.0 per day (regional poverty threshold) fell from 32.5% to 18.8%. However, poverty and income inequality remain a major challenge.

In response to the economic and social challenges faced by the country, the government prepared the first National Development Plan for the period 2014-2030 around three pillars:

  • Poverty reduction and social development;
  • Inclusive economic growth;
  • Inclusion of Paraguay in global markets.

Over the past decade, the country has made significant progress on the macroeconomic front after making important economic reforms, such as the Fiscal Responsibility Law, Inflation Targeting and the creation of a Fiscal Advisory Council.

The adoption of inflation targeting in 2011 has helped to maintain the stability of the price index and the exchange rate. A disciplined fiscal policy, which includes the application of a Fiscal Responsibility Law (LRF), has contributed to the consolidation of public debt, which is now one of the lowest in the region, around 20% of GDP.

 As a result of these fundamentals, rating agencies upgraded the ratings of sovereign risk in Paraguay. Over the past two years, the improvement in solvency facilitated the access of Paraguay to international capital markets, as evidenced by the success of the recent sovereign bond issuances in 2016 at 5%.

Growth slowed to about 3.1% in 2015 and is expected to continue at 3.2% as a result of the falling prices of commodities, with moderate fiscal and current accounts deficits. This reduction is mainly due to low international commodity prices and adverse weather conditions, which directly affect the value of Paraguayan exports. It is expected that international soybean prices remain stable in 2016 and 2017 and beef prices decline further.

The implementation of major economic and structural reforms has made significant progress as well. The measures include the introduction of a fiscal rule, the VAT reform (increase of products in the agriculture and financial sector; extend VAT to cooperatives), the introduction of income tax and corporate tax on agricultural income; and the improvement of fiscal transparency. In addition, the approval of the Law on Access to Public Information was important to improve transparency in the public sector in the country. 

Despite recent efforts to improve tax collection and modify the composition of public expenditure towards investment, taxation levels remain low and the quality of infrastructure and public services, inadequate. Challenges remain to improve governance, the business climate and formality.

Nevertheless, progress has been made on the social front, with a series of reforms in this area, including free access to primary health care and basic education and the expansion of conditional transfer programs to benefit vulnerable populations.  However, the high levels of poverty and inequality remain major problems for development.

In terms of competitiveness, although there are slight improvements in the overall position according to the latest World Economic Forum, Paraguay is moving toward better performance in key indicators such as the development of the financial market, subscriptions to cellular telephony, and transparency of government policies. 

Last Updated: Oct 05, 2016

The World Bank Group and the Government of Paraguay agreed on a new Country Partnership Strategy for 2015-2018. This strategy supports the country’s efforts to reduce extreme poverty to 9% and promote the growth of income of the poorest 40% of the population.

Financial and technical assistance and knowledge-sharing programs focus on three pillars:

  • Strengthening of resilience to risks and volatility.
  • Promotion of the provision of goods and services to the poorest citizens.
  • Promotion of inclusive markets.

The current portfolio includes five investment projects in infrastructure, rural development, energy and modernization of the water and sanitation sector, as well as three programmatic loans to support the public sector.

These projects are:

With financing for US$ 137.5 million, the Sustainable Rural Development Project aims to contribute to improving the quality of life of small farmers and indigenous communities in the departments of San Pedro, Caaguazú, Canindeyú, Caazapá and Concepción. The initiative supports community organizations and encourages self-governance to enhance natural resource management in an effort to improve the population’s socioeconomic conditions.

The Road Maintenance Project seeks to improve road infrastructure and maintenance in the country. The US$ 74-million initiative implements a sustainable management strategy for the improvement, modernization and management of the road network through the strategic, transparent use of limited available resources.

The Project to Modernize the Water and Sanitation Sector, with funding for US$ 64 million, aims to improve sector management and water and sanitation services, as well as to increase access to sanitation services in Metropolitan Asunción.  The project also works to expand sustainable access to water and sanitation in rural communities.

With US$ 100 million in funding, the Project to Support Development Policies of the Public Administration seeks to mitigate the impact of the global economic crisis as well as to improve the functioning of the government administration.

The US$ 100 million Project to Support Development Policies and Implement Reforms  supports the government’s reform program, which is designed to increase public sector efficiency through improved oversight of state companies and internal financial controls, as well as to strengthen the tax system.

Additionally, Paraguay has received four grants through the World Bank for the following:

Social accountability of the Tekoporá Program: the Development Information and Resource Center (CIRD) will implement this program, with support from the World Bank and the Global Partnership for Social Accountability (GPSA). The program is a key initiative of the new 2015-2018 Country Partnership Strategy, whose objectives include improved social accountability through citizen empowerment for increased oversight of public service delivery. The main goal of the US$ 600,000 grant is to strengthen the voice of participants of the Tekoporá Program to improve the program’s effectiveness and efficiency as well as to promote citizen oversight of program activities and results.

Biodiversity Conservation and Sustainable Management of Paraguay’s Eastern Atlantic Forest, which seeks to support the country in achieving sustainable economic development based on natural resources in the project area. This grant is for US$ 4.5 million.

Strengthening of the Comptroller General’s Office: The objective of this project is to increase the effectiveness and credibility of the office by improving its auditing system. This grant is for US$ 330,000.

Strengthening of the Legislative Process: The objective of this project is to strengthen the oversight capacity of the Monitoring and Evaluation Unit of the Budget Management Office of the National Congress to monitor the quality of annual budget allocations and spending, as well as to strengthen the capacity of the Congress to develop and disseminate legislation.  This grant is for US$ 435,000. 

Last Updated: Oct 09, 2014

In the recent past, the World Bank program in Paraguay provided support to government initiatives in two areas:

Water and Sanitation

Significant progress has been made in the provision of drinking water services to rural areas. The Fourth Water Supply and Sanitation Project, for a total amount of US$40 million, has helped the government expand water provision to rural populations. By June-2007, 300 water systems had been built and seven water supply systems had been expanded or remodeled. Sixty of these water systems are operating in indigenous communities.

In addition, nearly 25,000 latrines have been built. A key feature of this program of support is its emphasis on fostering competition in the water supply market, with five private service providers operating today, while all other rural water systems are managed by the beneficiary communities which are responsible for operation and maintenance of the systems.

Rural Development

The Bank is helping to solve major agricultural and natural resource problems in San Pedro and Caaguazu. It also assists small farmers and indigenous communities living in the area in the creation of sustainable and diversified agricultural production systems.

The program encourages the participation of rural communities in the management of natural resources and the appropriate use of land. To this end, the Sustainable Agriculture and Rural Development Project benefited small farmers who received training to prepare participatory micro-catchments plans. The goal is for farmers to improve productivity and adopt natural resource conservation measures.

Previously, a similar project helped 13,077 small producers in the areas of Alto Paraná and northern Itapúa.

Last Updated: Apr 09, 2014


Paraguay: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments