From Landlocked to Land of Opportunity: Paraguay's Path to Prosperity

The World Bank's report "From Landlocked to Land of Opportunity: Paraguay Country Economic Memorandum" offers a comprehensive roadmap for Paraguay to transition to a high-income economy. It emphasizes the need for sustainable and inclusive growth by addressing structural bottlenecks, improving productivity, and diversifying the economy. The report highlights the importance of investing in human development, enhancing public spending efficiency, boosting productivity and formalization, unlocking the services sector's potential, and supporting the agriculture sector.

Paraguay, a nation rich in natural resources yet often overshadowed by its neighbors, stands at a crucial juncture. The World Bank's recent report, "From Landlocked to Land of Opportunity: Paraguay Country Economic Memorandum," delves into the country's economic history and offers a roadmap for transitioning to a high-income economy. As Paraguay navigates this path, understanding its past and addressing current challenges is essential for sustainable and inclusive growth.

Historical Growth and Current Challenges

Paraguay's economic story is one of resilience and gradual transformation. From 1990 to 2002, the country experienced a modest average annual GDP growth of 1.9 percent, impacted by various political and economic upheavals. However, significant reforms in the early 2000s, aimed at stabilizing the economy, paved the way for prosperity. Between 2002 and 2022, Paraguay's economy grew at an average rate of 3.6 percent annually, outpacing the regional average.

Much of this growth has been fueled by Paraguay's abundant natural resources. Despite being landlocked, the country boasts fertile soils and powerful rivers that generate more hydropower than it currently uses. This natural wealth, accounting for 16 percent of Paraguay's total wealth, has made the nation a leading exporter of soybeans, beef, and electricity. However, reliance on these resources also poses risks, as external shocks like droughts and global market fluctuations can significantly impact the economy.

Boosting Productivity and Reducing Informality

A critical issue highlighted in the report is the high rate of informality in Paraguay's labor market. With 63 percent of non-agricultural workers employed informally, the lack of social security benefits and worker protections hinders economic stability and growth. The report emphasizes the need to enhance productivity at the firm level and encourage the formalization of businesses. Paraguay's productivity growth has been slow, particularly since 2013, when investment levels remained low, and much of the capital growth was directed toward structures rather than productive assets like machinery and technology. To address this, the report recommends improving the business environment, enhancing access to finance, and investing in skills development to boost productivity and formalize employment.

Leveraging the Services Sector

The services sector presents a significant opportunity for Paraguay to drive economic growth. Currently, services generate half of the nation's value-added jobs but contribute little to productivity and exports. The report suggests that with the right policies and investments in infrastructure and skills, the services sector can become a key driver of growth. Expanding the contribution of services to the economy involves addressing gaps in connectivity, digital skills, and infrastructure. By doing so, Paraguay can unlock the potential of sectors like information and communication technology (ICT), tourism, and other tradable services, fostering a more resilient and sustainable economy.

Strengthening the Agriculture Sector

Agriculture remains a cornerstone of Paraguay's economy, contributing significantly to growth and poverty reduction. However, the sector also faces vulnerabilities, including climate change impacts and inefficiencies in public spending. The report calls for better coordination among agricultural institutions, increased investments, and the adoption of new technologies to enhance the sector's competitiveness and resilience. To mitigate the long-term risks associated with deforestation and environmental degradation, the report emphasizes the need for sustainable agricultural practices. Adopting measures to ensure that agricultural production is deforestation-free can help Paraguay access premium markets and maintain its competitiveness in the global market.

Key Takeaways

The World Bank report outlines several key recommendations for Paraguay's economic development. Paraguay must sustain higher growth rates by addressing structural bottlenecks, improving productivity, and diversifying its economy. Bridging gaps in education, health, and social protection is crucial for inclusive growth. Improving the efficiency of public spending can lead to better outcomes in health, education, and infrastructure. Creating a conducive business environment, enhancing access to finance, and investing in skills development are essential. Investing in infrastructure and skills can drive growth in the services sector. Increasing investments and adopting new technologies can strengthen the sector's resilience and competitiveness.

Paraguay stands at a pivotal point in its economic journey. By addressing its current challenges and leveraging its strengths, the nation can transition from being landlocked to a land of opportunity. The World Bank's report provides a comprehensive roadmap for achieving sustainable and inclusive growth, ensuring that Paraguay's future is as prosperous as its potential.