Climate Shocks and Poverty: How Extreme Weather Threatens Paraguay's Progress

A study by UNU-MERIT and the World Bank reveals that short-term weather shocks like heatwaves, droughts, and floods significantly reduce incomes and exacerbate poverty in Paraguay, with rural and vulnerable populations hardest hit. The findings emphasize the urgent need for tailored climate adaptation policies to protect livelihoods and enhance resilience.

Research conducted by researchers from UNU-MERIT, the United Nations University, and Maastricht University, in collaboration with the World Bank's Poverty and Equity Global Practice, explores how climate-induced short-term weather shocks impact household incomes and poverty levels in Paraguay. This study, based on data from the Permanent Continuous Household Survey (EPHC) and climate datasets spanning 2004 to 2019, offers a critical examination of how extreme weather events such as heatwaves, droughts, and floods are reshaping the economic landscape of a country increasingly vulnerable to climate change. While Paraguay successfully reduced poverty from 51.4% in 2003 to 24.7% in 2022, progress has stagnated since 2014, largely due to climate-related disruptions and the resulting economic slowdown.

Disproportionate Impacts of Heat and Drought

The analysis reveals that heat shocks have disproportionately adverse effects on both urban and rural households, reducing incomes by 5% and 8.8% respectively, while increasing poverty rates by 1.7 percentage points in urban areas and 4.2 percentage points in rural regions. These impacts are magnified in rural areas, where agricultural livelihoods are dominant and depend heavily on predictable weather patterns. Floods primarily exacerbate urban poverty, raising it by 1.9 percentage points, while droughts significantly affect rural areas, pushing the most vulnerable deeper into poverty. The study highlights that female-headed households in rural regions are particularly vulnerable to heat shocks, experiencing sharper increases in poverty compared to male-headed households. Similarly, households engaged in primary sector activities such as agriculture and livestock production are disproportionately affected by both heat and drought shocks. In these communities, incomes decline by up to 12.5% during droughts and 10% during heat shocks, reflecting the immediate and severe impact of disrupted agricultural productivity and resource constraints.

Urban and Rural Realities: A Tale of Two Vulnerabilities

Climate events not only reduce incomes but also deepen inequalities, with extreme weather pushing already vulnerable households into chronic poverty. Urban communities, despite having greater access to infrastructure, face distinct challenges, particularly from flooding caused by intense rainfall. Poor drainage systems and inadequate infrastructure amplify the damage, resulting in significant property losses and heightened financial strain. In rural areas, where the economy relies predominantly on rain-fed agriculture, heatwaves and droughts disrupt harvest cycles, leading to diminished crop yields, loss of livestock, and reduced household incomes. This, in turn, triggers food insecurity and increases in the prices of agricultural goods, which further exacerbate the plight of rural populations. Female-headed households and smaller agricultural producers are among the hardest hit, as they often lack the financial reserves and institutional support needed to recover from such shocks.

Regional Differences and Compounding Risks

The findings underscore the regional heterogeneity of weather shock impacts, with some departments in Paraguay experiencing more severe consequences than others. Urban centers like Itapúa and Central face the highest increases in poverty due to heat shocks, while Alto Paraná and Central are significantly affected by floods. Conversely, droughts exert their most severe toll on rural communities, where they drive extreme poverty levels. The cumulative effects of these shocks are also significant. As weather anomalies recur and intensify, they compound the vulnerabilities of affected households, making it increasingly difficult for them to recover. Overlapping shocks, such as simultaneous heatwaves and floods, have further amplified these challenges, with the combined impact pushing entire communities into deeper poverty.

Building Resilience: A Path Forward

The study’s insights call for targeted policy measures to mitigate the adverse effects of weather shocks and enhance resilience among vulnerable populations. Social safety nets, such as conditional cash transfer programs like Paraguay’s Tekoporã, could play a critical role in cushioning income losses and preventing deeper poverty. Additionally, promoting income diversification, particularly in rural areas, could reduce dependence on climate-sensitive sectors like agriculture. For instance, integrating sustainable agroforestry practices or introducing non-agricultural income-generating activities could provide rural households with alternative livelihoods less vulnerable to climatic risks. Moreover, investing in resilient infrastructure, such as improved irrigation systems in rural areas and better drainage facilities in urban centers, can mitigate the impacts of droughts and floods. Early warning systems for extreme weather events, combined with efficient response mechanisms, can also help reduce economic losses by enabling timely protective measures.

Ultimately, this study underscores the urgent need for proactive climate adaptation strategies in Paraguay. Without decisive action, the compounded effects of increasing heatwaves, droughts, and floods risk reversing decades of poverty reduction and deepening existing inequalities. By investing in resilience-building measures and ensuring targeted support for the most vulnerable, policymakers can safeguard livelihoods and pave the way for sustainable development in the face of escalating climate risks.