## Foreign Exchange Interventions in Paraguay and Their Role in the Monetary Policy Framework

## Source details

**Canonical URL:** [Foreign Exchange Interventions in Paraguay and Their Role in the Monetary Policy Framework](https://www.imf.org/-/media/files/publications/cr/2022/english/1pryea2022002.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2022/english/1pryea2022002.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2022/english/1pryea2022002.pdf.json)

---

### Background
- The Central Bank of Paraguay (BCP) adopted an inflation targeting framework in 2011 and established a transparent foreign exchange intervention (FXI) scheme in 2013.
- In 2013 the BCP implemented a disciplined FX framework by pre-announcing an auction system for the sale of government U.S. dollar proceeds (two mechanisms): ventas compensatorias (auctions for government revenues) and ventas complementarias (formal FXI limited to offsetting excessive volatility).
- Key historical intervention and exchange rate episodes:
  - 2014: trough-to-peak exchange rate span of almost 13 percent.
  - 2015: FXIs rose but the guarani still depreciated by 25 percent.
  - 2016 and 2017: exchange rate appreciated by about 1 and 2 percent, respectively; official reserves increased by about US$900 million and US$1 billion, respectively.
  - 2018: guarani fell by about 6 percent.
  - 2019: guarani fell by 8 percent against the US dollar.
  - 2020 (pandemic onset): exchange rate depreciated sharply by about 7 percent; BCP FX operations stepped up to US$1.7 billion (ventas complementarias constituting US$133 million).
  - 2021: BCP re-sold to the financial sector a large part (US$1.5 billion) of its foreign exchange purchases from the government; ventas complementarias increased to US$356 million; net international reserves rose by US$450 million to US$9.95 billion; guarani appreciated slightly by about 0.2 percent by year-end.
- Proxy used for cross-country FXI comparisons: change in reserves both in US$ terms and in percent of GDP.

### Drivers of the exchange rate and exchange rate flexibility
- Paraguay is subject to large shocks linked to soybeans; increases in the soybean export index are associated with real and nominal exchange rate appreciations.
- Daily exchange rate volatility:
  - Paraguay’s daily volatility is close to that of Peru’s and Uruguay’s currencies, lower than that of the other major Latin American currencies, similar to several Asian currencies (especially China’s), and lower than major emerging European currencies.
- Quarterly exchange rate volatility:
  - Paraguay’s quarterly volatility is higher than that of all major Latin American currencies, slightly higher than Asian currencies’ volatility, and almost identical to that of Emerging European currencies.
- Interpretation:
  - Divergence between low daily and higher quarterly volatilities may reflect the success of FXIs in containing larger swings.
  - Empirical evidence suggests daily FXIs affect exchange rates rapidly (especially the day after intervention announcements) but have limited effect on inflation expectations (Pincheira, 2013).

### Foreign exchange interventions: scale and patterns
- Paraguay has intervened more than many other Latin American countries when measured by quarterly change in international reserves (used as proxy for FXI).
- FXIs by the BCP (proxy definition) increased since the start of the pandemic:
  - Total interventions increased from US$1.2 billion in 2019 to US$1.7 billion in 2020 and to US$1.5 billion in 2021.
  - Complementary sales increased by about US$220 million since 2020.
- Relative to emerging European and Asian countries:
  - BCP intervenes less than Emerging European and Asian countries in relation to GDP.
  - Paraguay’s interventions as a share of total reserves are higher than for most Asian countries and Poland.
- Trade and current account dynamics:
  - Paraguay’s trade balance rapidly mirrors exchange rate movements: falling exports → guarani depreciation → reduced imports → minor net impact on external current account balance.
  - Paraguay’s current account volatility is lower than that of selected emerging European and Asian countries; Paraguay’s export price volatility is also lower in the selected sample.

