Rising Heat and Drought Put Paraguay’s Growth and Food Systems at Severe Risk

Climate extremes, droughts, heatwaves, and floods are projected to sharply reduce Paraguay’s agricultural output, labor productivity, and long-term economic growth, putting pressure on exports and public finances. The report warns that without major adaptation and economic diversification, these climate shocks will steadily erode the country’s development trajectory.

Paraguay’s deepening exposure to climate extremes comes into sharp focus in this new analysis led by the World Bank’s Economic Policy Global Department, drawing on scientific and modeling inputs from global institutions including the FAO, the International Labour Organization, the United Nations Office for Disaster Risk Reduction, and multiple global climate-modelling centers. Together, these research partners provide a comprehensive evidence base showing how intensifying droughts, heatwaves, and floods threaten to undermine Paraguay’s long-standing macroeconomic stability. A country heavily dependent on agriculture and highly exposed to hydrometeorological volatility, Paraguay now faces a future in which climate shocks reverberate through farms, labor markets, exports, fiscal systems, and long-run development prospects.

Agriculture Under Strain

The report’s biophysical modeling reveals how climate pressures have already taken a heavy toll on productivity. Using FAO yield-response methods, the analysis shows that historical once-in-a-century droughts slashed crop yields by up to 40 percent and livestock output by more than 20 percent. These shocks become more severe under future climate scenarios, as rainfall variability widens, evapotranspiration deficits rise, and extreme temperatures increasingly exceed crops’ tolerance thresholds. Livestock productivity deteriorates through both heat stress, captured via temperature-humidity indices, and shrinking pasture availability during drought years. Even under the most optimistic climate models, productivity improvements remain minimal, indicating that livestock systems have little room for climate-driven gains.

Heatwaves Reduce Human Productivity

The report also quantifies how extreme heat undermines labor productivity across the economy. Using wet bulb globe temperature indicators, it finds that agricultural workers, who toil outdoors in physically demanding conditions, face sharp declines in effective working hours. Historically, a 1-in-100-year heatwave reduced agricultural labor productivity by about 16 percent; with rising temperatures, losses will approach 25 percent. Industrial and service-sector workers fare slightly better, but even indoor environments become less protective as Paraguay’s climate warms. The analysis assumes no major shifts in worker allocation across sectors, meaning productivity losses translate directly into reduced economic output.

Floods Strain Infrastructure and Public Finances

Flooding emerges as another destabilizing force. Using exceedance curves from the UNDRR, the study shows that rare but destructive floods will become more frequent as temperatures climb. A flood that historically occurred every 500 years could happen every 218 years under moderate warming, and even more frequently under severe scenarios. These events damage infrastructure and erode the capital stock, forcing the government to divert funds from productive investment toward reconstruction. Over the next 25 years, repeated flooding is projected to reduce real output by around 2 percent; in the most severe flood simulations, capital stock falls by 10 percent and debt-to-GDP rises by nearly five percentage points.

Economic Modeling Shows Steep Long-Run Costs

The physical impacts are incorporated into Paraguay’s economy using a customized version of the World Bank’s MFMod macro-fiscal model. The simulations reveal large near-term shocks and sustained long-term losses. A severe drought alone could reduce GDP by almost 7 percent in the year it occurs, widen the fiscal deficit, and raise debt levels. By 2050, recurrent climate shocks push annual real GDP approximately 4 percent below a no-climate-change baseline. Agriculture, Paraguay’s export engine, faces a projected 6 percent annual drop in output, dragging down exports by about 4 percent. Combined multi-shock scenarios paint an even more alarming picture: under the most pessimistic climate future, GDP falls more than 5 percent relative to baseline, agricultural output drops by over 10 percent, and exports shrink nearly 6 percent.

Even the best-case scenario offers limited relief. Any initial gains in crop yields are quickly outweighed by losses in livestock productivity, heat-related declines in labor output, and capital damage from flooding. While the report acknowledges methodological limits, including simplified assumptions about farmer behavior, technological adaptation, and sectoral spillovers, the overarching message is clear: Paraguay’s economic structure magnifies its climate risks. The authors argue that diversifying exports, modernizing infrastructure, improving climate-resilient agricultural practices, and investing in human capital are essential steps if Paraguay is to safeguard its development trajectory. Without rapid adaptation and structural reform, climate shocks will steadily erode the country’s economic resilience.