2019 Index of Economic Freedom

Paraguay

overall score61.8
world rank85
Rule of Law

Property Rights39.5

Government Integrity25.5

Judicial Effectiveness30.0

Government Size

Government Spending78.9

Tax Burden96.3

Fiscal Health96.3

Regulatory Efficiency

Business Freedom61.5

Labor Freedom29.2

Monetary Freedom72.8

Open Markets

Trade Freedom76.6

Investment Freedom75.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 7.0 million
  • GDP (PPP):
    • $68.3 billion
    • 4.3% growth
    • 6.0% 5-year compound annual growth
    • $9,826 per capita
  • Unemployment:
    • 4.6%
  • Inflation (CPI):
    • 3.6%
  • FDI Inflow:
    • $355.8 million

Paraguay’s economic freedom score is 61.8, making its economy the 85th freest in the 2019 Index. Its overall score has decreased by 0.3 point, with lower scores for government spending and government integrity outweighing improvements in judicial effectiveness and property rights. Paraguay is ranked 18th among 32 countries in the Americas region, and its overall score is above the regional and world averages.

The new government is expected to maintain orthodox macroeconomic policies, but further attempts at reform of the inefficient public sector or greater private participation in state-run enterprises are unlikely because of resistance from unions, the leftist opposition, and some traditional elements of the Colorado Party. The agriculture, retail, and construction sectors continue to be driving forces for economic growth. One of the region’s lowest tax burdens enhances competitiveness. However, the informal economy remains large, and private-sector growth is hindered by institutional weaknesses that undermine the rule of law.

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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 April 2018 elections, Mario Abdo of the Colorado Party (PC) was elected to succeed former President Horacio Cartes and retain PC control of the presidency. Abdo’s effectiveness will hinge on whether the PC is able to form a durable legislative coalition. 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 39.5 Create a Graph using this measurement

Government Integrity 25.5 Create a Graph using this measurement

Judicial Effectiveness 30.0 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 slow, and offenses often go unpunished because of political influence. Corruption is widespread at all levels of government, but steps such as the creation of an Internet-based government procurement system have improved transparency.

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 13.0 percent of total domestic income. Over the past three years, government spending has amounted to 26.5 percent of the country’s output (GDP), and budget deficits have averaged 1.2 percent of GDP. Public debt is equivalent to 25.6 percent of GDP.

Regulatory EfficiencyView Methodology

The overall regulatory framework is only weakly supportive of dynamic entrepreneurial activity. Labor regulations are outmoded. The difficulty of dismissing long-term full-time employees encourages the hiring of more “temporary” workers with periodically renewed contracts. The government sets electricity rates and subsidizes major state-owned entities, from public transport utilities to fuel distribution and telecommunications.

Open MarketsView Methodology

The combined value of exports and imports is equal to 84.6 percent of GDP. The average applied tariff rate is 4.2 percent. As of June 30, 2018, according to the WTO, Paraguay had 16 nontariff measures in force. Foreign investment is not subject to screening, and foreign entities may own property. About 55 percent of adult Paraguayans have access to an account with a formal banking institution.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Canada77.70.0
2United States76.81.1
3Chile75.40.2
4Saint Lucia68.71.1
5Jamaica 68.6-0.5
6Uruguay 68.6-0.6
7Peru67.8-0.9
8Colombia67.3-1.6
9Panama 67.20.2
10Saint Vincent and the Grenadines65.8-1.9
11Costa Rica 65.3-0.3
12Mexico64.7-0.1
13Barbados64.77.7
14Dominica63.6-0.9
15The Bahamas62.9-0.4
16Guatemala 62.6-0.8
17El Salvador 61.8-1.4
18Paraguay 61.8-0.3
19Dominican Republic61-0.6
20Honduras 60.2-0.4
21Nicaragua 57.7-1.2
22Trinidad and Tobago57-0.7
23Guyana56.8-1.9
24Belize55.4-1.7
25Haiti52.7-3.1
26Argentina52.2-0.1
27Brazil51.90.5
28Suriname48.10.0
29Ecuador46.9-1.6
30Bolivia42.3-1.8
31Cuba27.8-4.1
32Venezuela 25.90.7
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