World Bank-Paraguay Partnership

Public market in Asuncion, Paraguay. The World Bank intends to support smallholder farmers by helping them increase productivity while easing the burden of farmer-to-market transportation. Photo by: Leandro Neumann Ciuffo / CC BY Paraguay has made significant progress in raising its standard of living over the past decade. Among its most notable social reforms are granting free access to primary health care and basic education, and broadening its cash transfer programs to cover the most vulnerable members of its population. In terms of economic development, the lower-middle-income country has yet to achieve sustained growth; the Paraguayan economy remains highly dependent on agriculture and foreign trade. World Bank data show erratic fluctuations in the expansion of its gross domestic product — dipping 1.2 percent in 2012 due to severe drought and an outbreak of foot-and-mouth disease, spiking to 14.2 percent in 2013 and again dropping to a projected 4 percent in 2014. The bank notes that poverty is still a major challenge, affecting 1 out of 4 Paraguayans, while extreme poverty affects 1 in every 10. The Paraguayan government has recently released its first long-term National Development Plan for 2014-2030 with an overarching goal of ending extreme poverty in the country. Its medium-term goal is to foster inclusive growth by supporting the private sector to create more opportunities. In support of government objectives, the World Bank’s latest partnership strategy for Paraguay focuses heavily on poverty reduction. Funding levels Total financing for the period 2015-2018 will range from $900 million to $1.1 billion. This includes contributions from the World Bank Group’s International Bank for Reconstruction and Development and the International Finance Corp. Indicative IBRD funding for this partnership period is estimated to be between $600 million and $700 million, and will come on top of IBRD’s active portfolio in the country, which presently consists of four loans totaling $375 million. For IFC, 2015-2018 funding is earmarked at $300 million to $400 million. Its current portfolio amounts to $292 million and focuses on developing a competitive private sector and contributing to the country’s regional integration through trade. The Multilateral Investment Guarantee Agency will provide political and credit risk insurance to foreign investors to encourage investments in public-private partnership initiatives. Detailed below are previous IFC, IBRD and trust fund commitments by fiscal year. Funding priorities The government’s National Development Plan is geared toward eradicating extreme poverty and increasing incomes of the bottom 40 percent of the population to above-average levels. As such, it hinges on three main themes: ▪ Poverty reduction and social development.▪ Inclusive economic growth.▪ Integrating Paraguay into world markets. In support of these objectives, the World Bank has designed its partnership strategy to help Paraguay build resilience against environmental risks and market volatility, improve delivery of public goods and services to the poor, and contribute to economic integration. Specific goals and interventions for each area of engagement are detailed below. Strengthening resilience to risks and volatility: World Bank intends to enhance risk management in agriculture, broaden the scope of financial inclusion and improve management of environmental resources. Interventions in this area will focus on increasing the capacity of agricultural households and producers to withstand the effects of price fluctuations and climate-related factors through the promotion of sustainable agricultural practices and risk management measures, as well as expanding access to financial services. The bank will also support public finance management to temper the effects of growth instability and to encourage private sector investment. Boosting pro-poor delivery of public goods and services: Support will be aimed at raising revenue collection and reforming tax and government spending mechanisms in consideration of the poorest members of the population. Increasing transparency and accountability will likewise be a priority under this component. Fostering market integration: The bank intends to support smallholder farmers by helping them increase productivity while easing the burden of farmer-to-market transportation. Interventions in this area will be supported by advisory services to broaden access to business-related services, technology and finance for the private sector. Devex analysis In its country partnership completion report, the World Bank rated its 2009-2014 strategy as “moderately unsatisfactory,” citing bottlenecks such as complex project designs, delays in implementation, the government’s complicated annual budget cycle, limited technical capacity and safeguards, lack of coordination among implementers, staffing issues, and limited use of knowledge resources and project supervision. The bank notes several factors that contribute to these threats, which continue to pose significant risks in implementing the current partnership strategy. Paraguay’s vulnerability to price volatility leaves planning and forecasting for macroeconomic management problematic. Meanwhile, limited capacity of public institutions also factor significantly in project execution and disbursement of funds, as inefficiencies in government bodies slow the pace of implementation. In response, the World Bank will provide institutional support to the Paraguayan treasury and other line ministries to improve management of public investments. Technical assistance will also be provided for tax administration and improving corporate governance of state-owned enterprises. Corruption is also a real threat, with the country ranking 150th out of 177 countries in Transparency International’s corruption perceptions index. The World Bank plans to support initiatives under the National Development Plan that are geared toward increasing transparency and accountability. Further, the bank will also work with civil society organizations in carrying out social accountability schemes under the Global Partnership for Social Accountability. To further mitigate implementation risks, the World Bank has decided to adopt a large-scale approach wherein project volume will be reduced in favor of financing fewer, larger initiatives, complemented by analytical and advisory services. Lastly, the bank plans to carry out a performance review halfway into the implementation of the country partnership to be able to apply adjustments to the strategy where they are necessary. With Paraguay only beginning to enjoy the benefits of its recent economic expansion, close engagement and steady support from the World Bank remains a most crucial element in ensuring the country’s continued growth. By renewing its commitment to support the lower-middle-income country, the bank stands ready to deliver much-needed aid in the years to come. Contact Paraguay country office Tel: (595-21) 218-1000 Email: