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### EXECUTIVE SUMMARY — recent developments and program performance
- Growth and activity:
  - GDP growth anticipated to reach 4 percent in 2024.
  - Upward potential from financial intermediation, services, and manufacturing.
- Inflation and monetary conditions:
  - 12-month headline inflation: 3.4 percent (as of end-November 2024).
  - Underlying inflation: 4 percent.
  - Inflation expected to remain around BCP target of 4 percent by end-2024.
  - Monetary policy described as close to neutral; policy guidance should be data-driven when contemplating further easing.
- External sector:
  - External current account shifted into a wider deficit in 2024 after sharp improvement in 2023.
  - Declines in soybean prices and lower hydroelectricity exports (lower Paraná River water levels) reduced export revenue.
  - Imports growing, especially consumer goods.
  - Guarani depreciated around 6.5 percent, y-o-y, in October 2024.
  - Reserve coverage remains adequate.
- Financial sector:
  - Deposits grew 9.6 percent, year-on-year, in September 2024.
  - Credit grew 13.6 percent, year-on-year, in September 2024.
  - Non-performing loans: 2.7 percent (lowest level in two years).
- Program implementation and reforms:
  - PCI QTs for June 2024 met (central government fiscal deficit ceiling; ceiling on current primary expenditure; ceiling on net incurrence of floating debt).
  - PCI RTs: 1 of 5 met; 1 completed with delay; 1 expected to be completed soon. Specific RTs not met include analysis of tax expenditures in special tax regimes; PPP law revisions submitted to Congress in early November; SIGEBYS submodule implementation in pilot entities for expenditure on goods was met.
  - RSF RMs: one RM from previous review and three out of five RMs for current review completed; one RM of next review completed early.
  - Key RSF actions completed: National Program for Energy Efficiency Labeling (RM7); amendment via Decree 2882 incorporating climate aspects into public investment projects (RM1); publication of a green taxonomy (RM2); ANDE loss reduction strategy and regulation for hourly/dynamic tariffs (RM8); ministerial resolution regulating recycling of plastic containers (RM13).
  - Authorities requested disbursement of 92.5 percent of quota, or SDR 186.28 million, based on implemented and earlier measures.
- Sovereign rating:
  - Paraguay obtained investment grade status from Moody’s for the first time in history in H2 2024.

### OUTLOOK AND RISKS
- Growth projections:
  - 2024 growth projection slightly revised upwards; medium-term path unchanged.
  - Consumer spending expected to remain a major growth driver supported by stable inflation and reduced borrowing costs.
- External current account:
  - External current account deficit expected to increase sizably in the next few years, driven by a spike in imports linked to expected significantly higher FDI inflows into forestry and manufacturing.
  - This could persist if additional foreign investments follow Paraguay’s investment grade rating.
- Key risks:
  - Externally generated vulnerabilities from recurrent negative geopolitical events.
  - Domestic exposure to severe weather (droughts and floods); possible La Niña drought in Q4 is a downside risk.
  - Medium-term fiscal risks from financial health of state pension and health funds and other contingent liabilities.
- Selected medium-term macro projections (selected rows from Text Table 2):
  - Real GDP growth (percent): 2021: 4.0, 2022: 0.2, 2023: 4.7, 2024: 4.0, 2025: 3.8, 2026: 3.5, 2027: 3.5, 2028: 3.5, 2029: 3.5.
  - Consumer prices (end of period; percent): 2021: 6.8, 2022: 8.1, 2023: 3.7, 2024: 4.0, 2025–2029: 4.0 each year.
  - External current account (percent of GDP): 2021: -0.9, 2022: -7.1, 2023: 0.3, 2024: -3.0, 2025: -2.7, 2026: -2.3, 2027: -1.7, 2028: -1.4, 2029: -1.1.
  - Gross international reserves (US$ billion): 2021: 9.7, 2022: 9.5, 2023: 9.9, 2024: 9.5, 2025: 9.8, 2026: 10.1, 2027: 10.4, 2028: 10.8, 2029: 11.2.
  - Central government fiscal balance (percent of GDP): 2021: -3.6, 2022: -2.7, 2023: -4.1, 2024: -2.6, 2025: -1.9, 2026–2029: -1.5 each year.
  - Public sector debt (percent of GDP): 2021: 37.5, 2022: 40.5, 2023: 41.2, 2024: 43.6, 2025: 40.9, 2026: 39.9, 2027: 39.2, 2028: 38.6, 2029: 38.0.

### FISCAL POLICY AND PUBLIC FINANCES
- 2024 fiscal performance:
  - Tax revenue grew about 21 percent, year-to-date, in October 2024; expected to exceed 11 percent of GDP for 2024.
  - Overall fiscal revenue increased by 17.4 percent, including a one-off settlement of payment arrears on electricity imports by Argentina.
  - Current primary expenditures grew about 12 percent year-to-date.
  - Authorities expected to meet fiscal deficit target set at 2.6 percent of GDP for 2024.
- 2025–2026 fiscal path:
  - Draft 2025 budget aims at a fiscal deficit of 1.9 percent of GDP.
  - Authorities commit to bring deficit down to 1.5 percent of GDP in 2026 (Fiscal Responsibility Law limit).
  - Tax revenue projected to remain around 11 percent of GDP with upside risks from improved tax collection.
  - Public investment partly preserved due to additional non-tax revenues; an Itaipú agreement expected to increase off-budget spending which could exceed 1 percent of GDP.
  - Authorities expanding local currency bond issuance to reduce exposure from high share of foreign currency–denominated public debt (close to 90 percent of total debt).
- Revenue mobilization:
  - Strategy: increase efficiency in tax collections and trust in public spending while preserving existing tax rates.
  - Merger of tax and customs administrations and cooperation with Social Security Institute expected to enhance collection capacity.
  - Tax expenditures estimated roughly 1.4 percent of GDP; specific reform proposals pending.
  - Authorities plan a risk-based compliance improvement plan and participation in the Joint IMF-World Bank Domestic Resources Mobilization Initiative.
  - Staff emphasized need for comprehensive review of tax regimes once efficiency gains are exhausted.

### PUBLIC FINANCIAL MANAGEMENT AND EXPENDITURE EFFICIENCY
- SIGEBYS/SIARE rollout:
  - Ongoing rollout of SIGEBYS module to improve procurement and capture line ministries’ goods and services expenses.
  - Spending stages (commitment, accrual, payment) to be fully monitored through SIGEBYS (June and December 2024 RTs).
- SIPEN expansion and public investment governance:
  - SIPEN expansion to include social programs to improve harmonization.
  - Procedural manual for MEF National Directorate of Public Investment M&E unit to be published and implemented for pilot projects by mid-2025 (June 2025 RT).
  - C-PIMA proposals: develop articulated sectoral plans and multi-year budgeting to maximize limited fiscal resources for public investment.

