Paraguay is aiming to diversify its economy to strengthen its rating, as its neighbors struggle, the country’s finance minister Santiago Peña told LatinFinance.
Peña was in New York to reassure investors of Paraguay’s economic prospects, despite concerns after Moody’s and Standard & Poor’s cut Brazil’s sovereign rating.
Brazil and Argentina accounted for 39% of Paraguay’s exports at August 2015, according data from the World Bank.
The South American country is showing positive growth, if at a slower pace, Itaú analysts say. The bank’s analysts have cut their forecast for Paraguayan growth by 100bp this year and next, to 2.7% and 3% in 2015 and 2016.
“We are pushing to diversify beyond agriculture,” the minister told LatinFinance on the sidelines of the inauguration of the US-Paraguay Chamber of Commerce this week.
Paraguay shares borders with Brazil, the biggest market in South America, and it offers affordable, clean and renewable energy, something scarce in its neighbor, Peña said.
The bi-national Itaipu hydro power plant and dam over the Parana river is the second largest of its kind in the world, second to China’s Three Gorges over the Yangtze. It provides 75% and 17%, respectively, of the energy consumed in Paraguay and Brazil.
With South America’s youngest population and a 10% flat tax, Paraguay offers a cost-competitive labor pool, Peña said. This combination enables development of new industries such as auto parts manufacturing. Companies hailing from both Europe and Brazil have also expressed interest in setting up businesses in Paraguay, the minister said.
Moody’s upgraded the country a notch to Ba1 in March. Standard & Poor’s put the sovereign’s BB rating on positive outlook in June, saying the country displayed “increasing resilience” to tough regional economic conditions. Fitch upgraded Paraguay to BB in January, and said in August that its strong fiscal and external balance sheets made it resilient to weak commodity prices.
The South American sovereign is planning to issue up to $740m in debt next year, pending congress approval. “Since the sovereign’s debut in the international debt markets in 2013, we have purposely come to NYC at least twice a year to meet investors and bring news about our economy,” Peña said. LF