2015 Index of Economic Freedom

Paraguay

overall score61.1
world rank83
Rule of Law

Property Rights30.0

Freedom From Corruption24.0

Limited Government

Government Spending81.9

Fiscal Freedom96.0

Regulatory Efficiency

Business Freedom58.4

Labor Freedom26.3

Monetary Freedom78.3

Open Markets

Trade Freedom81.4

Investment Freedom75.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 6.8 million
  • GDP (PPP):
    • $46.4 billion
    • 13.0% growth
    • 4.8% 5-year compound annual growth
    • $6,823 per capita
  • Unemployment:
    • 5.2%
  • Inflation (CPI):
    • 2.7%
  • FDI Inflow:
    • $382.4 million
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Paraguay’s economic freedom score is 61.1, making its economy the 83rd freest in the 2015 Index. Its score has decreased by 0.9 point since last year, with improvements in freedom from corruption, business freedom, and trade freedom counterbalanced by declines in the management of government spending, monetary freedom, and labor freedom. Paraguay is ranked 15th out of 29 countries in the South and Central America/Caribbean region. As a “moderately free” economy, its overall score is above the world average.

Over the past five years, Paraguay’s economic freedom has fallen by 1.2 points with declines in five of the 10 economic freedoms, including the control of public finance and business freedom. The government has pursued a series of structural reforms to enhance the entrepreneurial environment, but inefficient business and labor regulations force much of the population into the informal sector.

Economic freedom in Paraguay remains particularly challenged by the weak rule of law. Political instability has undermined efforts to combat corruption and improve governance. The previous president’s promises to address corruption have been undermined by his constitutional removal from power. Soya remains a vital export, facilitated by a commitment to open trade and investment policies.

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Background

President Horacio Cartes of the traditionally dominant Colorado Party was elected in 2013, succeeding Federico Franco, who served temporarily following the impeachment of left-leaning Fernando Lugo in 2012. Paraguay was suspended from the MERCOSUR regional trade bloc after Lugo’s impeachment. In 2013, Cartes made a deal in which Paraguay voted to approve Venezuela as a new member in exchange for readmission. Paraguay had also been suspended from summits of the South American Union but was welcomed back that same year. After a recession in 2012, the economy rebounded strongly in 2013. 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.

Rule of LawView Methodology

Property Rights 30.0 Create a Graph using this measurement

Freedom From Corruption 24.0 Create a Graph using this measurement

President Cartes took office in August 2013 pledging to end the corruption and cronyism that pervades the government, the judiciary, and the police. Yet the president himself is suspected of money laundering and involvement in Paraguay’s growing drug trafficking network. A lack of consistent property surveys and registries often makes it difficult to acquire title documents for land.

Limited GovernmentView Methodology

Paraguay’s top individual and corporate income tax rates are 10 percent. Other taxes include a value-added tax and a property tax. Overall tax revenues are equal to 14.3 percent of domestic income. Public spending equals 24.6 percent of domestic production, and public debt is equivalent to 15 percent of gross domestic product.

Regulatory EfficiencyView Methodology

There is no minimum capital requirement, but starting a business takes over a month, and obtaining necessary permits takes more than 130 days on average. The labor market lacks flexibility, hurting job growth. In 2014, labor unions blocked partial privatization and renovation of the airport and water treatment plants and construction of badly needed toll roads to neighboring countries.

Open MarketsView Methodology

The average tariff rate is 4.3 percent. Domestic companies are favored in government procurement bids. Foreign and domestic investors are generally treated equally under the law, and investors may repatriate profits. Banking remains relatively sound and dominates the financial system. Financial intermediation continues to be low, and most lending is short-term. The capital market is not fully developed.

Country's Score Over Time

Bar Graph of Paraguay  Economic Freedom Scores Over a Time Period

Country Comparisons

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Regional Ranking

rank country overall change
1Chile78.5-0.2
2Colombia71.71.0
3Saint Lucia70.2-0.5
4The Bahamas68.7-1.1
5Uruguay 68.6-0.7
6Saint Vincent and the Grenadines681.0
7Barbados67.9-0.4
8Peru67.70.3
9Jamaica 67.71.0
10Costa Rica 67.20.3
11Dominica66.10.9
12El Salvador 65.7-0.5
13Trinidad and Tobago64.11.4
14Panama 64.10.7
15Paraguay 61.1-0.9
16Dominican Republic61-0.3
17Guatemala 60.4-0.8
18Nicaragua 57.6-0.8
19Honduras 57.40.3
20Belize56.80.1
21Brazil56.6-0.3
22Guyana55.5-0.2
23Suriname54.20.0
24Haiti51.32.4
25Ecuador49.21.2
26Bolivia46.8-1.6
27Argentina44.1-0.5
28Venezuela 34.3-2.0
29Cuba29.60.9
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