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 4.5% in 2021, driven mainly by household consumption. Nevertheless, GDP growth is expected to decrease to 3.8% in 2022 before picking up to 4% in 2023.

Since 2013, Paraguay has adopted a Tax Responsibility Law, which sets the limit of the authorised fiscal deficit at 1.5% of GDP. Public deficit decreased to 0% in 2021, and the government should continue its prudent fiscal policy, keeping to the deficit limit of 1.5% of GDP set in the Responsibility Law. 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 38.4%, and should remain stable in the next couple of years (39.5% in 2022 and 39.9% in 2023). Inflation increased to 3.5% in 2021, and it is expected to slightly increase in the next two years, to 4% both in 2022 and 2023. 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. In 2021, the government continued implementing a series of fiscal measures to mitigate the impact of COVID-19, which included lowering VAT on medical supplies to 5% and eliminating import tariffs on them, additional health-related spending, measures to support the vulnerable population, and emergence funding for SMEs. Overall, Paraguay's measures have been effective in boosting economic activity, which has been gradually recovering.

Paraguay has the lowest unemployment rate in the Mercosur area, which was an estimated 6% in 2021, despite the negative economic impact of the COVID-19 pandemic. That rate is expected to slightly decrease in 2021 and 2022, to 5.9% and 5.8%, respectively. 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 65% 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 soya beans (25.2%), electrical energy (20.4%), meat of bovine animals (13.1%), oil-cake and other solid residues (9%), and soya-bean oil and its fractions (4.9%). Its main imports include electrical apparatus for line telephony (11.3%), petroleum oils (11.2%), motor vehicles (4%), insecticides (3.5%), and mineral or chemical fertilisers (2.2%). According to IMF Foreign Trade Forecasts, the volume of exports of goods and services increased by an estimated 15% in 2021 and is expected to increase by 6.5% in 2022, while the volume of imports of goods and services decreased by an estimated 2.4% in 2021 and is expected to increase by 4.9% in 2022.

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 2020, the country’s trade balance was positive and amounted to USD 1,250 billion. According to the WTO, imports of goods amounted to USD 10,2 billion, while exports reached USD 8,5 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 866 million, while exports amounted to USD 655 million.