Overview

Country context.

With nearly 7 million inhabitants, Paraguay is a small and open economy. Over the last decade, the Paraguayan economy grew at an average of 5% - higher than its neighbors but very volatile. This has been mainly due to its heavy reliance on natural resources. Electric power, through the binational hydroelectric plants of Itaipú and Yacyretá, and highly productive and modern agriculture and livestock production are leading economic activities accounting for more than 60% of all Paraguayan exports in 2015.

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

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

  • Poverty reduction and social development;
  • Inclusive economic growth;
  • 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.

Recent macroeconomic developments and outlook.

Growth decelerated to an estimated 3%  in 2015 and is expected to remain at 3% in the wake of the commodity price slump, with moderate fiscal and current account deficits. This reduction mainly reflects the decline in international commodity prices and adverse weather conditions, which directly affects the value of Paraguayan exports. International prices are expected to remain flat in 2016 and 2017 for soybean and decline further for beef. Lower commodity prices will translate into a current account deficit of 1.7% of GDP in 2015 and 2016. The budget deficit in 2015-2016 is expected to slightly above the deficit ceiling under the FRL. Moreover, the slowdown of emerging markets, Brazil and Argentina in particular, which account for 40% of exports and are the main source of FDI, could weigh down on the outlook going forward.

Recent structural reforms and remaining challenge in the reform agenda.  

Over the past decade, the country has made significant progress on the macroeconomic front with the implementation of major economic reforms, such as the fiscal responsibility law and inflation targeting. As a result, public debt continues to rise but remains among the lowest in the region. Despite recent efforts to enhance revenue collection and shift the composition of public expenditures toward investment taxation remains low and the quality of infrastructure and services inadequate. Challenges remain to improve governance, business climate, and formality.

Similarly, progress has been made on the social front, with a number of social reforms including 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. 

Last Updated: Apr 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


LENDING

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

*Amounts include IBRD and IDA commitments