Paraguay Rises to Fourth Freest Economy in South America

Fiscal Discipline as a Competitive Edge

Paraguay has risen to the 55th freest economy in the world and fourth in South America, according to the 2026 Index of Economic Freedom published by the Heritage Foundation. The country’s overall score of 66.4 — above both the regional average of 59.7 and the global average of 59.9 — reflects what analysts describe as consistent macroeconomic management under President Santiago Peña, who took office in August 2023 and has pursued legislative reforms aimed at strengthening the private sector.

The most striking feature of Paraguay‘s scorecard is the gap between its fiscal performance and its institutional quality. On tax burden, the country scored 95.9 out of 100, reflecting one of the lightest tax loads in the Americas. Government spending scored 86.9, and fiscal health — measuring debt and deficit management — reached 83.0. Investment freedom (80), trade freedom (78.4), and financial freedom (70) also placed Paraguay above most regional peers in market openness.

The Institutional Weak Spot

Where Paraguay falters is in the rule of law. Government integrity scored just 27.3, judicial effectiveness 38.4, and property rights 44.2 — all below the global average. These indicators reflect persistent concerns about corruption, weak enforcement of contracts, and limited judicial independence that have constrained foreign investment despite the country’s favorable tax and fiscal environment. Labor freedom, at 44.1, also signals rigid regulations that limit the dynamism of the formal workforce.

The Heritage Foundation singled out Peña’s administration for “unambiguously promoting economic freedom, combating corruption, and building alliances with democratic nations,” calling Paraguay “one of the most reliable partners of the Trump Administration” in the hemisphere. That diplomatic positioning — Paraguay is one of Taiwan’s last remaining allies and a signatory of Trump’s Shield of the Americas coalition — adds a geopolitical dimension to the economic story.

Argentina’s Climb, Brazil’s Stagnation

Across the broader region, 15 of 19 Latin American countries improved their scores. Argentina posted the largest single-year gain at 3.2 points, moving from “repressed” to “mostly unfree” under Milei‘s fiscal and regulatory reforms — though at 124th globally, it still sits below Brazil (117th). Heritage warned that Brazil’s economy remains hampered by a cumbersome regulatory environment, low property-rights scores, and a judiciary “vulnerable to political influence,” even as the country’s fiscal metrics have improved modestly.

Chile continues to lead the region from 17th place globally, the only Latin American economy classified as “mostly free.” Uruguay follows at 32nd. For Paraguay, the challenge now is whether institutional reform can match fiscal discipline. A country that scores 95.9 on tax burden but 27.3 on government integrity has built only half the foundation that sustained prosperity requires. The recent achievement of double investment-grade credit ratings from international agencies gives Paraguay additional credibility in financial markets, but translating that into stronger courts, more transparent governance, and a more flexible labor market will determine whether the country’s rise in the rankings becomes a durable trend or a temporary peak.

This is part of The Rio Times’ daily coverage of Paraguay news and Latin American financial news.

For more context, read Brazil’s Morning Call and the Chile IPSA report.