2020 Index of Economic Freedom

Paraguay

OVERALL SCORE63.0
WORLD RANK80
Rule of Law

Property Rights44.7

Judicial Effectiveness26.4

Government Integrity29.6

Government Size

Tax Burden96.1

Government Spending88.6

Fiscal Health98.0

Regulatory Efficiency

Business Freedom60.9

Labor Freedom29.0

Monetary Freedom72.5

Open Markets

Trade Freedom75.4

Investment Freedom75.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 7.1 million
  • GDP (PPP):
    • $94.5 billion
    • 3.7% growth
    • 4.2% 5-year compound annual growth
    • $13,395 per capita
  • Unemployment:
    • 4.7%
  • Inflation (CPI):
    • 4.0%
  • FDI Inflow:
    • $453.9 million

Paraguay’s economic freedom score is 63.0, making its economy the 80th freest in the 2020 Index. Its overall score has increased by 1.2 points, primarily because of better control of government spending. Paraguay is ranked 15th among 32 countries in the Americas region, and its overall score is slightly above the regional and world averages.

The Paraguayan economy has been moderately free for more than a decade. GDP growth over the past five years has been solid, although it is being affected by slower growth in the region.

The government is under pressure to take tough action against the growing power of Paraguayan and Brazilian narcotics gangs and pass anti–money laundering legislation. Lingering problems in all areas relating to the rule of law are primarily responsible for Paraguay’s long-term failure to advance economic freedom. The government wants to pursue structural tax and pension reforms that would likely boost business confidence and investment, but the proposals are opposed by unions and the left-wing opposition.

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Background

Paraguay was established in the 19th century, along with Bolivia and Uruguay, as a buffer state between regional powers Brazil and Argentina. It is a global leader in hydroelectricity production, one-quarter of which is generated by the state-owned Itaipú dam, one of the world’s largest and co-owned by Brazil. In the 2018 elections, Mario Abdo of the Colorado Party (PC) was elected to a five-year term, maintaining the PC’s control of the presidency. Despite government efforts, Paraguay remains a significant international money-laundering and illicit smuggling hub. Economic growth depends on exports of electricity and such agricultural goods as soybeans, beef, and rice, as well as attractiveness to foreign direct investment.

Rule of LawView Methodology

Property Rights 44.7 Create a Graph using this measurement

Judicial Effectiveness 26.4 Create a Graph using this measurement

Government Integrity 29.6 Create a Graph using this measurement

A lack of consistent property surveys and registries often makes it difficult to acquire title documents for land, leaving property rights and contracts insecure. The judiciary is nominally independent, but money laundering, drug trafficking, and other criminal operations, particularly in regions adjacent to Brazil, sometimes intimidate judges. Corruption is a serious problem, and anticorruption laws have been poorly implemented.

Government SizeView Methodology

The top personal income and corporate tax rates are 10 percent. Other taxes include value-added and property taxes. The overall tax burden equals 13.8 percent of total domestic income. Government spending has amounted to 19.5 percent of the country’s output (GDP) over the past three years, and budget deficits have averaged 0.8 percent of GDP. Public debt is equivalent to 21.6 percent of GDP.

Regulatory EfficiencyView Methodology

The slow pace of structural reform has adversely affected entrepreneurism. The difficulty of firing long-term full-time workers encourages the hiring of “temporary” workers with periodically renewed contracts, which is one indicator of an outsized informal sector. The government sets electricity rates and subsidizes state-owned enterprises in public transport, fuel importation and distribution, telecommunications, alcoholic beverages, and cement.

Open MarketsView Methodology

The total value of exports and imports of goods and services equals 69.8 percent of GDP. The average applied tariff rate is 4.8 percent, and 16 nontariff measures are in force. Most sectors are open to private investment, and equal treatment of foreign investment is formally guaranteed, but the overall investment regime lacks efficiency. The level of financial services and intermediation has been improving gradually.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Canada78.20.5
2Chile76.81.4
3United States76.6-0.2
4Colombia69.21.9
5Uruguay 69.10.5
6Jamaica 68.5-0.1
7Saint Lucia68.2-0.5
8Peru67.90.1
9Panama 67.20.0
10Saint Vincent and the Grenadines66.81.0
11Mexico661.3
12Costa Rica 65.80.5
13The Bahamas64.51.6
14Guatemala 641.4
15Paraguay 631.2
16El Salvador 61.6-0.2
17Barbados61.4-3.3
18Honduras 61.10.9
19Dominican Republic60.9-0.1
20Dominica60.8-2.8
21Trinidad and Tobago58.31.3
22Belize57.42.0
23Nicaragua 57.2-0.5
24Guyana56.2-0.6
25Brazil53.71.8
26Argentina53.10.9
27Haiti52.3-0.4
28Ecuador51.34.4
29Suriname49.51.4
30Bolivia42.80.5
31Cuba26.9-0.9
32Venezuela 25.2-0.7
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