Western Hemisphere > Paraguay

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International Monetary Fund. Western Hemisphere Dept.
After two consecutive years of GDP decline driven by external shocks, Paraguay’s economy rebounded in 2021. In 2019, drought and flooding reduced economic growth to -0.4 percent. In 2020, the impact of the pandemic on the secondary and tertiary sectors was partly compensated by a rebound of agriculture and an extensive emergency package, and GDP fell by only 0.8 percent. Growth rebounded to 4.2 percent in 2021, but heatwaves and a severe drought decelerated the recovery and have limited 2022 growth prospects, though a recovery is projected for 2023 and the medium-term. While the loss of agricultural export revenue is affecting Paraguay’s balance of payments in 2022, the external position in 2021 was stronger than the level implied by fundamentals and desirable policies.
International Monetary Fund. Western Hemisphere Dept.
In the past two decades, Paraguay has seen strong growth and a sharp reduction in poverty. Strong GDP growth was the result of sound macro policies (with low inflation and low fiscal deficits and debt) and an agricultural commodity price boom which spilled over to the non-tradable sector. Growth was not just high but also volatile, as bad weather shocks led to poor harvests, which spill over to the broader economy. In early 2020, Paraguay was rebounding strongly from another weather shock, and full-year growth was forecast at over 4 percent. In 2019, bad weather had reduced the harvest, and GDP growth had come to a near standstill. A recovery started in the second half of 2019 and gathered strength in early 2020—in February economic activity was 7 percent higher than a year earlier. The Covid-19 epidemic halted the recovery. An early lockdown—which kept the death toll among the lowest in the region—led to a sharp contraction in economic activity, with April activity levels at 20 percent below those in February. Women, informal sector workers, and workers in the service sector were particularly hard hit; while children were severely affected by the closing of the schools until the end of 2020.
International Monetary Fund. Western Hemisphere Dept.
In the past two decades, Paraguay has seen strong growth and a sharp reduction in poverty. Strong GDP growth was the result of sound macro policies (with low inflation and low fiscal deficits and debt) and an agricultural commodity price boom which spilled over to the non-tradable sector. Growth was not just high but also volatile, as bad weather shocks led to poor harvests, which spill over to the broader economy. In early 2020, Paraguay was rebounding strongly from another weather shock, and full-year growth was forecast at over 4 percent. In 2019, bad weather had reduced the harvest, and GDP growth had come to a near standstill. A recovery started in the second half of 2019 and gathered strength in early 2020—in February economic activity was 7 percent higher than a year earlier. The Covid-19 epidemic halted the recovery. An early lockdown—which kept the death toll among the lowest in the region—led to a sharp contraction in economic activity, with April activity levels at 20 percent below those in February. Women, informal sector workers, and workers in the service sector were particularly hard hit; while children were severely affected by the closing of the schools until the end of 2020.
Mr. Antonio David and Mr. Daniel Leigh
This paper presents a new database of fiscal consolidations for 14 Latin American and Caribbean economies during 1989-2016. We focus on discretionary changes in taxes and government spending primarily motivated by a desire to reduce the budget deficit and long-term fiscal health and not by a response to prospective economic conditions. To identify the motivation and budgetary impact of the fiscal policy changes, we examine contemporaneous policy documents, including Budgets, central bank reports, and IMF and OECD reports. The resulting series can be used to estimate the macroeconomic effects of fiscal consolidation for these economies
International Monetary Fund. Western Hemisphere Dept.
This 2017 Article IV Consultation highlights that Paraguay has grown robustly despite a more challenging external environment. The economy gained momentum toward the end of 2016 and expanded by 6.5 percent (year-over-year) during the first quarter of 2017. Real GDP growth is projected to reach 4.2 percent in 2017, reflecting a more moderate pace of activity in the second half of the year. Investment will likely be a crucial driver of growth, as major infrastructure projects are undertaken. Over the medium term, real GDP growth is expected to remain near potential of just below 4 percent. Risks around the outlook are to the downside, especially from heightened political uncertainty in Brazil.
Mr. Antonio David
This paper presents estimates of fiscal multipliers in Paraguay following different econometric techniques and identification approaches. The results point to multipliers for capital expenditure that are substantially higher than multipliers for current expenditure. In addition, the evidence suggests that tax multipliers are close to zero when using conventional identification approaches, but estimates can be much larger when considering the “narrative” approach. One implication of the results is that the balanced budget multiplier for Paraguay i.e. the effect of on output of an increase in expenditures (in particular capital expenditure) financed by taxes is likely to be positive.
International Monetary Fund. Western Hemisphere Dept.
This paper discusses the recent economic developments of Paraguay. Against the backdrop of a regional slowdown, Paraguay’s economy remains relatively resilient. The economy experienced some loss of momentum over the past year due to unfavorable external shocks. Inflation pressures remain contained despite significant depreciation of the guaraní against the U.S. dollar. Macroeconomic policies remain accommodative in light of subdued inflation and slower growth. Recently, credit growth has moderated, but credit quality has deteriorated. To further strengthen fiscal, monetary, and financial sector policy frameworks, Paraguay outlines structural reform agenda and measures. The national development plan places emphasis on inclusive growth and poverty reduction.
International Monetary Fund. Western Hemisphere Dept.
This 2014 Article IV Consultation highlights that economic activity in Paraguay has slowed from record-high growth in 2013, but remains buoyant. Construction, manufacturing, and services led the expansion in 2014, whereas electricity production declined, and re-exports suffered from weak growth in Brazil. Full-year growth is estimated to have slightly exceeded 4 percent. Real GDP is projected to remain close to 4 percent in 2015. Weak trading partner growth and lower export prices cloud the outlook, and agricultural production is projected to rise only marginally above the high level of 2014.
Ms. Evridiki Tsounta and Anayochukwu Osueke
Income inequality in Latin America has declined during the last decade, in contrast to the experience in many other emerging and developed regions. However, Latin America remains the most unequal region in the world. This study documents the declining trend in income inequality in Latin America and proposes various reasons behind this important development. Using a panel econometric analysis for a large group of emerging and developing countries, we find that the Kuznets curve holds. Notwithstanding the limitations in the dataset and of cross-country regression analysis more generally, our results suggest that almost two-thirds of the recent decline in income inequality in Latin America is explained by policies and strong GDP growth, with policies alone explaining more than half of this total decline. Higher education spending is the most important driver, followed by stronger foreign direct investment and higher tax revenues. Results suggest that policies and to some extent positive growth dynamics could play an important role in lowering inequality further.
International Monetary Fund. Western Hemisphere Dept.
This 2013 Article IV consultation highlights the main challenge ahead for Paraguay, which is to improve social and economic development while strengthening the macroeconomic policy framework to cement strong fundamentals. Paraguay’s outlook for 2014–18 is favorable, with broadly balanced risks, despite less buoyant external conditions. The economy is expected to continue to be one of the most dynamic in the region, with growth returning to potential of about 4.5 percent a year by 2016, inflation in line with the central bank’s target rate, and small fiscal and current account deficits. Consistent with this outlook, the policy stance should be tightened in the near term, with policies guided by fiscal responsibility and incipient inflation-targeting frameworks over the medium term.