Over the last two decades, Paraguay's economy has grown faster than the regional average because of favorable external conditions and sound macroeconomic management. Paraguay has become a significant global exporter of agriculture, livestock, and hydropower. However, since these sectors account for 80 percent of direct exports and at least 17 percent of output, the economy remains vulnerable to external shocks. The COVID-19 pandemic and recurring droughts have dampened economic growth in recent years. Average real GDP growth slowed from 4.4% between 2003 and 2018 to 1.1% between 2019 and 2022.
Paraguay has made remarkable progress in reducing poverty over the last two decades. By the end of 2022, 24.7 percent of the Paraguayan population lived below the national poverty line, nearly half the share registered in 2003 (51.4 percent). Extreme poverty has also decreased significantly, standing at 5.6 percent in 2022. However, slower growth has led to slower progress in reducing poverty over the past decade. Income inequality also remains high at 45 Gini points.
Paraguay needs to enhance the quality and level of public spending on infrastructure and human capital to accelerate growth and poverty reduction. Using pre-pandemic data, the World Bank's Human Capital Index estimates that a child born in Paraguay in 2020 would only be 53% as productive as they could be if they had full access to good quality health and education services. Nearly a quarter of young women and a tenth of young men are neither employed nor in education or training, and 63 percent of Paraguayans were informally employed at the end of 2022. Given that almost 70 percent of Paraguay's population is under 30 years old, making the most of the 'demographic dividend' requires urgent attention to Paraguay's greatest asset – its people.
As a small, open economy blessed with abundant natural resources, Paraguay is also highly vulnerable to extreme weather events such as droughts, floods, and storms. Due to climate change, these events are expected to become more frequent and intense, impacting lives and livelihoods. Accelerating structural transformation and economic diversification, in addition to improvements in environmental governance and infrastructure resilience, could help Paraguay lessen the negative impacts of these events.
Paraguay could be a leader in the decarbonization process if it leverages its excess hydropower, promotes climate-smart agriculture practices, and develops its potential in reforestation and afforestation. To achieve this transformation, Paraguay needs to mobilize sufficient resources fairly and transparently, improve the quality of public spending, and enhance conditions to attract more private investment.
Last Updated: Apr 03, 2024
