Paraguay

Paraguay has faced multiple shocks in the past five years as the COVID-19 pandemic was bookended by severe droughts that affected two key sectors, electricity production and agricultural production. The economy has demonstrated remarkable resilience during this period, supported by policy measures commensurate with the magnitude of the challenge, like the USD 2 billion fiscal response to the pandemic. These shocks have also exposed key underlying vulnerabilities in the country’s economy and development model, including reliance on agricultural exports, informality, limited revenue-raising capacity, and exposure to the consequences of climate change. The response and stimulus recognised these issues and found new ways to address or circumvent them, albeit in many cases not efficiently or permanently. This report draws lessons from policy measures implemented during the pandemic and recovery phase and applies them to current strategic challenges. In doing so, it highlights policy priorities to make Paraguay’s development path more inclusive, stronger and more resilient.

In response to the COVID-19 pandemic, Paraguay mobilised sizeable fiscal resources, utilising its fiscal buffers, and put in place several credit support mechanisms. In the recovery period, it has increased capital expenditure above its historic average. Going forward, the country will need to rebuild fiscal buffers while building on the progress made in recent years in simplifying the tax system and setting a framework to mobilise sustainable development finance flows. This chapter examines lessons from the pandemic and recovery periods that can help Paraguay establish a comprehensive fiscal strategy and mobilise public and private resources towards a green and sustainable development path.

This chapter offers a scorecard containing a series of indicators for monitoring progress on the implementation of the proposed reforms on social protection, health, and education and skills. First, it presents the methodology behind the scorecard; then, it presents the targets that Paraguay should achieve for each indicator by 2030.

The direct economic impact of the COVID-19 pandemic was muted in Paraguay compared to other countries in the region. However, the pandemic was bookended by two severe droughts that have challenged the economic recovery. Diversifying the economy is critical to enhance growth and resilience to climate change. It is also a major challenge in a context of high informality in a landlocked country. This chapter examines how measures established during the crisis and recovery period can support the country in tackling structural challenges. Credit support measures can support a formalisation effort that will have to be broader and combine ongoing administrative simplification efforts with support to increase the productivity of MSMEs and foster integration in regional and global value chains.