Enhancing Resilience and Re-balancing Economic Growth: Infrastructure Investment Inversión en Infraestructura Para Impulsar la Resiliencia y Re-equilibrar el Crecimiento Económico Joaquim Levy Enhancing Resilience and Re-balancing Economic Growth
Paraguay has been resilient to global and regional shocks … Feeble and uneven global growth and sluggish recovery amid high political and policy uncertainty Weak global trade and persistently low commodity prices weigh on near- term outlook of emerging markets Growth in Latin America still below pre-crisis levels , afflicted by declining terms-of-trade and decelerating external demand Paraguay defies regional trend Robust growth in trade-related sectors and construction Weaker private demand offset by higher exports and public investment Joaquim Levy Enhancing Resilience and Re-balancing Economic Growth 2
… with improving terms of trade … Commodity Terms of Trade (2011-16) (Percent Change) 20 10 0 – 10 Change from February 2016 to August 2016 – 20 Change from December 2011 to February 2016 – 30 VEN BOL ECU COL PER BRA CHL ARG SUR URY PRY GUY Sources: Gruss (2014) and staff calculations. Joaquim Levy Enhancing Resilience and Re-balancing Economic Growth 3
… thanks to substantial improvements in its macro policy mix. Three major developments Price stability and fiscal discipline Diversification of products and markets Structural transformation But stalled poverty reduction due to less dynamic growth Improve welfare and raise shared prosperity through new sources of inclusive growth Joaquim Levy Enhancing Resilience and Re-balancing Economic Growth 4
Infrastructure is critical to inclusive growth and enhanced resilience. Paraguay’s “blessing” of substantial natural resources and “social dividend” of young population Infrastructure … Supports productive capacity, competitiveness, and export capacity Enhances preparedness for natural disasters and climate risk Joaquim Levy Enhancing Resilience and Re-balancing Economic Growth 5
Mostly private investment but public spending above regional trend … Real Public/Private Investment (Gross Fixed Capital Formation): Latin America and Caribbean vs. Paraguay (U.S. dollar billion and indexed (2007=100)) Latin America and the Caribbean Paraguay 1,400 220 6.0 220 1,200 200 200 5.0 1,000 180 180 4.0 800 160 160 3.0 600 140 140 2.0 400 120 120 1.0 200 100 100 0 80 0.0 80 2007 2008 2009 2010 2011 2012 2013 2007 2008 2009 2010 2011 2012 2013 Public Investment Private Investment Public Investment Private Investment Public Investment (indexed, rhs) Private Investment (indexed, rhs) Public Investment (indexed, rhs) Private Investment (indexed, rhs) Joaquim Levy Enhancing Resilience and Re-balancing Economic Growth 6
… but efficiency of public investment is below that of regional and global peers. Infrastructure Efficiency Frontier (2013) Infrastructure Hybrid Indicator (x-axis: public capital stock, in U.S. dollars; y-axis: infrastructure indicator, higher = better) Rest of the world Latin America and the Caribbean (LAC) Paraguay Sources: Center for International Comparisons (2013); IMF, World Economic Outlook database; OECD (2014); World Economic Forum (2014); World Bank, World Development Indicators database. Joaquim Levy Enhancing Resilience and Re-balancing Economic Growth 7
Substantial infrastructure gap relative to countries with similar level of income Infrastructure Quality Relative to GDP per Capita (2014) (x-axis: GDP per capita, PPP dollars, log-scale; y-axis: infrastructure quality index (0=worst, 7=best)) Rest of the world Latin America and the Caribbean (LAC) Paraguay Sources: World Economic Forum; IMF Western Hemisphere Department Regional Economic Outlook (April 2016). Note: PPP = purchasing power parity. Joaquim Levy Enhancing Resilience and Re-balancing Economic Growth 8
Fiscal constraints will require more PPPs … PPP Investment and Capital Stock Paraguay vs. Latin America and the Caribbean (LAC) (2007=100) 170 160 150 140 130 120 110 100 2007 2008 2009 2010 2011 2012 2013 LAC PPP Investment Paraguay PPP Investment Sources: IMF, World Bank PPI Database. Joaquim Levy Enhancing Resilience and Re-balancing Economic Growth 9
… but there is still some room for improving the PPP environment. Overall Public-Private Partnership Environment (2014) Ranking of PPP Favorability, By Country (Rank) 20 18 16 14 12 10 8 6 4 2 0 CHL BRA PER MEX COL GTM HND URY JAM PRY CRI SLV NIC TTO ARG DOM PAN ECU VEN Source: Economist Intelligence Unit (2014). Joaquim Levy Enhancing Resilience and Re-balancing Economic Growth 10
Upgrading Paraguay’s infrastructure needs to focus on … Three areas of concern : Energy paradox Landlocked syndrome Urbanization spillovers Closing infrastructure gap not an end in itself Also education and governance critical to effective re-balancing of long- term growth Need to understand long-term socio-economic trends and challenges Joaquim Levy Enhancing Resilience and Re-balancing Economic Growth 11
Thank you! Joaquim Levy Enhancing Resilience and Re-balancing Economic Growth
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