### PUBLIC-PRIVATE PARTNERSHIPS AND PROJECT PREPARATION
- PPP law revisions:
  - Amendments submitted to Congress (June 2024 RT).
  - Fund staff recommended revisions to ensure appropriate assessment and management of fiscal risks.
  - Authorities opted to allow and incentivize unsolicited proposals to offset low government project-preparation capacity, accepting staff-flagged risks.
  - Authorities committed to improve funding mechanisms for project preparation and expand government technical capacities.

### STRUCTURAL REFORMS, PENSIONS, AND GOVERNANCE
- Civil service and public sector reorganization:
  - Law reorganizing state structure approved; civil service reform bill approved by Senate with modifications focusing on meritocracy and single salary scale.
- Public pensions:
  - Stabilizing Caja Fiscal finances remains a priority; consultative Council of Social Security approved December 2023 not yet operational.
  - Specific parametric reform proposals to Caja Fiscal undetermined; government aims for approval sometime in 2025.
- Governance and anti-corruption:
  - September bill to Congress establishing “National Regime of Integrity, Transparency and Prevention of Corruption”; expands Comptroller General’s role.
  - Work to standardize technical specifications for essential medicines (RT December 2024).
  - Pilot Health Information System projects in two public hospitals (June 2025 RT).
  - Pilot information exchange system for cross-checking public officials' net worth declarations planned (August 2025 RT).
  - AML/CFT: NRA updated and expected approval by end of year (June 2024 RT); Fund CD support ongoing.

### MONETARY POLICY, EXCHANGE RATE, AND PAYMENTS MODERNIZATION
- Monetary policy:
  - Policy rate at 6 percent after last adjustment in March 2024.
  - Real policy rate around 2 percent against neutral real rate estimated 1–2 percent.
  - BCP paused further cuts; decisions guided by US Federal Reserve actions, commodity prices, and domestic developments.
  - Inflation expectations anchored around 4 percent.
- Exchange rate:
  - Flexible exchange rate recommended; Guarani should adjust to external conditions.
  - BCP undertook “complementary interventions” and announced interventions of at least USD 15 million per day at end October when Guarani under pressure; later retreated as pressures abated.
  - BCP maintains transparency and regularly publishes foreign exchange activities.
- Payments system:
  - End-September resolution approved EMV® QRCPS-based QR standard adoption by all PSPs processing QR payments to promote interoperability and inclusion.

### ENERGY, RSF MEASURES, AND CLIMATE-RELATED ACTIONS
- RSF scope and achievements:
  - Decree 2882 amended Decree 4436/20 to incorporate climate aspects at each stage of public investment (RM1).
  - MEF and BCP published a green taxonomy covering five key sectors: energy, construction, agriculture, cattle ranching, forestry (RM2).
  - Superintendency of Banks with World Bank produced climate-related risk analysis to incorporate into supervisory framework by mid-2025 (RM3).
- ANDE and electricity sector:
  - National Program for Energy Efficiency Labeling launched (Decree 2853 / RM7).
  - ANDE published a loss reduction plan and installed 27,760 smart meters by end-September 2024.
  - Increased inspections: 18,356 as of end-September 2024 (more than 10 percent above same period last year) (RM8).
  - External audit and cost study underway with expected finalization by early 2025 (RM5).
  - Regulation of non-conventional renewable energy law advanced (RM4).
- Emissions, transport, and biofuels:
  - Government developing regulation of Electromobility Law 6925/2023 and fiscal incentives; ANDE ready to install 30 rapid charging units pending supply (RM10).
  - Fund CD supporting design of explicit carbon tax on liquid fuels to replace selective taxes (RM9).
  - Ministry of Industry and Trade Resolution 1025 regulates Law 7014/2022 promoting reutilization/recycling of PET containers (RM13).
- Forests and biomass:
  - Controls to implement biomass certification process by 2026; INFONA developing Directorate of National Forest Monitoring System (RM12).
  - Decrees 1788, 1746, and 1745 (May 2024) underpin biomass registry, forest monitoring, and INFONA institutional strengthening (RM11–RM12).
  - INFONA’s monitoring contributed to rapid wildfire response in September.

### RSF ACCESS, DISBURSEMENT, AND FUND OBLIGATIONS
- RSF access and disbursement:
  - PCI and RSF: SDR 302.1 million or 150 percent of quota in place until November 2025.
  - Authorities requested disbursement of 92.5 percent of quota, or SDR 186.28 million, under the RSF.
  - Guidance: disbursements above standard 50 percent per review possible under specified conditions (delayed RMs or early disbursement with overall limits).
- Capacity to repay and Fund obligations (selected figures from Table 9):
  - Fund obligations (charges and interest; SDR, yearly): 7.6, 6.5, 6.5, 6.5, 6.5, 6.5, 6.5, 6.5, 6.5, 6.5, 6.5.
  - Outstanding Fund credit (millions of SDR sequence): 186.33, 302.13, 302.13, 302.13, 302.13, 302.13, 302.13, 302.13, 302.13, 302.13, 302.13, 277.7, 247.5, 217.3, 187.1, 156.8, 126.6, 96.4, 66.2, 36.0, 5.8, 0.0.
  - In percent of quota (sequence): 92.5, 150.0, 150.0, 150.0, 150.0, 150.0, 150.0, 150.0, 150.0, 150.0, 150.0, 137.9, 122.9, 107.9, 92.9, 77.9, 62.9, 47.9, 32.9, 17.9, 2.9, 0.0.
  - Net use of Fund credit (millions of SDR): 186.31, 115.8, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, -24.4, -30.2, -30.2, -30.2, -30.2, -30.2, -30.2, -30.2, -30.2, -30.2, -5.8.

### PROGRAM MONITORING, TIMELINE, AND CONDITIONALITY
- Monitoring: semi-annual QTs, standard continuous targets, RTs, ICC for PCI, and RMs for RSF per TMU.
- Review schedule: last PCI review date June 30, 2025; RSF 3rd review May 2025; 4th review and 5th/6th reviews timetable described (5th review May 2025; 6th review November 2025).
- Authorities requesting modification to end-December 2024 and end-June 2025 QTs ceilings on primary expenditure given larger-than-expected revenue.
- RM13 rephased to account for early implementation without affecting program strength.

