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.

The reforms undertaken since the democratic transition in 1989 set the stage for the country to make the most of the tailwinds brought about by the increase in commodity prices during the 2000s. They helped establish sound macroeconomic management, culminating in the adoption of an inflation-targeting regime in 2011 and the fiscal responsibility law of 2013. The country also opened up, joining Mercosur and gradually extending its network of free-trade agreements.

However, ensuring sustained economic and social progress in the medium term will require further reforms to help steer the economy’s structural transformation and deliver more inclusive development with a strong focus on people’s well-being. Inequality remains a major challenge for Paraguay. Despite recent improvements, income inequality remains higher than the regional average. Marked inequalities, especially between urban and rural areas, also characterise quality of life, including in access to social insurance or to clean water and sanitation. GDP growth and exports are still largely dependent on the highly productive commercial agriculture sector, which creates relatively few jobs. Low diversification partly explains the high level of informality in the country that, in turn, fuels inequality and weakens state capacity.

Paraguay will need to overcome seven key constraints to bring about such transformation. The infrastructure gap constrains new investment and leads to a territorial concentration in economic activity. A systemic approach to increasing educational attainment and forming more relevant skills is also necessary. Further efforts are necessary to strengthen governance so that public affairs are, and are perceived to be, efficient and fair. Unlocking finance for development through domestic resource mobilisation and crowding in private investment can help sustain economic growth. Informality has led to a fragmented social protection system, which limits the efficiency of public action to reduce poverty, provide public services or redistribute. Inequality has a strong territorial component, which calls for designing a territorial approach to development policy to build upon local development plans and the comparative advantages and characteristics of each territory. Finally, Paraguay will need to update its statistical system for generating the evidence that would allow accurately and timely monitoring of its development.

Delivering on Paraguay’s ambition for 2030, as set out in its National Development Plan, requires an ambitious reform agenda. This Multi-dimensional Country Review mobilises expertise from across the OECD to help the country meet its objectives. This first volume presents a diagnosis of the main impediments to Paraguay’s development. Subsequent volumes will provide in-depth analysis of the main constraints and outline policy recommendations to address them.

Mario Pezzini

Director of the OECD Development Centre and Special Advisor to the Secretary-General on Development

Martine Durand

OECD Chief Statistician Director of the Statistics Directorate

Alvaro Pereira

OECD Chief Economist a.i. Head of the Economics Department