Economic growth matters, but is just one facet of development. Policy makers need to reconcile economic, social, and environmental objectives to ensure that their country’s development path is sustainable and leads to durable improvements in citizens’ well-being.

Paraguay’s economic and social progress has accelerated since 2003. After a prolonged period of economic and political instability, the country has experienced stronger growth than most countries in the region, with GDP growing at 4% in 2016 and showing resilience in face of the difficulties of its neighbours and key trading partners. Building on strong economic performance, the country has more than halved its poverty rate and expanded access to health and education.

Population (thousands - 2015)

Paraguay has performed well over a range of development outcomes since 2003, after emerging from a prolonged period of economic and political instability. The economy has grown at 4.6% per annum in real terms, the poverty rate has fallen from 58% to 27%, and employment creation has progressed at 2.8% per annum, more rapidly than the growth of the working age population. The country’s development has benefited from a favourable external environment, with large increases in the prices of major agricultural export products and from a large demographic dividend. Structural reforms undertaken since the democratic transition in 1989 and intensified in the recent period have enabled the country to take advantage of the tailwinds of the 2000s. Maintaining the pace of development and increasing its inclusiveness will require Paraguay to face a number of institutional, economic and social constraints that challenge its development model.

Paraguay has performed well in a range of development outcomes since 2003. The country has set out an ambitious development vision with the horizon of 2030 and a National Development Plan to meet that ambition. Challenges remain to sustain economic performance, increase the inclusivity of the country’s development pattern and buttress the process of institutional development. The objective of the Multi-dimensional Country Review (MDCR) is to support Paraguay in achieving its development objectives. The first volume identifies the key constraints to development in the country. This chapter presents the country’s development performance from a comparative and historical perspective, assesses performance across a range of well-being outcomes and, on the basis of the main results of the volume, identifies the key constraints to development in the country.

This chapter first analyses Paraguay’s macroeconomic performance, looking into the drivers of recent economic growth as well as recent developments in economic and trade diversification. Second, the inflation-targeting regime and the fiscal framework are discussed. Third, the chapter examines the levels of both capital and public investment, discussing some of the main challenges regarding budget management and execution, particularly for infrastructure investment projects and as investment contribution to growth. Finally, it looks into remaining challenges faced by Paraguay to further boost productivity and competition such as innovation, skills mismatch, infrastructure and the institutional framework.

This chapter focuses on key aspects related to the well-being of citizens in Paraguay. It analyses the country’s performance in terms of poverty and of inequality between people. While poverty has fallen significantly in the past ten years, inequality is persistently high. The chapter goes on to analyse key mechanisms to address inequality in the short and medium terms: employment and labour markets, education and the social protection system.

Paraguay is endowed with vast natural wealth in terms of biodiversity, energy, water sources and fertile land. This chapter examines the country’s performance in environmental outcomes as well as their impact on citizens’ well-being. Paraguay performs well in several environmental indicators, given its clean energy mix, low air pollution, and low greenhouse gas and carbon emissions. However, Paraguay’s territorial and development model is gradually increasing environmental pressure. Access to clean water, electricity and waste management are still not available for a large part of the population. Deforestation, explained by the current expansion of the agriculture and livestock sectors, remains one of the most urgent areas for environmental sustainability. Paraguay also faces challenges in land management and administration, which is linked to the concentration of land ownership and the rural-to-urban migratory flows. The chapter analyses the main constraints in Paraguay’s institutional framework and the capabilities to address these challenges in the future.

Strong institutions are essential to creating wealth and maintaining peace, order and security. In turn, good governance is fundamental to the legitimacy of institutions and to delivering high-quality goods and services to people. This chapter investigates aspects associated with good governance. It starts by analysing features of the Paraguayan democracy and the rule of law. It then looks at the public-sector integrity framework and existing strategies to fight corruption, followed by an assessment of the strategies to promote openness, which include transparency, citizen participation and accountability. Later, it describes the co-ordination mechanisms between different government institutions and levels. Subsequently it looks at the satisfaction with public services by socio-economic groups and if these differences could signal the lack of a differentiated response towards vulnerable groups. It ends by arguing that a solid basis of high-quality official statistics is required to support policy making and enhance transparency in Paraguay.

This chapter describes how Paraguay’s network of partnerships with external and domestic entities generates financing to support its development agenda. It examines public finances and the scope to increase the resources available for the public sector, focusing on the potential to improve the performance of Paraguay’s public finance framework, including how to recalibrate expenditure towards areas that offer greater developmental returns, such as infrastructure, while maintaining fiscal sustainability. The chapter then examines the availability of resources for private-sector firms, through foreign direct investment (FDI) and financing from the domestic financial system, and the potential for a more effective domestic banking system. The focus throughout is on the resources that are, or could be, available for development activities, rather than how those financing flows have been used.