### FINANCIAL SECTOR SOUNDNESS AND DATA
- Financial soundness:
  - Banks remain liquid and well-capitalized; profitability rising since the pandemic.
  - Financial soundness indicators (selected):
    - Regulatory capital/RWA (percent): 2015: 16.1; 2016: 17.9; 2017: 18.3; 2018: 17.5; 2019: 17.2; 2020: 19.1; 2021: 18.8; 2022: 17.3; 2023: 16.4.
    - NPLs/total loans (percent): 2015: 2.6; 2016: 2.9; 2017: 2.8; 2018: 2.5; 2019: 2.6; 2020: 2.4; 2021: 2.3; 2022: 2.9; 2023: 3.0.
    - Return on assets (percent): 2015: 2.5; 2016: 2.2; 2017: 2.3; 2018: 2.3; 2019: 2.4; 2020: 1.7; 2021: 1.8; 2022: 2.0; 2023: 2.4.
    - FX loans/total loans (percent): 2015: 50.0; 2016: 48.1; 2017: 46.7; 2018: 47.2; 2019: 46.1; 2020: 42.2; 2021: 42.1; 2022: 45.9; 2023: 46.4.
- Data and capacity development:
  - Fund CD priorities: domestic revenue mobilization; fiscal risks follow-up and C-PIMA; financial stability and integrity including AML/CFT.
  - Authorities strengthening balance of payments and national accounts statistics.
  - Paraguay subscribed to IMF SDDS on October 28, 2024.

### RISK ASSESSMENT MATRIX — selected highlights
- External risks:
  - Intensification of regional conflicts (High / ST) — expected impact High; recommended facilitate access to alternative meat and fertilizer markets.
  - Deepening geoeconomic fragmentation (High / ST) — expected impact High; similar recommended response.
  - Commodity price volatility (High / ST) — expected impact High; recommended monetary calibration.
  - Slowdown in major economies (Medium / ST) — expected impact Medium.
- Monetary and financial risks:
  - Monetary policy calibration by major central banks (Medium / ST).
  - Systemic financial instability (Medium / ST).
  - Social discontent (High / ST, MT) — expected impact Medium; recommended social policies and governance reforms.
  - Climate change (Medium / ST) — expected impact High; recommended export diversification, clean power mix diversification, agricultural adaptation.
- Domestic risks:
  - Weather-related shocks (Medium to High / ST) — impact on agriculture, energy, trade, and banking.
  - Fiscal sustainability (Medium / ST, MT) — need to strengthen revenue-raising and expenditure control; reform civil service, procurement, and pensions.

### POLICY RECOMMENDATIONS (staff appraisal and summary)
- Fiscal:
  - Continue fiscal consolidation while safeguarding social and infrastructure investments.
  - Rebuild fiscal buffers to address recurrent shocks and potential contingent liabilities.
  - Implement reforms to boost fiscal revenue and expenditure efficiency.
- Revenue policy:
  - Increase revenues primarily through efficiency gains in tax collection; conduct comprehensive review of tax regimes once efficiency gains exhausted.
- Pensions:
  - Prioritize stabilizing public pension finances (Caja Fiscal).
- Monetary and FX:
  - Keep monetary policy data-driven and cautious about further easing.
  - Allow flexible exchange rate to act as shock absorber; maintain transparency in FX interventions.
- Structural and governance reforms:
  - Accelerate structural reforms to boost growth and inclusiveness: labor market reforms, tackling informality (only 3 to 4 out of 10 workers formal), governance and anti-corruption measures.
  - Improve business climate to attract green investment.
- Climate and RSF:
  - Commit to ambitious climate-related reforms in partnership with development agencies to protect growth and investment prospects; continue implementing RSF measures (RM1–RM13).
- Program support:
  - Staff supports completion of fourth PCI and second RSF reviews and disbursements tied to specified RMs (RMs 4, 7, 11, 12 — third review; RMs 1, 2, 8 — fourth review; RM13 ahead of fifth review).

*Source: 1pryea2024004-print-pdf - EXECUTIVE SUMMARY and selected chapters/excerpts from the IMF staff report and TMU contained in the provided document.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Recent developments and program performance
- GDP growth is anticipated to reach 4 percent in 2024, with some upward potential due to favorable performance of financial intermediation, services, and manufacturing.
- Inflation and monetary conditions:
  - 12-month headline inflation stood at 3.4 percent as of end-November 2024.
  - Underlying inflation stood at 4 percent.
  - Inflation is expected to remain around the Central Bank of Paraguay (BCP) target of 4 percent by end-2024.
  - Monetary policy is described as close to its neutral stance and should continue to be guided by data when contemplating further easing.
- External sector:
  - The external current account shifted into a wider deficit in 2024 after improving sharply in 2023.
  - Declines in soybean prices and lower hydroelectricity exports (given lower water levels in the Paraná River) reduced export revenue.
  - Imports have been growing, especially consumer goods.
  - The Guarani depreciated around 6.5 percent, y-o-y, in October 2024.
  - Reserve coverage remains adequate.
- Financial sector:
  - Deposits grew 9.6 percent, year-on-year, in September 2024.
  - Credit grew 13.6 percent, year-on-year, in September 2024.
  - Non-performing loans were 2.7 percent (lowest level in two years).
- Program implementation:
  - PCI quantitative targets (QTs) for June 2024 were met (central government fiscal deficit ceiling, ceiling on current primary expenditure, and ceiling on net incurrence of floating debt).
  - Inflation was within the consultation band.
  - PCI Reform Targets (RTs): One out of five RTs was met, one completed with delay, one expected to be completed soon. Specific RTs not met: analysis of tax expenditures in special tax regimes; PPP law revisions were submitted to Congress in early November; SIGEBYS submodule implementation in pilot entities for expenditure on goods was met.
  - RSF Reform Measures (RMs): One RM from the previous review and three out of five RMs for the current review were completed; one RM of the next review was completed early.
  - Key RSF actions completed include: National Program for Energy Efficiency Labeling (RM7); amendment to Decree 4436/20 incorporating climate aspects into public investment projects via Decree 2882 (RM1); publication of a green taxonomy (RM2); ANDE loss reduction strategy and regulation for hourly/dynamic tariffs (RM8); ministerial resolution regulating the law promoting recycling of plastic containers (RM13).
  - Based on implemented reform measures and earlier measures after which no disbursement was made, the authorities requested disbursement of 92.5 percent of quota, or SDR 186.28 million.
- Notable sovereign development: Paraguay obtained an investment grade status from Moody’s for the first time in history in the second half of 2024.