### Inflation targeting, FXIs, and policy trade-offs
- Standard IT literature: inflation-targeting countries should avoid (or barely) intervening in FX markets because monetary policy should use the policy rate to respond when inflation diverges from target.
- For EMEs, trade-offs differ:
  - EMEs can be more exposed to external shocks, have greater currency mismatches, higher exchange-rate pass-through to inflation, weaker competitiveness channel, limited inter-sectoral factor mobility, and real frictions (e.g., dollar invoicing).
  - In these circumstances, the exchange rate may amplify shocks and FXIs to curb large volatilities may be desirable.
- Empirical and recent literature:
  - Many EMEs’ inflation-targeting central banks have used FXIs pragmatically without un-anchoring inflation expectations (Hofman and others, 2020; Badescu, 2016; BIS, 2013; Kamil, 2008; Pincheira, 2013).
- Conditional guidance on when to intervene:
  - Financial-shock-driven large depreciation: FXI can be useful because depreciation would surge inflation; raising interest rates instead might intensify the shock.
  - Demand shocks: policy rate adjustments and FXIs to curb excessive FX volatility are adequate to achieve both inflation and output targets.
  - Supply shocks: depreciation may need to be tolerated (as during the pandemic) because interest rate hikes may not be appropriate even if prices rise.

### How Paraguay compares on volatility of economic variables
- Adoption of IT reduced inflation levels and volatility:
  - Paraguay’s inflation after IT adoption was lower than in Brazil, Mexico, and Colombia, and lower than in Indonesia and South Africa among other EMEs.
  - Inflation volatility was higher than the regional average but lower than in some other EMEs.
- Pandemic impact:
  - Paraguay’s inflation and output performance and volatilities worsened with the pandemic.
- Measured relations (as presented in figures and appendices in the source):
  - Output growth, inflation averages, and volatilities across comparator countries are shown in figures for 2013–2019, 2013–2021 periods.
- Policy implication:
  - While public interventions have been warranted to preserve macroeconomic stability, there may be a need to step up efforts to allow market participants to absorb FX risks.
  - The pandemic experience showed FXIs by the BCP were complementary to the monetary policy framework, but FXIs alone may not suffice to resolve recent inflationary pressures.
  - Future policy mix may require more active monetary policy combined with gradual measures to enable the private sector to absorb exchange rate risks to preserve macroeconomic stability.

### Conclusions (from the report)
- The guarani’s daily exchange rate volatility has been low—lowest compared to other regional currencies and EMEs outside the region.
- The guarani’s quarterly exchange rate volatility has been as high as currencies of comparator EMEs.
- Paraguay’s FXIs have generated more volatility when measured as a share of reserves compared to other countries in the region; however, relative to Emerging European and Asian countries (when measured relative to GDP) interventions were lower.
- Overall assessment: Transparent and well-communicated FXIs since the adoption of the IT regime have been consistent with Paraguay’s inflation targeting framework and have been effective as a complementary tool without distorting monetary policy operations.

### Exchange-rate management and the inflation-targeting framework (section 19)
- Paraguay adopted a framework that takes into account the importance of exchange rate management for macroeconomic stability.
- Context and challenges:
  - Hit by frequent regional financial shocks.
  - High financial dollarization.
  - Less developed and less integrated financial markets.
  - Weak competitiveness channel.
- Role of interventions:
  - Transparent and well-communicated interventions to curb excess volatility of the exchange rate have contributed to macroeconomic stability.
  - The inflation targeting framework including some FXIs has been successful historically, though inflation has increased sharply more recently.
  - Limited discretionary interventions helped reduce large depreciation of the guarani and reduced excess exchange rate volatility, complementing macroeconomic stability and the inflation targeting framework.

