Economic Overview

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Even though Paraguay is among the poorest countries in South America, the country has experienced high and steady growth in the past decade. According to the IMF, GDP grew by 0.2% in 2022, driven mainly by improved weather conditions that benefited agricultural activity and generation and exports of electricity. The improvement of the weather conditions should continue effecting the economy in 2023, as the resumption of activity should be mainly led by agriculture, reflecting in a GDP growth of 4.5% that same year and 3.5% in 2024.

Since 2013, Paraguay has adopted a Tax Responsibility Law, which sets the limit of the authorised fiscal deficit at 1.5% of GDP. In 2022, public deficit decreased to 4.1%. As such, the Fiscal Responsibility Law remained suspended, with deficit only likely to return below the ceiling by 2024, when the government should continue its prudent fiscal policy, keeping to the deficit limit of 1.5% of GDP. Paraguay has invested in many public development policies and has seen its foreign debt double over the last five years. Still, Paraguay's public debt is among the lowest in Latin America, at 40.9%, and should remain stable in the next couple of years (40.4% in 2023 and 40.3% in 2024). Inflation increased to 9.8% in 2022, and it is expected to decrease in the next two years, to 5.2% in 2023 and 4.1% in 2024. Those rates, however, are within the target range set by the central bank - between 2% and 6%. The agriculture, sales, and construction sectors continue to be the driving forces behind Paraguay's economic growth. The production of the Itaipu and Yacireta hydro-power plants, as well as highly productive farms and livestock, are economic drivers and account for more than 60% of Paraguay's total exports.

Paraguay has the lowest unemployment rate in the Mercosur area, which was an estimated 6.8% in 2022. However, poverty and income inequality remain major challenges. Still, the total poverty rate – which the World Bank defines as less than USD 3.10 a day – has been falling, and is currently 26.1%. Nevertheless, the extreme poverty rate (which concerns individuals living on less than USD 1.90 a day) has risen, going from 5.4% to 5.7%. In rural areas, 41.2% of the population lack a monthly income to cover basic necessities, whereas in urban centres this figure is 27.6%. Moreover, land concentration in the Paraguayan countryside is one of the highest in the globe, with 10% of the population controlling 66% of the land, while 30% of the rural people are landless, causing ongoing tension between the landless and elites.

Foreign Trade

Although it is a landlocked country, Paraguay is open to international trade, which represents 71% of the country’s GDP. Even though Paraguay is a founding member of Mercosur, the country was excluded from the bloc in 2012 due to President Fernando Lugo’s impeachment, but soon re-joined the group in 2013, after President Horacio Cartes was elected. Paraguay is the 93rd largest exporter and the 100th largest importer in the world. The country mainly exports meat of bovine animals (17.4%), electrical energy (16.8%), soya beans (12.3%), maize (10.9%), and oil-cake and other solid residues (5.9%). Its main imports include petroleum oils (15.3%), telephone sets (7.6%), motor vehicles (3.6%), insecticides (3%), and automatic data-processing machines (2.5%). According to IMF Foreign Trade Forecasts, the volume of exports of goods and services decreased by an estimated 22.4% in 2022 and is expected to increase by 18% in 2023, while the volume of imports of goods and services decreased by an estimated 3.6% in 2022 and is expected to increase by 6.5% in 2023.

Paraguay's main trade partners are Brazil, Argentina, China, the United States, Chile, Russia, and Singapore. The Government’s economic policy aims to increase international trade in order to boost the economy and to develop competitive sectors, through low and uniform tariff protections. In an attempt to diversify its economic partners, the country has sought permanent membership to the Pacific Alliance trade bloc, as it is currently only an observer. Additionally, the relatively improved economic situation in Brazil and Argentina - Paraguay's main trade partners - should further benefit Paraguayan exports. However, restrictions on access to credit and high interest rates, as well as the high cost of transportation and telecommunication services, are still major obstacles to the expansion of trade in the country. Paraguay is a member of the WTO and Mercosur, and has trade agreements with Colombia, Egypt, Israel, Peru, Bolivia, Chile, Morocco, Mexico, and India.

While it has remained in surplus, Paraguay’s trade balance has been unstable since 2006. In 2021, the country’s trade balance was positive and amounted to USD 580 million. According to the WTO, imports of goods amounted to USD 13,5 billion, while exports reached USD 10,5 billion. Exports increased mainly due to a surge in the value of re-exports and to increased soybean sales, while imports for domestic consumption grew driven by food, beverages, textiles and the acquisition of durable goods, such as automobiles and electrical appliances. Concerning the trade of services, the imports were equal to USD 878 million, while exports amounted to USD 998 million.