### Outlook and risks
- Growth and drivers:
  - 2024 growth projection was slightly revised upwards; medium-term path unchanged.
  - Consumer spending expected to remain a major growth driver supported by stable inflation and reduced borrowing costs.
  - Sovereign spreads continued to be among the lowest in the region.
- External current account outlook:
  - External current account deficit expected to increase sizably in the next few years, driven by a spike in imports linked to expected significantly higher FDI inflows into the forestry and manufacturing sectors.
  - This development could last longer if additional foreign investments follow Paraguay’s investment grade rating.
- Risks:
  - Externally generated vulnerabilities from recurrent negative geopolitical events are primary concerns.
  - Domestic exposure to severe weather (droughts and floods) due to dependence on water for agriculture, river transport, and power generation; a downside risk is a possible drought in Q4 because of La Niña.
  - Medium-term fiscal risks from the financial health of state pension and health funds and other contingent liabilities and debts.
- Selected medium-term macro projections (Text Table 2, selected rows):
  - Real GDP growth (in percent): 2021: 4.0, 2022: 0.2, 2023: 4.7, 2024: 4.0, 2025: 3.8, 2026: 3.5, 2027: 3.5, 2028: 3.5, 2029: 3.5.
  - Consumer prices (end of period; in percent): 2021: 6.8, 2022: 8.1, 2023: 3.7, 2024: 4.0, 2025–2029: 4.0 each year.
  - External current account (in percent of GDP): 2021: -0.9, 2022: -7.1, 2023: 0.3, 2024: -3.0, 2025: -2.7, 2026: -2.3, 2027: -1.7, 2028: -1.4, 2029: -1.1.
  - Gross international reserves (in US$ billion): 2021: 9.7, 2022: 9.5, 2023: 9.9, 2024: 9.5, 2025: 9.8, 2026: 10.1, 2027: 10.4, 2028: 10.8, 2029: 11.2.
  - Central government fiscal balance (in percent of GDP): 2021: -3.6, 2022: -2.7, 2023: -4.1, 2024: -2.6, 2025: -1.9, 2026–2029: -1.5 each year.
  - Public sector debt (in percent of GDP): 2021: 37.5, 2022: 40.5, 2023: 41.2, 2024: 43.6, 2025: 40.9, 2026: 39.9, 2027: 39.2, 2028: 38.6, 2029: 38.0.

### Fiscal policy and public finances
- 2024 fiscal performance:
  - Tax revenue grew about 21 percent, year-to-date, in October 2024 and is expected to exceed 11 percent of GDP for 2024.
  - Overall fiscal revenue increased by 17.4 percent, including a one-off settlement of payment arrears on electricity imports by Argentina.
  - Current primary expenditures grew by about 12 percent year-to-date.
  - For the year, authorities are expected to meet the fiscal deficit target set at 2.6 percent of GDP.
- 2025–2026 fiscal path:
  - Draft 2025 budget aims at a fiscal deficit of 1.9 percent of GDP.
  - Authorities commit to bring the deficit down to 1.5 percent of GDP in 2026 (deficit limit set by the Fiscal Responsibility Law).
  - Tax revenue projected to remain around 11 percent of GDP with upside risks from improved tax collection synergies.
  - Public investment partly preserved due to additional non-tax revenues; an Itaipú agreement is expected to increase off-budget spending which could exceed 1 percent of GDP.
  - Authorities are expanding local currency bond issuance to reduce exposure from high share of foreign currency-denominated public debt (close to 90 percent of total debt).
- Revenue mobilization and tax policy:
  - Strategy focuses on increasing efficiency gains in tax collections and trust in public spending while preserving existing tax rates.
  - Merger of tax and customs administrations and cooperation with the Social Security Institute expected to enhance tax collection capacity.
  - Analysis revealed tax expenditure amounts roughly to 1.4 percent of GDP; specific proposals to address these expenditures and employment impacts are pending.
  - Authorities plan a risk-based compliance improvement plan and participation in the Joint IMF-World Bank Domestic Resources Mobilization Initiative.
  - Staff emphasized the need for a comprehensive review of existing tax regimes once efficiency gains are exhausted to address social and investment financing needs and rebuild fiscal buffers.

### Structural reforms, pensions, and climate resilience
- Structural reforms:
  - Continue accelerating structural reform implementation to promote growth and inclusiveness, including reforms in labor markets and addressing high informality, and improving governance and addressing corruption.
- Public pensions:
  - Stabilizing finances of the public pension system remains a priority given medium-term fiscal risks.
- Climate-related reforms (RSF):
  - Continue robust commitment to implement an ambitious array of climate-related reforms in close partnership with development agencies to ensure sustainable growth and good investment prospects.
  - Specific RSF measures enacted or advanced include energy efficiency labeling, incorporation of climate aspects into public investment project appraisal, green taxonomy publication, ANDE loss reduction strategy and dynamic tariffs regulation, and recycling regulation.

### Policy recommendations (summarized)
- Continue fiscal consolidation while safeguarding social and infrastructure investments.
- Increase revenues primarily through efficiency gains in tax collection and, when exhausted, comprehensive review of tax regimes.
- Prioritize stabilizing public pension finances.
- Keep monetary policy data-driven and cautious about further easing.
- Accelerate structural reforms to boost growth and inclusiveness: labor market reforms, tackling informality, governance and anti-corruption measures.
- Commit to ambitious climate-related reforms in partnership with development agencies to protect growth and investment prospects.

*Source: 1pryea2024004-print-pdf - EXECUTIVE SUMMARY*

### 12.      Enhancing expenditure efficiency and prioritization as well as strengthening public

### 12.      Enhancing expenditure efficiency and prioritization as well as strengthening public

### Public financial management and expenditure efficiency
- Ongoing rollout of the SIGEBYS module to improve the public procurement system and better capture line ministries’ goods and services expenses.
- Spending activities at different stages (commitment, accrual, and payment) will be fully monitored and recorded through SIGEBYS, which is part of the State Resource Management System (SIARE) (June and December 2024 RTs).
- Expansion of the Information System on Pensions (SIPEN) to include social programs and improve harmonization.
- Development of a procedural manual for the monitoring and evaluation unit of the National Directorate of Public Investment based on C-PIMA recommendations; expected publication and implementation for a set of pilot investment projects by mid-2025 (June 2025 RT).
- C-PIMA proposals include: developing more articulated sectoral plans and providing financing in a timely manner through multi-year budgeting to maximize limited fiscal resources for public investment.

### Public-private partnerships and project preparation
- Amendments to the Law on PPPs submitted to Congress to make PPPs more attractive to the private sector (June 2024 RT).
- Fund staff provided CD on the PPP legal framework and recommended revising the draft PPP Law to ensure appropriate assessment and management of fiscal risks associated with PPPs.
- Authorities opted to allow and incentivize unsolicited proposals to partly compensate for low government capacity to prepare infrastructure projects and to leverage private sector technical and financial capacities, despite staff-flagged risks (potentially preventing effective competition and aggravating rent-seeking).
- Authorities committed to improving mechanisms for funding project preparation and expanding government technical capacities.

