Population 6.661 million
GDP 26.089 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
13.1 |
4.4 |
-1.5 |
8 |
|
Inflation (yearly average) (%)
|
7.2 |
5.6 |
4.5 |
5 |
|
Budget balance (% GDP)
|
1.5 |
1 |
-2.8 |
-2.2 |
|
Current account balance (% GDP)
|
-3.4 |
-1.1 |
-2.1 |
-1.4 |
|
Public debt (% GDP)
|
14 |
12 |
13 |
12 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Agricultural sector (soya and beef)
- Abundant hydroelectric resources
- Prospecting for exploitation of world’s largest titanium deposits associated with iron ore
- Discovery of oil
- Prudent economic policies
WEAKNESSES
- One of the poorest countries in the region (50% of the population is poor)
- Land-locked situation
- Shortcomings in transport infrastructure (waterways, roads)
- Dependence on agricultural sector and neighbouring markets (60% of exports are to Uruguay, Argentina, Brazil and Chile)
- Weak governance (corruption and electoralism) and insecurity due to drug trafficking
- Smuggling with Argentina and Brazil
Risk assessment
Rebound of activity in 2013 with agricultural output returning to normal
In 2012, activity declined due to the severe impact of the drought on agriculture. Agriculture contributes 20% to gross domestic product and 70% (90% with derived products) to exports which themselves represent over half of GDP. Agricultural production dropped by 30%, and exports from the sector (soya, maize, wheat) by 50%. There would have been a sharper decline if the authorities had not adopted an economic stimulus policy, which energised the non-agricultural sector through household consumption. In 2013, activity will pick up with the recovery in agriculture. Exports will increase significantly as agricultural production returns to normal and with the recovery in beef sales due to the gradual lifting of embargos imposed in 2011 and 2012 by the buyer countries following the break out of foot and mouth disease.
Healthy public accounts despite accommodative bias
Despite the recovery, against a background of elections due to be held in April 2013, public spending will remain dynamic. The 30% rise in civil service salaries awarded in 2012 will naturally be maintained and the sums allocated to housing construction will rise. Revenues will climb as the economy picks up but to a lesser extent as agricultural activity contributes very little to revenues. The introduction of income tax will initially only concern the wealthiest households. Taxes represent only 13% of GDP, but are supplemented by dues on the exploitation of dams on the Paraná River. The public accounts will remain healthy with public debt, essentially made up of foreign debt, below 13% of GDP.
Trade deficit offset by emigrants’ transfers, electricity sales and foreign investments
Despite the recovery in agricultural exports, the trade deficit will persist. Imports, in particular of oil products, will be sustained by consumption and investment. Transfers from Paraguayan emigrants will be stable (amounting to 3% of GDP), while revenues from the sale of electricity to Argentina and Brazil from the binational dams of Itaipu and Yacireta will increase following a new agreement signed in 2012. The total current account deficit is expected to drop again to a low level and will be easily covered by foreign direct investments. This improvement is likely to be accompanied by an appreciation of the guarani curbed by Central Bank interventions. External debt will remain moderate at 23% of GDP, of which half is held by the public sector.
Weak institutions
In 2008, the election to the presidency of Fernando Lugo, former Catholic bishop with some affinity to Liberation Theology, supported by a coalition of left-wing parties and the Authentic Radical Liberal Party (PLRA), put an end to 60 years of domination by the Colorado Party. On 22 June 2012, after a debate lasting 48 hours, President Fernando Lugo was ousted by a vote in Congress calling for his impeachment, thanks to an alliance between the PLRA and the Colorado Party, on grounds of performing his duties badly. He was, in particular, held responsible and blamed for the death of eleven farmers and six policemen shortly after the eviction of farmers found to be illegally occupying land. He was replaced by his vice-president, Federico Franco, of the PLRA. Although he was ousted according to the letter of the constitution, countries in the region criticised the spirit in which it was done, triggering the suspension of Paraguay’s membership of Mercosur and the UNASUR, and cessation of oil deliveries from Venezuela. A majority of the population, aware of the former president’s desire to combat poverty, seem to have disapproved of the move. There is also the issue of access to land and the impossibility of land reform, given that many MPs are landowners and that many Brazilian immigrants are buying up land for soya production or extensive livestock farming. The Chaco region, in the west of the country, with its national parks, Guarani and Mennonite minorities, indigenous trees like the Quebracho, is also paying the price in deforestation, which already accounts for 10% of its surface area. Fernando Lugo cannot stand for the presidency. Horacio Carles, Efraín Alegre and Lino Oviedo are the likely candidates for the Colorado Conservatives, the PLRA and the UNACE respectively. On the left, the Frente Guasù and the dissident Avanza Pais movement will try to agree on a single candidate on shared lists for the simultaneously held presidential and legislative elections in April 2013, the outcome of which is uncertain.