### Appendices (summary)
- Appendix I — Exchange rate volatility and foreign reserve interventions:
  - Daily and quarterly volatility comparisons (2010–now) show lower daily but comparable or higher quarterly volatilities versus major EMEs.
  - Density comparisons indicate Paraguay intervenes more than other Latin American countries by quarterly reserve changes, slightly less than Eastern European countries, and mixed relative to Asian countries.
  - When measured in percent of GDP, Paraguay intervenes more than other Latin American countries and is similar or slightly different compared to Eastern European and Asian comparators.
- Appendix II — Output and inflation volatilities:
  - Output volatility is higher in Paraguay compared to other EMEs (figures for average 2002-2019, 2013-2021, and 8-quarters rolling standard deviations).
- Appendix III — Overview of interventions until the IT regime in 2013:
  - Pre-2001: adjustable peg; inflation fell from about 40 percent in the 1990s to single digits in the mid-2000s; widening deficits eroded reserves.
  - 2001–2003: frequent interventions; guarani depreciated by 34 percent during 2002; FXIs totaled US$186 million in 2002; guaraní appreciated by 13 percent in 2003.
  - 2006–2011: reserves increased (US$400 million in 2006; reserves ~US$2.4 billion by end-2007); partial sterilization of interventions led to currency growth and liquidity overhang; guarani appreciated by 10 percent in 2011 (13 percent in real effective terms).

### Effectiveness of social assistance programs in Paraguay during COVID-19
- Overall assessment:
  - Paraguay's social assistance programs mitigated COVID-19 impacts on the vulnerable.
  - The novel cash transfer program Pytyvõ targeted informal sector workers affected by the shock and effectively prevented a larger erosion of poverty and inequality indicators.
  - Opportunities exist to enhance targeting strategy and beneficiary systems for more efficient deployment.
- Stylized facts:
  - Paraguay's aggregate contraction in 2020 was about -0.8 percent; LAC average contraction was about 6 percent.
  - Sectors disproportionately affected included hotels, services to households, and commerce services.
  - Labor force participation and employment shrank in 2020; labor income levels fell across sub-groups.
  - The shock affected women disproportionately; changes in labor income seemed higher for men.
  - Poverty trends:
    - Paraguay showed significant declines in poverty since the beginning of the century, slowing after 2014; the pandemic reversed this trend, especially in urban areas.
    - Rural workers saw a slight increase in poverty rates partially offset by transfer compensation.
    - Inequality continued to reduce during the pandemic, mainly due to a shift to less favorable conditions across the income distribution.
- Pytyvõ and other programs:
  - Pytyvõ implemented in mid-2020; the first version was financed with 195 US million and distributed benefits to about 18 percent of the population.
  - Each beneficiary received 548 thousand guaranies (about 80 US dollars at the average 2020 exchange rate).
  - Public cash transfers represented a large share of total income for the two lowest quintiles: 31.3 and 15.3 percent for the first and second quintiles, respectively; less than 1 percent for the fifth quintile.
  - Without Tekoporã, Adulto Mayor, and Pytyvõ, moderate and extreme poverty rates would have reached 30.1 and 6.4 percent, respectively—this would have represented more than 60 percent more individuals in extreme poverty than the officially estimated figure for 2020.
  - Social programs deterred a larger deterioration of the Gini coefficient; impact on inequality in absolute magnitude was limited but helped contain deterioration.
- Targeting performance and suggestions:
  - Targeting informal sector workers was broadly adequate: marginal effects show higher probability of receiving Pytyvõ for individuals whose income deteriorated (shifted one or two quintiles down) between 2019 and 2020; probability was not statistically different from zero for those whose income improved.
  - A non-negligible share of resources reached non-poor and richer segments; participation increased across both lowest and highest quintiles in 2020 versus 2019.
  - Simulation reallocating resources received by the fifth quintile across the four lower quintiles showed that both inequality and poverty indicators would be lower under a "different Pytyvõ" scheme:
    - Total Poverty Rate: Official 26.9 percent; Without all three transfers 30.1 percent; Different Pytyvõ 26.42 percent.
    - Extreme Poverty Rate: Official 3.9 percent; Without all three transfers 6.5 percent; Different Pytyvõ 3.7 percent.
    - Inequality Index (Gini) in 2020: Official ~0.437; Without all three transfers ~0.445; Different Pytyvõ ~0.429.
- Policy implications and recommendations:
  - Social assistance programs can reduce the impact of labor income shocks and protect vulnerable sectors from below-the-poverty-line living conditions.
  - Prioritize an optimized implementation of a system of beneficiaries to improve targeting for future similar programs or to adjust existing ones.
  - Modernize processes for data management, targeting, application, and payment.
  - Given recurrent climate-related shocks and uncertain geopolitical situations affecting external prices and markets, optimizing the design of social assistance programs is key to optimizing fiscal resources' use while preserving social and economic stability.

