PY: COVID-19 Emergency Response Project

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Strategic and country context. The COVID-19 pandemic hits the Paraguay economy in a moment of economic recovery after growth stalled in 2019. The economy was in a recession in the first half of 2019 due to weak performance of it’s main trading partners, especially Argentina, and adverse climatic conditions, but started to recover in the second half of the year. According to Bank estimates, Gross Domestic Product (GDP) growth was 0.1 percent in 2019. Given the recession in the first half of 2019, the authorities invoked the escape clause from the fiscal rule, capping the budget deficit (the Fiscal Responsibility Law allows an increase of the ceiling from 1.5 percent to up to 3 percent of GDP in times of crises). Therefore, the central government’s budget recorded a deficit of 2.9 percent of the estimated GDP in 2019. With the economic slowdown, poverty reduction slowed in 2019, leaving 1.6 million people below the official poverty line. The poverty rate fell from 24.2 percent in 2018 to 23.5 percent in 2019. Progress on poverty reduction almost halted in urban areas (from 17.8 percent in 2018 to 17.5 percent in 2019) due to a decrease in labor income in commerce and manufacturing. Rural poverty dropped from 34.6 percent in 2018 to 33.4 percent, despite the stagnation of agricultural labor income, which concentrates almost half (0.6 million) of mostly informal rural workers. Against this backdrop, the authorities have reacted swiftly to the COVID-19 outbreak in March 2020 to mitigate the impact on the economy and people. The Central Bank reduced the interest rate by 75 bps to 3.25 percent, and temporarily relaxed provisioning rules so as not to penalize credit restructurings and prolongations. The fiscal package includes additional health spending, extra allocation on basic social assistance programs, and a moratorium on fines for delayed tax payments until June. In addition, the Government announced new credit lines by public development banks to support businesses, established price monitoring for sanitary goods and declared its intention to eliminate import duties and reduce the value-added tax (VAT) from 10 percent (standard rate) to 5 percent. So far, the Government has not asked for a supplemental budget and plans to reallocate spending to health and social assistance within the existing envelope. If the outbreak is protracted, the fiscal envelope will likely be expanded within the next months to finance additional mitigating measures.Sectoral and Institutional Context.Paraguay poses a high risk for the spread of COVID-19 due to a case that was classified as locally transmitted. The Government acted swiftly and implemented social distancing measures, population movement controls, and a strong social awareness campaign. So far, it has contained the number of cases to 27, with two deaths. However, the number of cases and deaths could rise rapidly, as a consequence of the already existing local circulation of the virus. Furthermore, Paraguay’s borders, broad and easily penetrable, with large neighboring countries with growing outbreaks, increase the risk of imported cases due to families living on both sides of the borders. Furthermore, the Argentine Province of Chaco in the north has one of the worst outbreaks in the country and directly borders Paraguay. Paraguay also has strong commercial and migratory ties with the Republic of Korea, the second most affected country by the pandemic in the Western Pacific Region. Paraguay has a mixed health system, comprising a public, private and mixed sector. The National Health System, created by Law 1032 in 1996, is fragmented with several independent provider networks covering different population sub-groups. The public sector consists of the MSPBS; the health services of the Military, Police and Navy; the Institute of Social Welfare, and the Clinical Hospital, part of Asuncion’s National University. The private sector is made up of non-profit as well as for-profit institutions. Approximately 6 percent of the population relies on private health insurance, 20 percent receives health insurance through the social security system, and the reminder, 74 percent of the population is not covered by any health insurance and therefore relies entirely on services provided by the public health subsystems. Health service provision has improved due to a gradual increase in public funding allocated to health (excluding social security), which rose from 1 percent to 2.7 percent of GDP between 2002 and 2015. New resources have largely been invested in more infrastructure (hospitals and Family Health Care Centers (FHCCs)), equipment and human resources. Primary healthcare provision benefitted from the MSPBS’s establishment under the primary healthcare strategy, of approximately 800 new FHCCs between 2008 and 2016, achieving coverage of around 32 percent of the population. However, the deficit in Paraguay’s health care infrastructure remains a critical factor for health care access as there are insufficient health facilities to meet the population’s needs. Estimates suggest that Paraguay needs around 1400 FHCCs to provide full coverage to the MSPBS population or 2450 to provide universal coverage. As part of the current government commitment to build a total of 400 new FHCCs, the Paraguay Public Health Sector Strengthening (PPHSS) Project supported by the WB will finance the construction of 152 new FHCCs facilities and the rehabilitation of 114 existing FHCCs and 10 district hospitals. Notwithstanding, the number of MSPBS hospital beds per 1000 people, 0.8, has remained unchanged between 2002 and 2015. Including the private health sector, Paraguay has a rate of 1.6 hospital beds per 1000 inhabitants, lower than the regional average of two beds per 1 000 inhabitants which poses a tremendous challenge in the current health situation. The risks of a failure to contain a rapid spread of COVID-19 is heightened by the current sanitary situation of Paraguay. The country is already facing one of the worst Dengue outbreaks of the last years, with more than 140,000 reported and 14,000 confirmed cases and 46 deaths. Based on these figures, an existing high bed occupancy rate in intensive care units is a risk since a rapid spread of COVID-19 would require additional intensive care beds in a country which, according to the WHO, currently has a deficit of 50 percent in terms of bed occupancy rates. As the flu season, autumn and winter, and Respiratory Syncytial Virus (RSV) approaches, the already stressed health system will come under further pressure. Therefore, given the existing sanitary situation, a rapid outbreak of the COVID-19 would dramatically aggravate the health situation of the country if the capacity of the health system is not improved.Paraguay has formulated a comprehensive COVID-19 Preparedness and Response Plan (COVID-19 PRP), which is aligned with the WHO’s SPRP. The COVID-19 PRP is aimed at slowing transmission, delaying outbreaks and providing optimized care for all patients, especially the seriously ill, as well as minimizing the impact of the epidemic on the health system and social services and, consequently, on economic activity. It has four strategic components: (1) Coordination, planning and monitoring at the country level; (2) Risk communication and community participation; (3) Epidemiological and Laboratory Surveillance and, (4) Services and logistics strategies that support the nine components the WHO proposed globally to scale up country operational readiness and response. The Government has requested financial and technical support to help assure an appropriate and timely implementation of key activities under this Plan and the provision of specific supplies and logistical support to contain and mitigate the epidemic. This would include support for treatment measures that minimize the morbidity and mortality due to the epidemic and a strengthening of the public health sector to allow the simul