Possessing growth and inflation figures without surprises, Paraguay stands out among its neighbors as a potential destination for its investments, although internally its low tax collection and the upward trend of public debt in relation to GDP can put its orderly public finances in trouble. .
This is how the new president of Paraguay, Santiago Peña, will assume the task of maintaining the path of economic growth to which the country has returned, despite the strong global impact of the pandemic.
From the 3.5% growth with which he closed 2013, the year in which the outgoing president, Mario Abdo Benítez, assumed the head of state, the Paraguayan productive apparatus contracted to -0.4% and -0.8 % in 2019 and 2020, respectively, when the health emergency caused by the coronavirus pandemic forced the closure of the borders and practically paralyzed economic activities.
In the following year, Paraguay showed signs of recovery, with a GDP of 4% in 2021, although it then suffered a contraction to 0.1% in 2022. This last result was attributed to the drought that halved soybean production , one of its main export products, and the rise in fuel prices due to the Russian invasion of Ukraine.
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Peña, an economist by profession and who was the head of the Central Bank of Paraguay (BCP) and Minister of Finance during the administration of the now ex-governor Horacio Cartes (2013-2018), will receive a country with an economic growth projection of 4.5% for this year.
However, among its most urgent challenges will be to reduce public spending and the fiscal deficit that it inherited from its predecessor.
Figures from the Ministry of Finance indicate that public debt stood at 14,431 million dollars last July, 35.3% of GDP.
For its part, a report from the Center for Economic Studies of the Paraguayan Industrial Union (UIP) drew attention last June to the fiscal deficit.
“In the year 2022 -the document pointed out-, the Ministry of Finance recorded a deficit operating result of almost 1,250 million (dollars) -3% of GDP-“.
The analysis clarified that although the Fiscal Responsibility Law provides for a fiscal deficit ceiling of 1.5% of GDP, the current percentage is within the government’s fiscal convergence plan, which aims to return to that ceiling.
Looking back, the CEE pointed out that the deficit exceeded 6% of GDP in 2020, due to the government’s efforts “to contain inflation in an economy that was hit hard by the measures imposed to contain the spread of the covid- 19”.
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When analyzing the profile of the new president, the political scientist Esteban Caballero predicted, in a column published in the newspaper Última Hora, that the five-year administration that Peña will inaugurate tomorrow “will continue in the neoliberal line.”
He defined the new president as “a project that believes in the market and the private sector.”
“He will seek to find the path of growth and development by stimulating private investment, maintaining existing incentives and betting heavily on increasing foreign direct investment,” said Caballero, who noted that the new head of state “will try to rationalize the public spending and reinforce the portion of the budget allocated to public investment”.
The task, in summary, will be to maintain a balance, since Peña himself promised in the campaign that he will not raise taxes on “entrepreneurs, nor on companies, nor on anyone.”
However, tax collection in Paraguay stood at 14% in 2021, below the average for Latin America and the Caribbean -which is 21.7%- and for the states that make up the Organization for Economic Cooperation and Development. (OECD), where it amounts to 34.1%.
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On the other hand, in February of this year, the Global Organized Crime Index, prepared jointly by the European Union and the United States Department of State, warned that Paraguay currently has the second highest crime rate in South America.
Among the main crimes affecting the country are human trafficking, product smuggling, arms trafficking, and the operations of Brazilian drug cartels, such as the Primeiro Comando da Capital and the Comando Vermelho.
This last point, according to different investigations, is fueled by the prevailing corruption in the Paraguayan state apparatus.
For its part, the Corruption Perception Index 2022, from the NGO TTransparency International ranks Paraguay as the second most corrupt country in the region, surpassed only by Venezuela.
In January of this year, Washington announced sanctions against Cartes for being involved in corruption of the institutions of Paraguay, and for alleged links with the terrorist group Hezbollah.
INTERNATIONAL WRITING
*With information from EFE and EL COMERCIO (PERU) / GDA
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