*Source: IMF staff report excerpt "Foreign Exchange Interventions in Paraguay and Their Role in the Monetary Policy Framework" (May 27, 2022).*

### References _________________________________________________________________________ 23

### FOREIGN EXCHANGE INTERVENTIONS IN PARAGUAY AND THEIR ROLE IN THE MONETARY POLICY FRAMEWORK

### Background
- The Central Bank of Paraguay (BCP) adopted an inflation targeting framework in 2011 and established a transparent foreign exchange intervention (FXI) scheme in 2013.
- In 2013 the BCP implemented a disciplined FX framework by pre-announcing an auction system for the sale of government U.S. dollar proceeds (two mechanisms): ventas compensatorias (auctions for government revenues) and ventas complementarias (formal FXI limited to offsetting excessive volatility).
- Key historical intervention and exchange rate episodes:
  - 2014: trough-to-peak exchange rate span of almost 13 percent.
  - 2015: FXIs rose but the guarani still depreciated by 25 percent.
  - 2016 and 2017: exchange rate appreciated by about 1 and 2 percent, respectively; official reserves increased by about US$900 million and US$1 billion, respectively.
  - 2018: guarani fell by about 6 percent.
  - 2019: guarani fell by 8 percent against the US dollar.
  - 2020 (pandemic onset): exchange rate depreciated sharply by about 7 percent; BCP FX operations stepped up to US$1.7 billion (ventas complementarias constituting US$133 million).
  - 2021: BCP re-sold to the financial sector a large part (US$1.5 billion) of its foreign exchange purchases from the government; ventas complementarias increased to US$356 million; net international reserves rose by US$450 million to US$9.95 billion; guarani appreciated slightly by about 0.2 percent by year-end.
- Proxy used for cross-country FXI comparisons: change in reserves both in US$ terms and in percent of GDP (see Appendix I referenced in source).

### Drivers of the exchange rate and exchange rate flexibility
- Paraguay is subject to large shocks linked to soybeans; increases in the soybean export index are associated with real and nominal exchange rate appreciations.
- Daily exchange rate volatility:
  - Paraguay’s daily volatility is close to that of Peru’s and Uruguay’s currencies, lower than that of the other major Latin American currencies, similar to several Asian currencies (especially China’s), and lower than major emerging European currencies (Appendix I referenced).
- Quarterly exchange rate volatility:
  - Paraguay’s quarterly volatility is higher than that of all major Latin American currencies, slightly higher than Asian currencies’ volatility, and almost identical to that of Emerging European currencies (Appendix I referenced).
- Interpretation:
  - Divergence between low daily and higher quarterly volatilities may reflect the success of FXIs in containing larger swings.
  - Empirical evidence suggests daily FXIs affect exchange rates rapidly (especially the day after intervention announcements) but have limited effect on inflation expectations (Pincheira, 2013).

### Foreign exchange interventions: scale and patterns
- Paraguay has intervened more than many other Latin American countries when measured by quarterly change in international reserves (used as proxy for FXI).
- FXIs by the BCP (proxy definition) increased since the start of the pandemic:
  - Total interventions increased from US$1.2 billion in 2019 to US$1.7 billion in 2020 and to US$1.5 billion in 2021.
  - Complementary sales increased by about US$220 million since 2020.
- Relative to emerging European and Asian countries:
  - BCP intervenes less than Emerging European and Asian countries in relation to GDP.
  - Paraguay’s interventions as a share of total reserves are higher than for most Asian countries and Poland (Appendix I referenced).
- Trade and current account dynamics:
  - Paraguay’s trade balance rapidly mirrors exchange rate movements: falling exports → guarani depreciation → reduced imports → minor net impact on external current account balance.
  - Paraguay’s current account volatility is lower than that of selected emerging European and Asian countries; Paraguay’s export price volatility is also lower in the selected sample.