### Fiscal structural reforms, pensions, and climate risk management
- Law reorganizing the structure of the state was approved and is expected to enhance government operational efficiency.
- Civil service reform bill presented after public consultations; approved by the Senate with modifications; focuses on meritocracy and a single salary scale linked to professional development.
- Securing sustainability of public pension funds (Caja Fiscal), including through enhanced supervision, remains a priority.
  - The consultative Council of Social Security under the Pensions Superintendency, approved in December 2023, is not yet operational due to lengthy discussions on appointment of labor unions’ representatives.
  - Specific parametric reform proposals to the Caja Fiscal remain undetermined; government aims for approval sometime in 2025.
- MEF will carry out its first simulation of the impact of climate shocks on medium- to long-term macroeconomic projections (to improve budget risk management associated with climate change, based on IMF CD and analytical work).

### Monetary policy and exchange rate
- Monetary policy rate at 6 percent after last adjustment in March 2024; monetary stance close to neutral with a real policy rate of around 2 percent against a neutral real rate estimated in the range of 1–2 percent.
- BCP paused after sustained policy rate reductions; November meeting noted positive domestic activity indicators and balanced international risks.
- Inflation expectations anchored around the BCP’s target of 4 percent.
- Future policy rate decisions to be guided by actions of the US Federal Reserve, international commodity prices, and domestic developments.
- Flexible exchange rate policy: Guarani should flexibly adjust to external conditions.
  - BCP has undertaken “complementary interventions” in a thin FX market; announced interventions of at least USD 15 million per day at end October when the Guarani was under pressure due to external and seasonal factors.
  - Pressures abated and BCP retreated from announced interventions.
  - BCP maintains transparency in FX interventions and regularly publishes a comprehensive account of foreign exchange activities.

### Payments system modernization
- End-September resolution approved "Regulation of the QR generation standard for electronic payments in Paraguay".
  - Obligation for all payment service providers (PSPs) that process QR payments to adopt the QR standard based on EMV® QRCPS.
  - Decision promotes interoperability, financial inclusion, and a more digital and competitive payments ecosystem.

### Assessing and addressing fiscal risks associated with climate change (Box 1)
- Climate risks defined as possible events causing unforeseen variations between fiscal forecasts and actual realizations (example: 2021 drought reduced hydroelectric and soybean production, lowering budget revenues).
- Climate events also affect financial performance of public companies in the energy sector (ANDE, Itaipú, and Yacyretá), influencing government revenues and expenses.
- Fund CD mission proposals:
  - Data collection: need for more systemic and structured collection and analysis of climatic variables; integrate and quantify climate effects in fiscal risk assessments.
  - Estimating costs: Fund staff developed a tool to estimate climate effect on fiscal variables; integrates scattered public data to analyze transmission channels and response financing strategies.
  - Crisis preparedness: explore budgetary contingencies, contingent debt, and insurance as disaster financing options.
  - Increasing transparency: systematize publication of the fiscal risks report and present it periodically to Congress (either independently or as part of the medium-term fiscal framework or public finance report); develop institutional capacities in the MEF unit charged with the report; issue guidelines to institutions monitoring specific fiscal risks; include assessment of climate impact on companies in the electricity sector.

### Governance, anti-corruption, and public sector integrity
- September bill to Congress establishing the “National Regime of Integrity, Transparency and Prevention of Corruption”; expands role of the Comptroller General of the Republic to cover all state institutions.
- Work ongoing to standardize technical specifications of the List of Essential Medicines (Ministry of Health) and the vade mecum of the Social Security Institute (IPS) (RT December 2024).
- Pilot projects for the Health Information System implemented in two public hospitals to increase transparency in operations (June 2025 RT).
- Pilot implementation of an information exchange system for cross-checking public officials' net worth declarations planned for rollout (August 2025 RT).
- AML/CFT: authorities advancing reforms; Fund CD to strengthen Paraguay’s AML/CFT regime has been well received.
  - Progress on a sound AML/CFT risk-based supervisory framework, development of risk-based supervisory tools, and enhancing Financial Intelligence Unit capacity.
  - National Risk Assessment (NRA) updated and expected to be approved by end of the year (June 2024 RT) as part of action plan to address GAFILAT recommendations.
- System for recording cases of violence against women and a single registry: software ready and implementation progressing on time (March 2025 RT).

### Business climate, land registry, and insolvency framework
- Plan to enhance integrity of the public land cadaster to reduce legal uncertainty and attract foreign investment.
- New guide to technical and documentary requirements prepared to streamline and simplify cadastral procedures via electronic files.
- Congress approved in general the bill creating the National Unified Registry (RUN) merging DGRP, SNC, and Department of Surveying and Geodesy; RUN will be a technical and administrative body of the Judicial Branch, dependent on the Supreme Court of Justice.
- Cadaster and Public Registries require significant technology improvements and greater investment.
- Work on Insolvency Law has not advanced; authorities need more time to reformulate prior draft law (October 2025 RT).

### Social protection, inclusion, and labor market reforms
- Tekoporã program increased coverage to around 180,000 families and is now 95 percent mobile.
- Zero Hunger program aims for free school meals for all public elementary and middle school students in more than 20 districts; coverage being expanded gradually.
- SIPEN extended to other social programs administered by CODE, MINNA, and the Ministry of Social Development.
  - Implementation of guidelines of decree No. 6833 of March 2022 ("SIPEN to the social program of MINNA") being completed (June 2024 RT).
  - Action Plan for the National Care Policy (PNCUPA) expected to be approved by the Interinstitutional Care Commission by year end (December 2024 RT).
- Labor market reform: authorities plan broad dialogue on potential amendments to the Labor Code to generate employment, improve competitiveness, and foster greater equity in labor relations.
  - Proposal to create a National Council of Education and Labor to expand qualified labor supply.
  - Proposal on formalization of independent workers of MSMEs and independent workers in general under the auspices of the Social Security Institute expected to be ready in 2025.
  - Informality is high: only 3 to 4 out of 10 workers are formal.

