Paraguay has a predominantly agricultural economy, with a struggling commercial sector. There is a large subsistence sector, including sizable urban unemployment and underemployment, and a large underground re-export sector. The country has vast hydroelectric resources, including the world's second-largest hydroelectric generation facility built and operated jointly with Brazil (Itaipu Dam), but it lacks significant mineral or petroleum resources. The government welcomes foreign investment in principle and accords national treatment to foreign investors, but widespread corruption is a deterrent. The economy is dependent on exports of soybeans, cotton, grains, cattle, timber, and sugar; electricity generation, and to a decreasing degree on re-exporting to Brazil and Argentina products made elsewhere. It is, therefore, vulnerable to the vagaries of weather and to the fortunes of the Argentine and Brazilian economies.
Paraguay's real GDP in 2008 of $16.1 billion (in 2000 dollars) represented an increase of 26% from $12.8 billion in 2007. The per capita GDP rose to $2,593 in current U.S. dollar terms in 2008, up from $1,928 in 2007 and $1,793 in 1996. Given the importance of the informal sector, accurate economic measures are difficult to obtain. In 2007, Paraguay had a current account deficit of $73 million, derived from a small deficit in the trade of goods, but accompanied by a significant increase in agriculture exports and services (electricity), reflecting favorable market prices for agricultural commodities and exports of electricity from the hydroelectric dams. In July 2009, official foreign exchange reserves rose to $3.2 billion, an increase of 33% over 2008, and over five times the figure for 2002 ($582.8 million). Foreign official debt rose slightly from $2.1 billion in 2007 to $2.2 billion in 2008. Inflation in 2008 was 7.5%, up from 6.0% in 2007, but down from 12.5% in 2006.
Agriculture and Commerce
Agricultural activities, most of which are for export, represent about 20% of GDP and employ about one quarter of the work force. More than 250,000 families depend on subsistence farming activities and maintain marginal ties to the larger productive sector of the economy. In addition to the commercial sector with retail, banking, and professional services, there is significant activity involving the import of goods from Asia and the United States for re-export to neighboring countries. The underground economy, which is not included in the national accounts, may be almost twice the size of the formal economy in size, although greater enforcement efforts by the tax administration and customs are having an impact on the informal sector.
Information by U.S. Department of State