### Inflation targeting, FXIs, and policy trade-offs
- Standard IT literature: inflation-targeting countries should avoid (or barely) intervening in FX markets because monetary policy should use the policy rate to respond when inflation diverges from target.
- For EMEs, trade-offs differ:
  - EMEs can be more exposed to external shocks, have greater currency mismatches, higher exchange-rate pass-through to inflation, weaker competitiveness channel, limited inter-sectoral factor mobility, and real frictions (e.g., dollar invoicing).
  - In these circumstances, the exchange rate may amplify shocks and FXIs to curb large volatilities may be desirable.
- Empirical and recent literature:
  - Many EMEs’ inflation-targeting central banks have used FXIs pragmatically without un-anchoring inflation expectations (Hofman and others, 2020; Badescu, 2016; BIS, 2013; Kamil, 2008; Pincheira, 2013).
- Conditional guidance on when to intervene:
  - Financial-shock-driven large depreciation: FXI can be useful because depreciation would surge inflation; raising interest rates instead might intensify the shock.
  - Demand shocks: policy rate adjustments and FXIs to curb excessive FX volatility are adequate to achieve both inflation and output targets.
  - Supply shocks: depreciation may need to be tolerated (as during the pandemic) because interest rate hikes may not be appropriate even if prices rise.

### How Paraguay compares on volatility of economic variables
- Adoption of IT reduced inflation levels and volatility:
  - Paraguay’s inflation after IT adoption was lower than in Brazil, Mexico, and Colombia, and lower than in Indonesia and South Africa among other EMEs.
  - Inflation volatility was higher than the regional average but lower than in some other EMEs.
- Pandemic impact:
  - Paraguay’s inflation and output performance and volatilities worsened with the pandemic.
- Measured relations (as presented in figures and appendices in the source):
  - Output growth, inflation averages, and volatilities across comparator countries are shown in figures for 2013–2019, 2013–2021 periods (source contains comparative charts).
- Policy implication:
  - While public interventions have been warranted to preserve macroeconomic stability, there may be a need to step up efforts to allow market participants to absorb FX risks.
  - The pandemic experience showed FXIs by the BCP were complementary to the monetary policy framework, but FXIs alone may not suffice to resolve recent inflationary pressures.
  - Future policy mix may require more active monetary policy combined with gradual measures to enable the private sector to absorb exchange rate risks to preserve macroeconomic stability.

### Conclusions (as stated)
- The guarani’s daily exchange rate volatility has been low—lowest compared to other regional currencies and EMEs outside the region.
- The guarani’s quarterly exchange rate volatility has been as high as currencies of comparator EMEs.
- Paraguay’s FXIs have generated more volatility when measured as a share of reserves compared to other countries in the region; however, relative to Emerging European and Asian countries (when measured relative to GDP) interventions were lower.
- Overall assessment: Transparent and well-communicated FXIs since the adoption of the IT regime have been consistent with Paraguay’s inflation targeting framework and have been effective as a complementary tool without distorting monetary policy operations.

*Source: IMF staff report excerpt "Foreign Exchange Interventions in Paraguay and Their Role in the Monetary Policy Framework" (May 27, 2022).*

### 19.      Paraguay adopted a framework that takes into account the importance of exchange rate

### 1pryea2022002 - 19.      Paraguay adopted a framework that takes into account the importance of exchange rate

### Exchange-rate management and inflation-targeting framework
- Paraguay adopted a framework that takes into account the importance of exchange rate management for macroeconomic stability.
- Context and challenges:
  - Hit by frequent regional financial shocks.
  - High financial dollarization.
  - Less developed and less integrated financial markets.
  - Weak competitiveness channel.
- Role of interventions:
  - Transparent and well-communicated interventions to curb excess volatility of the exchange rate have contributed to macroeconomic stability.
  - The inflation targeting framework including some FXIs has been successful historically, though inflation has increased sharply more recently.
  - Compared to many Latin American and other EMEs, Paraguay’s adherence to its inflation targets had been more successful and inflation volatility had significantly fallen over time; this improved performance deteriorated with the pandemic.
  - Limited discretionary interventions helped reduce large depreciation of the guarani and reduced excess exchange rate volatility, complementing macroeconomic stability and the inflation targeting framework.

