Overview

  • Paraguay has achieved impressive economic growth and shared prosperity over the last 15 years. The economy grew at 4.5 percent per year on average (2004-2017), faster than most of its regional comparators. This growth has been accompanied by poverty reduction. Over the same period, total and extreme poverty have fallen by 49 and 65 percent, respectively. Overall, Paraguay’s reduction in poverty was larger than the regional average, though not as strong when considering the rate of economic growth. There has also been fast income growth among the bottom 40 of the population, which grew at 4.2 percent annually over 2003-2017. The middle class has almost doubled since 2003, becoming—at 38 percent of the total population in 2015—the second largest group, just below the vulnerable population.

    After a strong performance in the first half of 2018, economic growth in Paraguay decelerated in the second half of the year due to suboptimal performance of the main trading partners, especially Argentina. Following a 5.4 percent expansion over January-June, GDP increased by 1.3 percent year-on-year in the second half, with the annual growth for the whole 2018 of 3.6 percent. The monthly index of economic activity indicates that economic growth has likely remained sluggish in the beginning of 2019.

    Inflation decelerated close to the lower bound of the target range in recent months, but monetary policy remained consistent with the inflation objective. Consumer inflation decelerated to 2.4 percent y/y in January 2019. Therefore, on February 22, the Central Bank moved to a more accommodative stance and lowered the policy rate by 25 bp to 5 percent (previous rate unchanged since August 2017). The flexible exchange rate regime continued to cushion external shocks, and foreign reserves remained at prudent levels, recovering after the temporary decline from the impact of the Argentina crisis. Central Bank data, recently revised, indicates that Paraguay had a current account surplus of 3.1 percent of GDP in 2017, underscoring solid fundamentals.

    With public debt among the lowest in the region, Paraguay’s Fiscal Responsibility Law (FRL) continued to support fiscal prudence. In 2018, the government executed the central administration’s budget with a deficit of 1.3 percent of the re-estimated GDP. However, after the double-digit growth in 2017, public investment decreased by 11.8 percent in 2018, while the public wage bill increased by 9.5 percent. Meanwhile, international investors showed confidence in Paraguay’s overall macroeconomic management and outlook, when in February 2019 the government placed US$500 million as a 31-year Eurobond at 5.4 percent.

    Economic growth in 2019 is expected to be below 4 percent. The deceleration of economic activity that started in the second half of 2018 is likely to continue throughout the first half of 2019. In addition to the impact of Argentina’s slowdown and slightly weaker global growth prospects, the recent drought is expected to reduce the harvest of one of the key agricultural products. In 2020-21, the pace of expansion is projected to return to its potential of 4 percent.  The authorities are expected to maintain prudent macroeconomic policies, anchored in the inflation targeting and the FRL. Inflation is projected to return to the mid-point of the target range of 4 percent by end-2019. The current account surplus is expected to gradually shrink over 2019-21. Although Paraguay has built strong macroeconomic buffers—low sovereign debt and high international reserves—supported by prudent policies, crises and volatility in the neighboring markets may increase the country’s vulnerability and risks to the outlook. Moreover, concentration of exports in a few agricultural products continues to make growth vulnerable to fluctuations in commodity markets and to weather related shocks.

    Poverty and Shared Prosperity

    Since the early 2000’s Paraguay has experienced substantial poverty reduction and shared prosperity. Measured as the share of individuals living on less than 2011 PPP US$5.5 per day, the poverty rate in 2017 is less than half of what it was in 2003, and the income of individuals at the bottom 40 percent of the population grew at an annualized rate of 4.2 percent (compared to 2.5 percent average growth). With 40 percent of the population living in rural areas Paraguay is the least urbanized country in South America - the poor are evenly split between rural and urban areas, and progress took place in both.

    However, the pace of poverty reduction has markedly slowed down since 2013, with international poverty rates remaining at around 20 percent. In rural areas, the impressive growth of commercial agriculture has not been mirrored by family-based agriculture; in urban areas job creation was mostly in low-productivity sectors, especially services. Overall, poverty reduction since 2003 was faster than the regional average, but the elasticity of poverty reduction to economic growth was rather low when compared with the average of the LAC region.

