Agriculture is prominent in the Paraguayan economy, contributing 29 percent of the gross domestic product (GDP). In 1999 the GDP was $7.7 billion, or $1,440 per capita.

Agriculture is the most common economic activity, employing more than two-fifths of the workforce. It also accounts for about one-fourth of the gross domestic product (GDP) and the vast majority of exports. The economy is therefore highly dependent on the vagaries of climate and world commodity prices for its main agricultural products. General Alfredo Stroessner Matiauda (president 1954–89) encouraged domestic and foreign private investment, particularly in commercial agriculture. Until the mid-1970s, public-sector investment was low by Latin American standards and was concerned mainly with improving roads, telecommunications, and air transport. This changed with the establishment of several state companies, most notably Itaipú Binacional, set up in 1973 to build a huge hydroelectric dam on the Paraná, and steel, cement, and alcohol-distillation plants. Public-sector employment grew rapidly, making up about one-tenth of the labour force during the late 20th century. Until 1982, when the construction of Itaipu was completed, Paraguay was able to offset its current account and trade deficit with international loans. For the rest of the decade, the country was faced with a growing public-sector deficit, high debt repayments on commercial borrowing, and dwindling international reserves.

Paraguay has a market economy marked by a large informal sector. The informal sector features both reexport of imported consumer goods to neighboring countries as well as the activities of thousands of microenterprises and urban street vendors. Because of the importance of the informal sector, accurate economic measures are difficult to obtain. A large percentage of the population derives their living from agricultural activity, often on a subsistence basis. The formal economy grew by an average of about 3% annually in 1995-97, but GDP declined slightly in 1998 and 1999. On a per capita basis, real income has stagnated at 1980 levels. Most observers attribute Paraguay's poor economic performance to political uncertainty, corruption, lack of progress on structural reform, substantial internal and external debt, and deficient infrastructure. Growth rebounded slightly in 2000.