### Appendix I — Exchange rate volatility and foreign reserve interventions
- Daily and quarterly volatility comparisons (2010–now):
  - Paraguay’s daily exchange rate volatilities are lower than in major EMEs in LATAM, Eastern Europe, and Asia (figures labeled as daily, difference in logs).
  - Paraguay’s quarterly exchange rate volatilities are as high as in major EMEs in LATAM, Eastern Europe (in dollar terms), and Asia (figures labeled as quarterly, difference in logs).
- Foreign reserves intervention intensity:
  - Figure 7: Paraguay intervenes more than other Latin American countries (Density of Quarterly Changes of Foreign Reserves: Paraguay Against Selected WHD Countries, 2010-now, difference in logs).
  - Figure 8: Paraguay intervenes slightly less than Eastern European countries (Density of Quarterly Changes of Foreign Reserves: Paraguay Against Selected European Countries, 2010-now, difference in logs).
  - Figure 9: Mixed picture versus Asian countries except China (Density of Quarterly Changes of Foreign Reserves: Paraguay Against Selected Asian Countries).
  - When measured as differences in percent of GDP:
    - Paraguay intervenes more than other Latin American countries measured by the size of the economies (Figure 10).
    - Paraguay interventions are only slightly different from major Eastern European countries measured by the size of the economies (Figure 11).
    - The picture is mixed when comparing Paraguay’s interventions with other major Asian economies measured by the size of the economies (Figure 12).

### Appendix II — Output and inflation volatilities: Paraguay versus other EMEs
- Output volatility is higher in Paraguay compared to other EMEs (figures plotting output growth and inflation averages and volatilities for various periods: average 2002-2019, 2013-2021; 8-quarters rolling standard deviations for 2002-19, 2013-21, etc.).
- Sources cited for figures: Central Bank of Paraguay; World Economic Outlook; Haver Analytics; IMF staff calculations.

### Appendix III — Overview of interventions in Paraguay until the IT regime in 2013
- Pre-2001:
  - Until 2001, Paraguay maintained an adjustable exchange rate peg regime and monetary policy used the exchange rate as an anchor.
  - This helped reduce inflation from about 40 percent in the 1990s to single digits in the mid-2000s.
  - Widening public sector deficits led to progressive loss of international reserves and higher frequency of exchange rate adjustments.
  - Financial sector challenges and a run-on deposit associated with the closure of Banco Aleman forced authorities to combat inflationary pressures with rising interest rates while letting the exchange rate move; the BCP tried to intervene frequently to stem rapid depreciation of the Guarani.
- 2001–2003:
  - After abandonment of the crawling exchange rate regime in 2001, Paraguay lacked a clear monetary framework and intervened frequently.
  - The guarani depreciated by 34 percent during 2002; in real effective terms the depreciation was only 2 percent due to declines in the Argentine peso and Brazilian real.
  - FXIs totaled US$186 million in 2002.
  - During 2003 the guaraní appreciated by 13 percent against the U.S. dollar; financial dollarization ratios fell from the high 80s to the mid-60s.
  - Banking system struggled with liquidity management as interventions were not fully sterilized and were used as liquidity management tools.
- 2006–2011:
  - Through 2007 and until 2011, the BCP accumulated international reserves despite the guarani’s continued appreciation.
  - Improvements in the external position and BCP purchases of surplus foreign exchange from binational hydroelectric plants led to an increase in international reserves of US$400 million in 2006, despite an 18 percent appreciation of the guaraní.
  - By end-2007, reserves reached about US$2.4 billion.
  - As interventions were only partially sterilized, currency growth rose to double digits in 2007, creating a liquidity overhang.
  - In 2011 the guarani appreciated by 10 percent (13 percent in real effective terms) compared to 2010 despite BCP’s continued purchase of U.S. dollars; the appreciation reflected improved terms of trade, seasonal liquidation of export proceeds, and increased private capital inflows, especially FDI.
- Note from 2011 FSSR: the CBP frequently relied on exchange rate interventions to inject or withdraw liquidity, signaling targeting the exchange rate.