### RSF and climate adaptation, energy policy, and green investment
- Paraguay faces significant climate-related vulnerabilities and lags regional peers in climate readiness per ND-GAIN index.
- With an investment grade credit rating, Paraguay is better positioned to attract green, predictable, and profitable investments.
- New Energy Policy rolled out by Decree No. 2553 on September 22; policy horizon to 2050.
  - Replaces 2016 decree and proposes a strategic sustainable development framework focused on responsible natural and energy resource use and enhanced regional integration.
  - Focuses on expanding alternative energy sources, reducing dependence on hydrocarbons, promoting energy efficiency, biofuels, and introduction of hydrogen as a fuel.
  - Progress on implementing the "National Green Hydrogen Strategy" to create a competitive framework for green hydrogen production.
- RSF supports Paraguay’s ambition to become a leading green investment destination by catalyzing financing from development partners and private sector.
  - Eco-friendly practices (no-till farming, sustainable cattle ranching) expected to enhance access to international markets and attract green capital via green taxonomy and improved forest protection.
  - Policies increasing minimum biodiesel content expected to bolster downstream biofuel industry and reduce reliance on imported fossil fuels.
  - Forestry sector advancements: foreign investments in an emerging pulp mill industry; public development bank (AFD) developing tailored financial products; INFONA using satellite images and initiating participatory National Forest Policy formulation.

*Source: IMF staff report chapter provided in the supplied content.*

### 26.      The RSF continues to support the authorities’ ambitious efforts tackling several key

### The RSF continues to support the authorities’ ambitious efforts tackling several key challenges

### Public investment resiliency
- Decree 4436/20 amended with Decree 2882 to incorporate climate aspects at each stage of public investment projects’ development, including their design, selection, and evaluation (RM1).
- Further refinements of manuals’ procedures will follow to enhance implementation of this RM, including from IMF technical assistance and the IDB in the context of the IDB Climate pilot.

### Mobilization of financial resources for adaptation and mitigation
- MEF and BCP published a green taxonomy covering five key sectors: energy, construction, agriculture, cattle ranching, and forestry; financial sector and public investment are transversal to all these sectors (RM2). The taxonomy includes an implementation plan and anticipates future extension to other sectors.
- Superintendency of Banks produced with the World Bank an analysis of climate-related risks in the financial sector to inform work to incorporate these risks into its risk assessment framework by mid-2025 (RM3).

### Preservation and expansion of the clean electricity matrix
- Decree 2853 launched the National Program for Energy Efficiency Labeling to inform consumers and progressively impose minimum efficiency standards to the three appliances that consume the most electricity as originally scheduled for the previous review (RM7).
- ANDE actions:
  - Published a plan with quantitative targets to reduce technical and non-technical losses and started implementation.
  - Installed 27,760 smart meters by the end of September 2024 among major consumers to support progressive implementation of Regulations 49887 and 49888 on dynamic tariffs.
  - Increased inspections in 2024 against electricity tariffs to 18,356 as of end of September, significantly more than ten percent above the same period last year (RM8).
  - With IDB assistance, advanced a study of its costs against regional benchmarks; an external audit by an international firm has started and is expected to be finalized by early 2025 (RM5).
- These actions support development of methodologies for fine-tuning electricity tariffs identified for next review (RM6) and secure funding of ANDE’s investment needs, including the loss reduction plan.
- Expansion of green energy regulation of the non-conventional renewable energy law, with regulation introduced earlier this year (RM4). Government, in consultation with the WB, is refining the law to promote private participation in renewable energy to attract investors.

### Greenhouse gas emissions
- Government developing regulatory decree of the Electromobility Law 6925/2023 and refining fiscal incentive specifications for electric vehicles. ANDE stands ready to install 30 rapid charging units pending resolution of global supply disruptions.
- Government plans to develop regulations for electric public transportation and set updated targets for increased share of electric buses in the metropolitan area of Asuncion (RM10).
- Government plans to submit to Congress a comprehensive draft law to reform the country’s public transportation system to facilitate electrification in Asuncion.
- Fund CD is supporting design of an explicit carbon tax on liquid fuels that will replace existing selective taxes on the consumption of diesel, gasoline, and LPG for the next review (RM9).
- Ministry of Industry and Trade enacted resolution 1025 regulating law 7014/2022 to promote reutilization, recycling, and use of polyethylene terephthalate containers to help contain methane emissions from waste management (RM13).

### Forest preservation
- Government working to establish control systems to start effective implementation of biomass certification process in 2026.
- Enhancing coordination for effective implementation of intervention protocol for land use change based on the National Forest Monitoring System established by Decree 1746 (RM11).
- INFONA developing the Directorate of the National Forest Monitoring System (RM12) to enhance capacities to protect forests and monitor land use change, including with additional budget allocations next year.
- Government’s rapid reaction to wildfires in September contributed to containment; INFONA’s monitoring systems allowed authorities to identify and prosecute those responsible.

### Program modalities and capacity development — access and duration
- PCI and RSF amounting to SDR 302.1 million or 150 percent of quota are in place until November 2025.
- Monitoring: semi-annual through QTs, standard continuous targets, RTs, ICC for the PCI, and RMs for the RSF (Policy Statement), as defined in the Technical Memorandum of Understanding (TMU).
- Last PCI review date is June 30, 2025.
- Authorities requesting modification to end-December 2024 and end-June 2025 QTs ceilings on primary expenditure given larger than expected revenue allowing more expenditures while maintaining capital spending and the fiscal deficit.
- RM13 is being rephased to account for early implementation without affecting program strength and sequencing of reforms.

### Risks to program implementation and debt-servicing capacity
- Risks to program implementation assessed as low; Paraguay's capacity to repay the Fund is sound.
- There is no balance of payments’ gap for the next 12 months; prospects of adequate financing for the remaining program period.
- Paraguay does not have current credit with the Fund; outstanding credit projected to rise to 150 percent of quota (or 0.9 percent of forecasted GDP) by 2025 once the RSF arrangement is completely disbursed (Table 9).
- Obligations to the Fund expected to stay at or below:
  - 0.3 percent of exports of goods and services,
  - 0.6 percent of government revenue,
  - 0.4 percent of gross international reserves,
  throughout the repayment period.
- Assessment anchored in steady debt ratios forecasted over the medium term, modest risk profile concerning external and total public debt distress, and government's track record of reforms and prudent macroeconomic management.

### Safeguards assessment
- 2024 update of the safeguards assessment of the BCP completed.
- Findings:
  - BCP maintained a sound system of operational controls.
  - Enhanced transparency in financial reporting through adoption of International Financial Reporting Standards.
  - Legal reforms necessary to strengthen aspects of BCP’s autonomy and governance arrangements.
  - Vulnerabilities from lack of an independent oversight body persist and should be addressed through interim avenues pending legal reform.
  - Recommendations to strengthen internal audit as an assurance function and align practices with international standards.

