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- GDP (PPP):
- $58.3 billion
- 4.4% growth
- 7.0% 5-year compound annual growth
- $8,449 per capita
- Inflation (CPI):
- FDI Inflow:
Paraguay has a small but relatively open economy and vast natural resources. Driven by agricultural production and foreign trade, the economy has expanded at an average annual rate of 7 percent over the past five years. However, the emergence of a more vibrant private sector remains constrained by institutional weaknesses, and progress on reforming the public sector has been uneven.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 61.5 (up 0.4 point)
- Economic Freedom Status: Moderately Free
- Global Ranking: 83rd
- Regional Ranking: 16th in the South and Central America/Caribbean Region
- Notable Successes: Trade Freedom and Monetary Freedom
- Concerns: Property Rights, Corruption, and Labor Freedom
- Overall Score Change Since 2012: –0.3
Paraguay’s trade freedom is relatively high, driven mainly by relatively low tariff barriers, but dynamic gains are undercut by the absence of progress in other policy areas, particularly finance and investment. The judicial system lacks efficiency and political independence. Corruption is perceived as widespread.
President Horacio Cartes of the traditionally dominant Colorado Party was elected in 2013. He succeeded Federico Franco, the former vice president who stepped into the presidency when Fernando Lugo was impeached in 2012. Cartes has made progress on his ambitious agenda, which includes public-sector reform and increased investment in infrastructure. Annual economic growth is forecast to remain steady in the 4 percent to 5 percent range, but the economy depends heavily on agriculture and is vulnerable to weather and commodity price trends. Attempts to reduce smuggling and scrutinize suspected terrorist groups in the tri-border area with Brazil and Argentina are not considered to have been successful.
Corruption is widespread at all levels of Paraguay’s government, judiciary, and police, particularly in the eastern part of the country, Ciudad del Este. Corruption cases languish for years in the court system without resolution, and offenses often go unpunished due to political influence on the judiciary. A lack of consistent property surveys and registries often makes it difficult to acquire secure title documents for land.
The personal income tax rate is 10 percent, and the top corporate tax rate is 10 percent. Other taxes include a value-added tax and a property tax. The overall tax burden equals 13.1 percent of total domestic income. Government spending amounts to 23.6 percent of total domestic output. The government budget has run small deficits in recent years, and public debt remains below 25 percent of GDP.
There is no minimum capital requirement for starting a business, but the process still takes more than 30 days. The cost of completing licensing requirements remains burdensome. The labor market lacks flexibility, hurting much-needed formal-sector job growth. The government subsidizes nine major state-owned entities performing a wide range of activities, from public utilities to transport infrastructure and commercial activities.
Paraguay’s average tariff rate is 4.4 percent. Several categories of imports require licenses. State-owned enterprises are active in such sectors as electricity and telecommunications. Domestic and foreign investors are generally treated equally under the law. However, the investment regime lacks efficiency, mainly due to government bureaucracy. The level of financial intermediation has been improving gradually.