Paraguay’s economy continues to impress
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Paraguay’s Economy Continues to impress
Paraguay’s economy continues to be a hotspot for growth. However, the downturn in global commodity prices has hit South American economies hard. Although Brazil and Venezuela are the most notable cases, several countries in the region are experiencing major economic slowdowns or even contractions.
The country’s small but robust low-end manufacturing sector lies at the heart of this growth, buoyed by business-friendly tax incentives and low wages.
Meanwhile, the Paraguayan economy is becoming increasingly diverse. Though Paraguay will find it challenging to sustain growth in the coming years, it will continue to outpace its larger neighbours and to boost the momentum it has already built up in its manufacturing center.
Rosy Outlook
The International Monetary Fund’s World Economic Outlook projects that Paraguay will grow by 3 percent in 2015 compared to the previous year, and again by 3.8 percent in 2016. This outlook stands in stark contrast to expectations for Paraguay’s neighbours and fellow Mercosur members Brazil and Argentina, which are set to either contract or see negligible growth over the same period. With the exception of Bolivia, Paraguay is projected to have the highest rate of growth in Latin America over the next two years, just as it has been the region’s leader in growth for much of the past decade. Unlike Paraguay’s diversified industrial growth, Bolivia’s economy has been fueled by an increase in natural gas production and exports.
Paraguay’s strong economic growth stems from several factors. Like most in Latin America, the country’s economy is largely driven by commodity exports. Paraguay is the world’s fourth-largest exporter of soybeans, sixth-largest exporter of corn and 10th-largest exporter of wheat. These exports, particularly soybeans, have been hurt by the decline in global commodity prices, but the trend has still proved to be a net positive for Paraguay.
Because the country is a net importer of oil and natural gas, the drop in oil prices has been a boon. Furthermore, the country meets most of its energy consumption needs through the Itaipu dam, which produces 75 percent of its energy as well as 17 percent of Brazil’s consumption needs. Paraguay’s beef exports have also increased recently, up by 70 percent to value $1.3 billion over the past two years, mainly on the back of Russian consumption amid Moscow’s ban on European agricultural goods.
But over the past decade, Paraguay’s manufacturing boom has spurred the country’s diversification away from a primarily commodity-based economy to one broadly based in different sectors. While Paraguay is still reliant on commodity exports, the country has seen substantial growth in industries such as textiles, pharmaceuticals and auto parts. Collectively, these sectors account for around 24 percent of the country’s total exports.
Their growth has been aided by friendly policies business- and investment- pursued by the government of Paraguayan President Horacio Cartes, who came to power in 2013. The country employs a flat 10 percent rate on income tax and a value-added tax that is the lowest among Mercosur members and one of the lowest in Latin America.
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