Paraguay has abundant natural resources, a young population, and a stable economy. Over the past two decades, it has experienced continuous economic growth, with sound macroeconomic policies, including institutional reforms such as an inflation-targeting regime and fiscal responsibility legislation. From 2003 to 2023, the economy grew 3.6% annually on average, faster than many other countries in the region. Reflecting these achievements, the country’s credit rating was upgraded to investment grade by the ratings agency Moody's in July 2024.
Economic growth has contributed to significantly reducing the poverty rate over the past two decades. In 2003, almost half of the population lived below the poverty line, using the poverty line established for upper-middle-income countries (US$6.85 per day per capita, in 2017 PPP). However, by 2023, this figure is estimated to have decreased to 17.6% of the population.
With favorable weather conditions for soybeans in the 2023/2024 campaign, economic growth of 3.9% is expected for 2024. This progress could be greater if it were not for irregular rainfall, which reduced real electricity and water output by 3.7% in the first half of 2024 compared to the same period last year. With growth and inflation under control, poverty is estimated to decrease to 16.8% of the population in 2024.
Being rich in natural capital, Paraguay is vulnerable to climate risks. The droughts experienced during 2019-2022, together with the COVID-19 pandemic, have affected growth and poverty reduction. In the future, extreme weather events such as droughts, floods and storms could become more frequent and intense due to climate change. Paraguay therefore needs to improve its capacity to face these and other shocks. Among the priorities are to maintain macroeconomic stability to be able to support affected companies and individuals, to invest more and better in the adaptation of critical infrastructure, and to continue diversifying the productive structure.
Enhancing the quality of public services such as health and education is crucial if the country is to boost productivity and, in turn, accelerate economic growth. Pre-pandemic data from the World Bank's Human Capital Report indicated that a child born in Paraguay in 2020 would achieve only 53% of their productive potential with full access to health and education. This figure is lower than both regional and upper-middle-income country averages. In 2022 edition of the PISA international standardized test, 85% of Paraguayan 15-year-old students did not attain the minimum proficiency levels in mathematics, 66% in reading, and 71% in science.
Looking at the experience of other countries that have managed to become high-income, strengthening Paraguay’s institutions is key to achieving the necessary transformations in its economy and society. In this context, current efforts to reorganize the State, optimize public spending, modernize the civil service, curb corruption and improve governance are vital steps toward a prosperous future for all Paraguayans.
Last Updated: Oct 03, 2024