### Effectiveness of social assistance programs in Paraguay during COVID-19
- Overall assessment:
  - Paraguay's social assistance programs mitigated COVID-19 impacts on the vulnerable.
  - The novel cash transfer program Pytyvõ targeted informal sector workers affected by the shock and effectively prevented a larger erosion of poverty and inequality indicators.
  - Opportunities exist to enhance targeting strategy and beneficiary systems for more efficient deployment.
- Stylized facts:
  - Paraguay's aggregate contraction in 2020 was about -0.8 percent; LAC average contraction was about 6 percent.
  - Sectors disproportionately affected included hotels, services to households, and commerce services.
  - Labor force participation and employment shrank in 2020; labor income levels fell across sub-groups.
  - The shock affected women disproportionately; changes in labor income seemed higher for men.
  - Poverty trends:
    - Paraguay showed significant declines in poverty since the beginning of the century, slowing after 2014; the pandemic reversed this trend, especially in urban areas.
    - Rural workers saw a slight increase in poverty rates partially offset by transfer compensation.
    - Inequality continued to reduce during the pandemic, mainly due to a shift to less favorable conditions across the income distribution.
- Pytyvõ and other programs:
  - Pytyvõ implemented in mid-2020; the first version was financed with 195 US million and distributed benefits to about 18 percent of the population.
  - Each beneficiary received 548 thousand guaranies (about 80 US dollars at the average 2020 exchange rate).
  - Public cash transfers represented a large share of total income for the two lowest quintiles: 31.3 and 15.3 percent for the first and second quintiles, respectively; less than 1 percent for the fifth quintile.
  - Without Tekoporã, Adulto Mayor, and Pytyvõ, moderate and extreme poverty rates would have reached 30.1 and 6.4 percent, respectively—this would have represented more than 60 percent more individuals in extreme poverty than the officially estimated figure for 2020.
  - Social programs deterred a larger deterioration of the Gini coefficient; impact on inequality in absolute magnitude was limited but helped contain deterioration.
- Targeting performance and suggestions:
  - Targeting informal sector workers was broadly adequate: marginal effects show higher probability of receiving Pytyvõ for individuals whose income deteriorated (shifted one or two quintiles down) between 2019 and 2020; probability was not statistically different from zero for those whose income improved.
  - A non-negligible share of resources reached non-poor and richer segments; participation increased across both lowest and highest quintiles in 2020 versus 2019.
  - Simulation reallocating resources received by the fifth quintile across the four lower quintiles showed that both inequality and poverty indicators would be lower under a "different Pytyvõ" scheme:
    - Total Poverty Rate: Official 26.9 percent; Without all three transfers 30.1 percent; Different Pytyvõ 26.42 percent.
    - Extreme Poverty Rate: Official 3.9 percent; Without all three transfers 6.5 percent; Different Pytyvõ 3.7 percent.
    - Inequality Index (Gini) in 2020: Official ~0.437; Without all three transfers ~0.445; Different Pytyvõ ~0.429 (graphical values shown).
- Policy implications and recommendations:
  - Social assistance programs can reduce the impact of labor income shocks and protect vulnerable sectors from below-the-poverty-line living conditions.
  - Prioritize an optimized implementation of a system of beneficiaries to improve targeting for future similar programs or to adjust existing ones.
  - Modernize processes for data management, targeting, application, and payment.
  - Given recurrent climate-related shocks and uncertain geopolitical situations affecting external prices and markets, optimizing the design of social assistance programs is key to optimizing fiscal resources' use while preserving social and economic stability.

*International Monetary Fund — Paraguay chapter content unit*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1pryea2022002.pdf_