### Capacity development and data
- Fund CD support aligned with program priorities, focusing on:
  - Domestic revenue mobilization,
  - Follow-up support on fiscal risks and a recently completed C-PIMA,
  - Financial stability and integrity, including the AML/CFT regime.
- Authorities working to strengthen balance of payments and national accounts statistics.
- On October 28, 2024, Paraguay subscribed to the IMF’s SDDS, joining 48 other countries currently subscribed to the SDDS.
- Subscription to the SDDS expected to improve capacity on data compilation and dissemination, facilitate macroeconomic policymaking, build market confidence in institutional capacity, and contribute to economic and financial stability.

### Staff appraisal and policy recommendations
- Achievements and current stance:
  - First ever sovereign investment grade credit rating.
  - Buoyant activity reflecting high consumer confidence and expanding services and manufacturing sectors.
  - BCP appropriately keeping monetary policy on hold, guided by inflation performance and expectations.
  - Paraguay's banking system remains stable and solvent.
  - 2025 budget aligned with authorities’ commitments on fiscal consolidation.
- Policy priorities recommended:
  - Rebuild fiscal buffers to address recurrent shocks, large development and infrastructure needs, and potential contingent liabilities.
  - Implement reforms to boost fiscal revenue and government expenditure efficiency.
  - Improve governance and reduce corruption risks.
  - Improve the business climate to encourage green investment.
- Staff supports:
  - Completion of the fourth review under the PCI and second review under the RSF arrangement.
  - Authorities’ request to modify QTs for primary expenditure set for end-December 2024 and end-June 2025 and to incorporate two new RTs.
  - Authorities’ request under the RSF to rephase to the 2nd RSF review the disbursement associated with one reform measure originally envisaged for the 3rd RSF review and completed ahead of schedule.
  - Disbursement based on completion of RMs 4, 7, 11, and 12 (third review), RMs 1, 2 and 8 (fourth review), and RM13 (ahead of fifth review).

*Source: IMF staff report excerpt on Paraguay (content unit).*

### 92.5 percent of quota, or SDR 186.28 million under the RSF.

### 1pryea2024004-print-pdf - 92.5 percent of quota, or SDR 186.28 million under the RSF.

### RSF access, disbursement, and Fund obligations
- RSF access shown: "92.5 percent of quota, or SDR 186.28 million under the RSF."
- Guidance on disbursement above the standard 50 percent of quota per review:
  - Authorities may request i) a disbursement for RMs completed in the first review of the RSF during the second review (access associated with this delayed review would not count towards the 50 percent access limit per review), and ii) an early disbursement for a completed RM provided that RSF access stays at or below 50 percent of quota per review.
- Capacity to repay and Fund obligations (selected figures from Table 9):
  - Fund obligations based on existing credit (charges and interest): 7.6, 6.5, 6.5, 6.5, 6.5, 6.5, 6.5, 6.5, 6.5, 6.5, 6.5 (SDR, yearly sequence shown).
  - Outstanding Fund credit (in millions of SDR): 186.33, 302.13, 302.13, 302.13, 302.13, 302.13, 302.13, 302.13, 302.13, 302.13, 302.13, 277.7, 247.5, 217.3, 187.1, 156.8, 126.6, 96.4, 66.2, 36.0, 5.8, 0.0 (multi-year sequence).
  - In percent of quota (selected points): 92.5, 150.0, 150.0, 150.0, 150.0, 150.0, 150.0, 150.0, 150.0, 150.0, 150.0, 137.9, 122.9, 107.9, 92.9, 77.9, 62.9, 47.9, 32.9, 17.9, 2.9, 0.0.
  - Net use of Fund credit (in millions of SDR): 186.31, 115.8, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, -24.4, -30.2, -30.2, -30.2, -30.2, -30.2, -30.2, -30.2, -30.2, -30.2, -5.8.

### Recent macroeconomic developments and outlook
- Economic activity and drivers:
  - "Economic activity continues to be robust in 2024. Consumption is a strong driving force while investment is picking up."
  - Exports "are leveling off after post drought recovery."
  - Agricultural sector growth "is leveling off."
  - Unemployment rate "on a declining trend", employment "below its pre-pandemic level."
- Staff projections and selected growth metrics (Table 2, annual percent changes or levels as reported):
  - Real GDP (annual): 2019: -0.4; 2020: -0.8; 2021: 4.0; 2022: 0.2; 2023: 4.7; 2024 (Proj.): 4.0; 2025 (Proj.): 3.8; 2026–2029 (Proj.): 3.8, 3.8, 3.5, 3.5.
  - Consumer prices (end of period): 2019: 2.8; 2020: 2.2; 2021: 6.8; 2022: 8.1; 2023: 3.7; 2024–2029 (Proj.): 4.0 each year.
  - Per capita GDP (US$ thousands): 2019: 5.9; 2020: 5.4; 2021: 6.0; 2022: 6.2; 2023: 6.3; 2024 (Proj.): 6.4; 2025 (Proj.): 5.9; 2026–2029 (Proj.): 6.6, 6.0, 7.1, 7.4.
  - Unemployment rate (2023): 5.9 (from Table 2 header).

### Fiscal developments and public finances
- Fiscal objectives:
  - "Paraguay aims to reach the FRL ceiling by 2026."
- 2023 and 2024 fiscal context:
  - 2023 deficit affected greatly by the settling of previously unrecorded claims.
  - Revenues and expenditures (Table 3b, percent of GDP):
    - Revenues (2023): 14.0 percent of GDP; Proj. 2024: 15.2; Proj. 2025: 14.6.
    - Expenditures (2023): 18.1 percent of GDP; Proj. 2024: 17.8; Proj. 2025: 17.2.
    - Net lending/borrowing (overall balance): 2019: -2.8; 2020: -6.1; 2021: -3.6; 2022: -2.7; 2023: -4.1; 2024 (Proj.): -2.6; 2025 (Proj.): -2.6; 2026–2029 (Proj.): -1.9, -1.9, -1.5, -1.5.
    - Primary balance (percent of GDP): 2019: -2.0; 2020: -5.1; 2021: -2.5; 2022: -1.4; 2023: -2.4; 2024 (Proj.): -0.5; 2025 (Proj.): -0.6; 2026–2029 (Proj.): 0.1, 0.1, 0.4, 0.5.
  - Public sector gross debt (percent of GDP): 2019: 20.8; 2020: 31.0; 2021: 31.5; 2022: 34.3; 2023: 34.9; 2024 (Proj.): 38.2; 2025 (Proj.): 36.8; 2026–2029 (Proj.): 36.2, 36.6, 35.9, 34.9.
- Central government operations (Table 3a, selected levels in billions of Guaranies):
  - Revenue 2023: 43,942; Proj. 2024: 50,424; Proj. 2025: 48,661.
  - Expenditure 2023: 56,770; Proj. 2024: 59,032; Proj. 2025: 57,303.
  - Net Lending/Borrowing (Overall Balance) 2023: -12,828; Proj. 2024: -8,608; Proj. 2025: -8,642.

