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- GDP (PPP):
- $40.9 billion
- -1.2% growth
- 3.6% 5-year compound annual growth
- $6,136 per capita
- Inflation (CPI):
- FDI Inflow:
Paraguay’s economic freedom score is 62.0, making its economy the 78th freest in the 2014 Index. Its score is 0.9 point higher than last year, with improvements in half of the 10 economic freedoms, including investment freedom, the management of public finance, and labor freedom, partially offset by declines in trade freedom and freedom from corruption. Paraguay is ranked 15th out of 29 countries in the South and Central America/Caribbean region, and its overall score is above the world average.
Over the 20 year-history of the Index, Paraguay’s progress toward greater economic freedom has been uneven. Overall, its economic freedom score has declined by 3.9 points. Improvements in half of the 10 economic freedoms have been outweighed by score declines of more than 10 points in property rights, business freedom, and investment freedom.
The overall entrepreneurial environment remains constrained. An overbearing regulatory framework, exacerbated by poor access to credit and high financing costs, stifles economic activity and retards the development of a vibrant private sector. Corruption is perceived as widespread.
Horacio Cartes of the traditionally dominant Colorado Party won the presidency in 2013, succeeding Federico Franco, who had served temporarily following the impeachment of left-leaning President Fernando Lugo in 2012. Lugo was removed lawfully but under protest from his ideological allies in the region, and Paraguay has been suspended from the main regional trade bloc (MERCOSUR) and has not been allowed to participate in the summits of the South American Union (UNASUR). Paraguay is a major exporter of soy. The extensive informal economy is geared to the re-export of consumer goods to neighboring countries. Institutional impediments to the market economy are considerable. Corruption is pervasive, and government attempts to reduce smuggling and scrutinize suspected terrorist groups in the tri-border area with Brazil and Argentina have met with little success.
Corruption cases languish in the courts for years without resolution, and corruption often goes unpunished as judges favor the powerful and wealthy. Before he was abruptly (and constitutionally) removed from power in 2012, former President Lugo had pledged greater transparency in government and a reduction in corruption, specifically in the judiciary, but no progress was made in depoliticizing the corrupt Supreme Court.
The top individual income and corporate tax rates are 10 percent. Other taxes include a value-added tax (VAT) and a property tax. The overall tax burden equals 13.4 percent of gross domestic income. Government spending makes up one-fifth of the domestic economy. Public debt is a modest 11 percent of GDP.
There is no minimum capital requirement for starting a business, but the process still takes more than a month. The cost of completing licensing requirements remains almost twice the level of average annual income. The labor market’s lack of flexibility hurts formal-sector job growth. State-owned companies have monopolies for petroleum products and (100 percent hydro-generated) electricity markets.
Paraguay’s average tariff rate is 4.5 percent. Tariffs provide about 13 percent of government revenue. The judicial and regulatory bureaucracies deter foreign investment. The level of financial intermediation has been improving gradually, but an inefficient legal framework remains a considerable impediment to the creation of a more dynamic financial sector. Capital markets remain underdeveloped.