    Official statistics show that poverty continued to fall in 2018. At the same time, extreme poverty – largely a rural phenomenon, remained stagnant at around 10 percent, driven by the fall in private transfers. The projected deceleration in economic growth, together with the economic crisis in Argentina - already reflected in a significant fall in remittances, suggests that poverty reduction is expected to remain low in coming years.

    The country faces important challenges to the sustainability and expansion of its social gains. Most people in rural areas still rely on family agriculture, which puts them at higher risk of being poor. Similarly, income growth volatility among the bottom 40 percent in urban areas is also high, while urban safety nets are weak. Without improvement in current indicators of human capital, prospects for improving labor productivity growth are modest. Health outcomes have improved, but lag progress relative to comparators, while education quality remains insufficient: comparative test scores place Paraguay at levels similar to those of lower-middle income countries.

     

    Last Updated: Oct 15, 2019

  • The World Bank Group (WBG) Board of Executive Directors endorsed the new Country Partnership Framework for Paraguay, establishing the lending and technical assistance program for 2019-2023. The strategy supports the country’s efforts to promote sustainable growth and institutional strengthening, while supporting investments in human capital, and advancing the fight against corruption.

    The CPF is built around three focus areas:

    1. promoting accountable institutions and an improved business climate;
    2. natural capital management and integration into sustainable value chains; 
    3. building human capital. 

    In addition, recognizing that socio-economic progress is highly contingent on strengthening the social contract between the Government and the population, the CPF will also encompass a cross-cutting emphasis on transparency, results-orientation and accountability.

     

    Last Updated: Apr 16, 2019

  • World Bank (IBRD) financing helped to achieve the following results:

    Improved the agricultural productivity

    The Sustainable Agriculture & Rural Development Project (PRODERS), the main Government tool to fight rural poverty, has reached overall 240,000 beneficiaries corresponding to 48,251 households, who benefited from agricultural services, particularly technical assistance. A random sample of 1,029 households comprising beneficiaries from 2011 to 2016 who benefited from the estrategia campesina (strategy for farmers) recently took place and concluded that 24,875 poor households in Eastern Paraguay are expected to report an increase in real agriculture incomes by 2018. At the local level, the Project has also built significant capacity and commitment in more than 600 rural communities to plan and execute local development interventions. As a result, 180 indigenous communities prepared and are implementing socio-economic development plans by 2018, highly surpassing the target of 130 communities.

    Improved access to quality water and sanitation services

    The Water and Sanitation Sector Modernization Project has contributed to the rehabilitation of 57 km of water distribution networks and 8.4 km of sanitation networks in Great Asuncion. About 270,000 people, 10% of the population in the capital Asuncion have access to improved sanitation environment. The project has contributed to improve rural water and sanitation infrastructure, already benefiting 6,190 indigenous individuals, half of whom are women. In addition, the project has also supported the decentralization of the National Environmental Sanitation Services (SENASA), as well as the development of an action plan to support the Water and Sanitation Units of the municipalities in Chaco to ensure long-term technical, institutional and financial support to all indigenous communities.

    Improved road infrastructure in target areas, particularly benefiting the rural population

    The Road Maintenance Project expanded rural connectivity and helped strengthen government capacity to define investment priorities and develop efficient work programs aligned with existing budgets. Institutional improvements have also been supported by legal actions in five key areas: passage of a transit and road safety law; passage of law to amend the classification of road system; creation of a planning department in Minister of Public Works (MOPC); increase in toll rates to cover costs of the system; and creation of a department for transparency and public participation. The Project financed  improvements to about 141 km of unpaved roads and many bridges in the three targeted departments and contributed to the introduction of performance-based contracts, with three contracts implemented for a total of 624 km.

    Increased efficiency of the transmission network

    The energy supply through the transmission network has increased by 65 percent, from 3,000,008 KwH to 4,949,000 KwH. This increased efficiency has benefited 2.5 million people in the Asuncion Metropolitan Area, of whom approximately 15 percent are below the national poverty line. The project was successful in modernizing ANDE’s communication system (Sistema de Gestión Integral de Distribución Eléctrica (SGIDE)), which improved the quality of the access by reducing service cuts and repair times.

    Last Updated: Oct 16, 2018

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LENDING

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

*Amounts include IBRD and IDA commitments


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Additional Resources

Country Office Contacts

PARAGUAY +595 21 218 1000
España 2028 casi Brasilia, edificio Urano, piso 5, Asunción 1208
rgonzalezllamas@worldbank.org