Paraguay is one of the countries that was best able to cope with the COVID-19 pandemic due to its stability and macroeconomic discipline. In 2020, Paraguay recorded the smallest GDP contraction and one of the smallest increases in moderate poverty in the region (2.6 percentage points at 18% at US$5.5 per day). However, like other countries in the region, it is currently facing rising inflation, a historic drought, and a highly uncertain global scenario.
Sound macroeconomic policies have benefited Paraguay’s economy over the past two decades. Between 2003 and 2019, Paraguay averaged 4.1 percent growth, while maintaining low public and external debt, and low and stable inflation. The share of the population living under the international poverty line of US$5.5 per day fell sharply from 39.3 to 15.4 percent over the same period, faster than the regional average. Inequality, as measured by the Gini coefficient, also declined by 9 points. Nonetheless, poverty and inequality remain high by regional standards. Structural reforms to improve the delivery of public services and the accountability of public institutions are needed to make growth more stable, sustainable, and inclusive. Managing and mitigating risks related to climate change are especially critical, given the heavy reliance on natural resources.
The Paraguayan economy recovered strongly in 2021 after two years of recession due to drought in 2019 and the COVID-19 pandemic in 2020. Real GDP grew by 4.2% year-on-year in 2021, driven by strong investment growth fixed, both in private and public construction works, as well as by the growth of private consumption. Despite high commodity prices, net exports contributed negatively to growth, as the drought reduced the value of soybean and hydropower exports. Regarding production, the growth was mainly driven by services, followed by manufacturing and construction. However, the increase in inflation in the second half of the year and the drought resulted in a small decrease in the average unemployment rate of only 0.4% (year-on-year). The poverty rate (based on the international poverty line of US$5.50 a day, 2011 PPP) is estimated to have fallen by just 1.3 percentage points since 2020, reaching 16.6% of the population.
GDP growth is expected to slow down in 2022 due to the effects of the drought that would dampen the growth of exports and private consumption. This would lead to a decrease in income, especially in rural areas, and a stagnation in the reduction of extreme poverty. Despite the normalization of monetary policy, inflation is expected to remain high this year due to rising global fuel and food prices. Therefore, the poverty rate is not expected to return to pre-pandemic levels until after 2024.
Last Updated: Apr 01, 2022