THE LEGATUM PROSPERITY INDEX™ 2018

Creating the Pathways from Poverty to Prosperity

Paraguay

Paraguay is one of our success stories – over the last decade it has jumped above seven of its Latin American neighbours and is now ranked 61st in the world. GDP per capita has increased by 50% since the turn of the century, and Paraguay’s citizens now report a higher level of wellbeing.

Some of the biggest improvements for this modernising, exporting country have come from an improving Business Environment and Economic Quality scores. However, it faces significant governance challenges, where it ranks 108th, well within the bottom half of this pillar.

Introduction

Paraguay is one of our success stories – over the last decade it has jumped above seven of its Latin American neighbours and is now ranked 61st in the world. GDP per capita has increased by 50% since the turn of the century, and Paraguay’s citizens now report a higher level of wellbeing. Some of the biggest improvements for this modernising, exporting country have come from an improving Business Environment and Economic Quality scores. However, it faces significant governance challenges, where it ranks 108th, well within the bottom half of this pillar.

Social Wellbeing

Investment in people has also been targeted, with spending continuing to increase in healthcare and education. Paraguay has moved up from 12 places in the Health pillar, to 47th in 2018, well above the regional average for Health. Vaccinations of measles has increased, with a 99% vaccination rate. Life expectancy has improved by more than 1.5 years to 73 years. Further, people are reporting higher levels of joy, and lower levels of sadness. All of these improvements take place while public spending on healthcare as a percentage of GDP has risen to 7.8%.1 Education provision has also improved, with 10 new universities being built since 1990, and there is a marked increase in tertiary education amongst the workforce.

Whilst absolute and relative poverty remains high in the country, both are improving. The percentage of the population in relative poverty is now 29%, 16% less than a decade ago. Absolute poverty figures are 1.7%, 6% lower than a decade ago. Infrastructure improvements have been well funded and well targeted. The National Development Plan of 2014 focussed on regional integration through improving infrastructure and access to telecommunications. This has resulted in increased access to the internet and electricity for many rural communities, and increased transport networks. Improved housing has also been targeted, with funding provided for 30,000 homes during Horacio Cartes’ presidency.

Institutional challenges

Authoritarian rule in Paraguay ended in 1989, and public pressure on government reform has ensured a return to authoritarian rule has not occurred. However, Paraguay ranks 108th in the world for Governance, its worst ranking pillar. Successive governments since the overthrow of Stroessner’s authoritarian regime in 1989 have tried, and failed, to extend the number of Presidential terms, most recently when violent protests occurred after Horacio Cartes attempted this in 2017.

There are several indicators which reflect this instability in government. Firstly, corruption is common. In the Corruption Perceptions Index, Paraguay ranks 115th. Paraguay performs even worse when looking at the judiciary, it ranks 143rd in our judicial independence rankings. A 2017 survey showed that 23% of respondents, or someone in their household, had paid a bribe to a judge in the 12 months leading up to the survey and that 40% reported they felt the judiciary was corrupt. Secondly, press freedoms remain low with Paraguay ranking fifth lowest in the press freedom index within the region. The market share of media outlets is increasingly concentrated and journalists are limited by threats of violence from organised crime institutions. Social freedoms remain weak in the country. For instance, Paraguay has one of the highest rates of domestic violence globally, with 20% of women reporting physical or sexual abuse by a former or current partner. Abortion remains illegal, as do same-sex marriage and civil unions.

Economic Foundations

Despite these institutional issues, Paraguay has successfully managed its economy, rising from 102nd in 2008 to 73rd in 2018. This is partially explained by the decrease of people in relative poverty, and the increase in people saying they are satisfied with their standard of living. In 2018 it also had the 23rd highest rate of economic growth over the last five years. Recent policy has focussed on minimising economic volatility. The Central Bank maintains low interest rates and helps to keep inflation below 5%. Since 2005, public debt has been less than 25% of GDP, which is low for the region, with the government consolidating this through the Fiscal Responsibility Law of 2015 which limits public spending as a percentage of GDP. As a result, various international ratings agencies have consistently upgraded the country’s sovereign risk ratings. Recent sovereign bonds issuances in 2017 were oversubscribed, showing how the international investment community has responded positively to this consolidation of the economy.

Since 2003, Paraguay has shown strong and consistent growth in economic indicators and human capital. This is the result of economic reforms and intelligent policy making. An attractive investment environment, upgrades to infrastructure and an increase of skilled labour has led to a diverse and growing economy.

Paraguay is industrialising and modernising its agricultural industry to meet world export standards as well as diversifying into the manufacturing sector. On measures of export quality it ranks 68th, and, although economic complexity is low at 115th, it has been rising steadily over the decade. In order to maintain its competitive advantage in its main exports of soy and corn, the Paraguayan government has approved 22 new genetically modified types of seeds. In addition to this, extensive work has been put in place to industrialise subsistence lands to further improve yields. Diversifying into manufacturing industries has been achieved by a beneficial regulatory environment of tariff-free imports for manufacturing firms; Paraguay is ninth in the region (and 65th in the world) for perceptions about the prevalence of trade barriers. This, combined with a well-educated skilled workforce and cheap energy has resulted in the manufacturing sector growing to 9.5% of GDP.

Since 2003, Paraguay has shown strong and consistent growth in economic indicators and human capital. This is the result of economic reforms and intelligent policy making. An attractive investment environment, upgrades to infrastructure and an increase of skilled labour has led to a diverse and growing economy. There are, however, several institutional problems which need to be addressed to further improve Paraguay’s prosperity. Paraguay must work to improve the accountability, integrity, transparency and equity of its government and the independence of the judiciary. These critical institutions form the bedrock of a nation’s ability to safeguard prosperity for future generations.