Paraguay's economy grows amid structural challenges

Miami Herald

14-07-2025

July 14 (UPI) -- Paraguay ended the first half of the year with strong macroeconomic indicators, ranking among the top performers in Latin America.
GDP grew 5.9% year-over-year in the first quarter, with 5% growth projected for the first half; inflation held steady at 3% for the period and international reserves surpassed $10 billion.
Sectors such as construction, energy and services led the recovery, while agriculture posted negative results due to drought.
Economist Manuel Caballero attributed the growth to a rebound in domestic consumption, which rose 9.3%, and to external factors such as Argentina's monetary tightening, which raised the price of its goods in border areas and boosted domestic trade in Paraguay.
Caballero noted that monetary and fiscal policy have remained contractionary: the Central Bank has held its interest rate at 6%, and the Finance Ministry aims to reduce the deficit to below 2% of gross domestic product.
Still, economist Verónica Serafini warns that growth has yet to deliver meaningful gains in employment or social well-being.
"We still have 75% informal employment, and poverty is no longer declining," she said. Informal employment refers to work arrangements not regulated or protected by formal labor laws, taxation systems or social protections.
Both experts agreed that Paraguay's economic model -- heavily focused on primary sectors -- limits the fair distribution of growth. Caballero noted that this structure "does not automatically translate into formal job creation," while Serafini pointed out that even high-growth sectors, like construction, still have 85% informal employment.
On the fiscal front, Paraguay maintains sustainable indicators, with public debt around 40% of GDP and a contained deficit. However, Serafini warned about the rising burden of debt.
"In 2023, debt servicing exceeded health spending," she said, adding that repayments are limiting investment in key areas such as education, care services and social protection.
Caballero also noted that public investment in infrastructure has slowed due to fiscal constraints and the need to settle debts with government contractors.
Another key concern is the impact of climate change. A prolonged drought hit soybean yields -- critical for exports -- and economists see it as one of the main risks to the economy in the second half of the year.
However, economists conclude that the challenge lies not only in maintaining macroeconomic stability, but also in turning it into concrete gains -- more formal employment, greater investment in health and education and a more resilient productive structure.
The International Monetary Fund projects Paraguay's economy will grow 3.8% in real terms in 2025, above the 2% forecast for the region, driven by strong private consumption and investment, stable prices and solid access to financing, despite an uncertain global environment.
According to IMF estimates published in April, Paraguay ranks ninth among Latin American and Caribbean countries in nominal GDP, with approximately $45.5 billion in 2024.
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