During the last two decades, Paraguay has experienced economic growth thanks to favorable terms of trade that allowed improvements in the prices of the products that the country exports and to solid macroeconomic policies, which include institutional reforms such as the inflation targeting mechanism and legislation of fiscal responsibility.
Despite this, climate conditions that affected agricultural and hydropower exports, poor performance of its trading partners, and the COVID-19 pandemic have affected growth in recent years, reducing GDP growth from the annual average of 4.4% between 2003 and 2018 to 0.7% between 2019 and 2022.
The year 2022 closed with a growth of -0.3%, but as weather conditions normalize, the economy is expected to rebound by 4.8% in 2023
At 19%, poverty returned to pre-pandemic levels but the drought, high inflation (9.8%) and lower pandemic-related transfers led extreme poverty to increase from 5.2% in 2022 to 4.1% in 2021.
For 2023, average inflation is projected at 5.3 % and is expected to decline toward the midpoint of the target range in 2024-2025, assuming continued easing in global fuel and food prices.
Although macroeconomic stability is highly valued, Paraguay faces significant challenges. Using data from before the pandemic, the World Bank Human Capital Project estimated that a child born in Paraguay would only attain 53% of the productivity that she could have achieved with full access to health and education. This result is lower than the regional, and upper middle-income averages.
On the other hand, its high vulnerability to climate change requires special focus. In the future, weather events are expected to be more frequent and intense, so structural changes are needed to increase productivity and resilience. To achieve this, it is important to strengthen governance and enforce regulations, as well as invest in human capital and infrastructure, especially to adapt to climate change and take advantage of the opportunities of a greener economy. To finance these and other investments, Paraguay needs to generate more domestic revenue in a fair and efficient manner, improve the quality of public spending, and attract more private investment.
Last Updated: Apr 04, 2023
