Paraguay Economy

Subchapters:

Basic data
Public finances and the state budget
Banking system
Tax System

Basic data

According to cheeroutdoor.com, Paraguay has shown stable growth in recent years, however, it remains a developing country that has to rely on agricultural products and related problems (price fluctuations on world markets, dependence on the weather). The government is trying to diversify the economy, which it is partially succeeding in, mainly thanks to private investment in industry and government spending on infrastructure projects. The share of industry and services in GDP is gradually increasing.

As a result of the coronavirus pandemic, GDP fell by around 3% in 2020, which was still the best result on the entire continent. A 3% growth is expected for 2022. Unemployment has been at a relatively low number for a long time. Paraguay has maintained a low inflation level for a long time, but year-on-year inflation at the beginning of 2022 approached 10% after many years. So-called undeclared work remains a big problem in Paraguay. It is estimated that up to 34% of employees are not officially registered with the relevant authorities.

Pointer	2019	2020	2021	2022	2023
GDP growth (%)	-0.4	-0.8	4.5	4	3.6
GDP/population (USD/PPP)	13,172.40	12,980.00	13,820.00	14,800.00	15,530.0
Inflation (%)	2.8	1.8	4.8	6.8	4.1
Unemployment (%)	6.5	7	6.5	6.5	6.5
Export of goods (billion USD)	12.7	11.5	13.7	15.5	15.5
Import of goods (billion USD)	12.3	10	11.9	13.1	13.8
Trade Balance (Billion USD)	0.2	1.2	1.6	2.1	1.5
Industrial production (% change)	0.2	ON	ON	ON	ON
Population (millions)	7	7.1	7.2	7.3	7.4
Competitiveness	ON	ON	ON	ON	ON
OECD export risk	05.VII	05.VII	05.VII	ON	ON

Source: EIU, OECD, IMD

Public finance and state budget

Public finance	2021
State budget balance (% of GDP)	-3.7
Public debt (% of GDP)	33
Current account balance (billion USD)	1.1

Taxes	2022
AFTER	10%
F.O	10%
VAT	5% and 10%

Paraguayan public finances are characterized by considerable budgetary prudence, which is reflected in small deficits. Paraguay’s debt was still considered sustainable in 2019 given that it did not represent more than 20% of its GDP. Under standard conditions, the government has a limited deficit of the state budget at the level of 1.5% of GDP, which cannot be exceeded. Due to the Covid-19 pandemic, debt increased in a few months and ended 2020 at 33% of GDP. Paraguay is still one of the least indebted countries in the world.

Banking system

The largest banks in Paraguay by amount of bank assets
Citibank
Banco GNB Paraguay
Banco Do Brasil
Banco De La Nacion Argentina
Banco Itau Paraguay
Banco Sudameris
Banco Basa
Visión Banco
Banco Itapua
Banco Familiar
Banco Atlaa

Tax system

Paraguay has the lowest tax burden among Mercosur countries. A tax of 10% is applied to the profits of companies and the income of natural persons. The VAT rate is the same (5% VAT is applied to selected items).

Foreign companies can use the so-called maquilas system, which is a tool to support domestic employment. It taxes the added value on work ordered by a foreign company from a domestic company in Paraguay at a rate of 1%. The condition is the export of the product created in this way.

In 2020, a tax reform came into force that reduces the effective tax burden on foreign companies from 27.3% to 23.5%.