Paraguay fighting uphill battle to boost economy

Nearly a year after Paraguayan President Mario Abdo took office, the head of local economics studies center CADEP, Ferando Masi, told BNamericas that the government pushed its tax reform bill because it believes that following the same economic policies as previous administrations “isn't enough to create the best conditions for economic growth.”

Back in April, the country’s central bank slashed its 2019 GDP growth forecast from 4.0% to 3.2%, which is also half a percentage point lower than the growth estimated for 2018.

In this regard, Masi says that the local economy is facing two main obstacles. The first is related to a poor showing by its agriculture sector following a “partial drought” during the soy planting and harvest seasons, which resulted in a 20% drop in production during the first half of 2019.

“Both the phenomenon linked to climate change and the variations in international commodity prices have a heavy weight on the country’s economic progress,” he explains.

Second, Masi says that the recession in Argentina and the slowdown in Brazil have impacted Paraguay's trade sector, particularly along the borders.  

The tax reform, which was passed by the senate and is expected to go into effect next year if approved by the lower house of congress, aims to increase the weight of direct taxes on revenue and enacts measures such as a new corporate income tax and a 15% tax on income obtained in Paraguay by non-resident firms or individuals, according to the senate website.

So, while Masi considers the proposed bill to be a step forward, he also thinks that “its scope isn't the most desirable for the set objectives” of boosting revenue and modernizing the tax system. 

OTHER MEASURES

Aside from the tax reform, the government unveiled a US$1.5bn program last month to boost economic growth, which included infrastructure investments, actions aimed to boost production and new support for social programs. This came after a meeting in which president Abdo reportedly expressed his dissatisfaction with his cabinet’s performance in the investment sector.

Masi told BNamericas that these efforts are not a short term issue, but instead “cover a good portion of this government’s administration period, mainly concerning public works investments.”

Other measures highlighted by the head of CADEP include the two new bridges to be built on at the border with Brazil and the local stretches of the Bioceanic highway corridor, which he expects to boost the country’s connectivity.

“Institutionally, the government has started initiatives to fight corruption and to give more independence to courts, understanding that these are pending issues to achieve a better climate for businesses in the country and to attract greater foreign investment,” he says.