- 6.5 million
- GDP (PPP):
- $35.3 billion
- 3.8% growth
- 5.3% 5-year compound annual growth
- $5,413 per capita
- Inflation (CPI):
- FDI Inflow:
- $303.0 million
Paraguay’s economic freedom score is 61.1, making its economy the 80th freest in the 2013 Index. Its score is 0.7 point worse than last year, reflecting declines in half of the 10 economic freedoms, including control of government spending, monetary freedom, and labor freedom. Paraguay is ranked 15th out of 29 countries in the South and Central America/Caribbean region, and its overall score is above the world average.
The Paraguayan government’s commitment to economic reform has been uneven, and economic growth remains constrained by political instability and institutional weaknesses that erode the foundations for long-term development. In particular, the judicial system remains inefficient and vulnerable to political interference. Corruption, perceived as widespread, continues to be a problem.
The overall regulatory framework is not conducive to spurring the emergence of a dynamic private sector and promoting broad-based employment growth. Although Paraguay maintains relatively high trade freedom, driven mainly by relatively low tariff barriers, dynamic economic gains from trade are undercut by the absence of reform progress in other policy areas, particularly finance and investment, that are critical to sustaining open markets.
In 2008, former Catholic bishop Fernando Lugo engineered a victory for a center-left coalition, promising to support the indigenous population, redistribute land to the poor, and secure more revenue from the Itaipu Dam. In June 2012, following a violent clash between police and squatters, the legislature used its constitutional powers to indict Lugo for a variety of transgressions and remove him from office. Vice President Federico Franco assumed the presidency and will serve until elections in August 2013. Paraguay is a major exporter of soy. The extensive informal economy is geared to the re-export of consumer goods to neighboring countries. Institutional impediments to the market economy are considerable. The government has attempted to reduce smuggling and more closely scrutinize suspected terrorist groups in the tri-border area with Brazil and Argentina.
RULE OF LAWVIEW METHODOLOGY
The judicial framework remains largely incapable of protecting property rights and maintaining the rule of law. The fragility of Paraguay’s democracy and political institutions was underscored by the abrupt (but constitutional) impeachment and removal from office of the president in 2012. Contraband trade on the borders facilitates money laundering. Pervasive corruption flourishes with impunity, and the slow pace of judicial reform undermines economic freedom.
LIMITED GOVERNMENTVIEW METHODOLOGY
There is a 10 percent income tax, and the top corporate tax rate is 10 percent. Other taxes include a value-added tax (VAT) and a property tax. The overall tax burden is equal to 14.5 percent of total domestic income. Government spending has increased to 22.1 percent of total domestic output. Budget surpluses have kept public debt quite low, below 15 percent of GDP.
REGULATORY EFFICIENCYVIEW METHODOLOGY
The overall regulatory framework remains cumbersome. There is no minimum capital requirement for starting a business, but the process still takes more than the world average of 30 days. The cost of completing licensing requirements remains over twice the level of average annual income. The labor market lacks flexibility, hurting much-needed job growth in the formal sector. Inflation has moderated.
OPEN MARKETSVIEW METHODOLOGY
The trade-weighted average tariff rate is modest at 3.7 percent, but some non-tariff barriers impede the free flow of goods and services. Most sectors are open to private investment, and equal treatment of foreign investment is formally guaranteed. However, the investment regime lacks efficiency, mainly because of government bureaucracy. The level of financial intermediation has been improving gradually.