### External sector and external financing
- Current account and trade (Table 4 and Table 7):
  - Current account balance (USD millions): 2019: -216; 2020: 669; 2021: -347; 2022: -2,993; 2023: 110; 2024 (Prel.): -1,328; 2025 (Proj.): -1,250.
  - Exports of goods and services (percent of GDP, Table 4 memorandum): 37.8, 34.8, 37.1, 35.7, 43.6, 40.9, 44.0, 40.4, 38.8, 38.0, 37.5, 36.5 (multi-year sequence).
  - Goods exports (USD millions, selected): Credit 2023: 16,256; Hydrolectricity 2023: 1,549; Agricultural products 2023: 7,955.
- Gross international reserves and financing needs (Table 7 and Table 4):
  - Gross international reserves (USD millions, Table 7 memorandum): 2021: 9,657; 2022: 9,521; 2023: 9,893; 2024 (Prel.): 9,493; 2025 (Proj.): 9,793.
  - Gross external financing requirements (USD millions): 2021: 879; 2022: 3,524; 2023: 386; 2024 (Prel.): 1,800; 2025 (Proj.): 1,666.
  - Sources of financing (2024 prelim.): Direct investment (net) 458; Medium- and long-term debt disbursements 1,547 (public sector 1,300; official creditors 532; external sovereign bond financing 1,000; IMF: RSF financing 247); Change in gross international reserves -372.
  - Gross international reserves (excl'g RSF): 2021: 9,657; 2022: 9,521; 2023: 9,646; 2024 (Prel.): 9,246; 2025 (Proj.): 9,393.

### Monetary and inflation developments
- Monetary policy and inflation:
  - "The economy was operating close to the potential in 2023."
  - "Inflation receded rapidly and is now well within the band," driven by "significantly lower food and fuel prices," allowing the BCP to hold the policy rate.
  - Monetary policy rate, year-end (Table 2): 2019: 4.0; 2020: 0.8; 2021: 5.3; 2022: 8.5; 2023: 6.8.
  - Credit to private sector (percent of GDP, Table 2): 2019: 9.9; 2020: 7.7; 2021: 10.0; 2022: 11.6; 2023: 10.1; 2024 (Proj.): 15.4; 2025 (Proj.): 9.2; later years shown declining to 7.9 by 2029.
- Central Bank balance sheet (Table 5, selected end-period levels in billions of Guaranies):
  - Currency issued (end-period): 2019: 14,349; 2020: 17,113; 2021: 18,070; 2022: 18,526; 2023: 19,549; 2024 (Proj.): 20,832.
  - Net International Reserves (end-period): 2019: 47,669; 2020: 58,500; 2021: 63,123; 2022: 64,443; 2023: 67,339; 2024 (Proj.): 69,624.

### Financial sector and soundness
- Bank fundamentals (summary from Figure 5 and Table 8):
  - "Banks remain liquid and well-capitalized."
  - Bank profitability "has been on the rise since the pandemic."
  - After a sustained increase, both deposits and credit remained stable as a percent of GDP.
  - Lending rates started to come down following policy rate cuts; interest rate spread has remained stable.
  - Dollarization: "The level of dollarization of deposits and loans has been stable over the past decade."
- Financial soundness indicators (Table 8, selected ratios):
  - Regulatory capital/risk-weighted assets (percent): 2015: 16.1; 2016: 17.9; 2017: 18.3; 2018: 17.5; 2019: 17.2; 2020: 19.1; 2021: 18.8; 2022: 17.3; 2023: 16.4.
  - NPLs/total loans (percent): 2015: 2.6; 2016: 2.9; 2017: 2.8; 2018: 2.5; 2019: 2.6; 2020: 2.4; 2021: 2.3; 2022: 2.9; 2023: 3.0.
  - Return on assets (percent): 2015: 2.5; 2016: 2.2; 2017: 2.3; 2018: 2.3; 2019: 2.4; 2020: 1.7; 2021: 1.8; 2022: 2.0; 2023: 2.4.
  - FX loans/total loans (percent): 2015: 50.0; 2016: 48.1; 2017: 46.7; 2018: 47.2; 2019: 46.1; 2020: 42.2; 2021: 42.1; 2022: 45.9; 2023: 46.4.

### RSF timeline and reform measures (Table 1 highlights)
- RSF timeline (selected milestones):
  - RSF Approval: Dec 2023.
  - RSF 1st Review: June 2024.
  - RSF 2nd Review: Dec 2024.
  - RSF 3rd Review: May 2025.
- Reform Measures (RMs) and status (selected):
  - Key Challenge 1 (Public investment resilience): RM1 met — MEF to amend and publish Decree 4436/20 to incorporate climate aspects at each stage of public investment project development.
  - Key Challenge 2 (Financial resources for adaptation/mitigation): RM2 met — MEF and BCP to publish a green taxonomy aligned with Paraguay’s NDC.
  - Key Challenge 3 (Financial sector vulnerability): RM3 — BCP to establish reporting requirements and a data repository for material climate-related exposures of banks; adopt framework to monitor/assess climate-related financial risks; issue supervisory guidelines.
  - RM4 (regulation of non-conventional renewable energy law 6977/2023): In progress — MOPC and VMME to enact regulation including specification/rationalization of economic incentives and technical aspects for connection and licensing.
  - RM5 (ANDE external audit and international benchmarks study): Delayed — "Delays in the implementation of RM5, and RM10 are justified by circumstances outside of the authorities’ control (global supply chain disruptions, time needed to secure an international auditor) and prudence in completing the commitment (in the context of a broad reform of public transportation)."
  - RM6 (ANDE tariff methodologies): Linked to RM5 results; met/in progress depending on RM5 completion.
  - RM7: Met — energy efficiency standards for three appliances established by decree in line with ISO benchmarks.
  - RM8: Met — plan for ANDE loss reduction with quantitative targets, installation of 20,000 smart meters, progressive implementation of hourly/dynamic tariffs, and increase in inspections against electricity theft by 10 percent above same period in 2023.
  - RM9: In progress — MEF (with DNIT) to adopt explicit carbon tax replacing existing excise taxes on liquid fuels.
  - RM10: Delayed — Electromobility Law 6925/2023 regulation and fiscal incentives, charging infrastructure, and targets for electric public transportation in Asuncion.
  - RM11–RM13: Measures related to biomass registry, forest protection, and plastic reutilization/recycling are marked Met or progressing as specified in Table 1.

### Key social and structural indicators (Table 2 highlights)
- Population 2023: 6.9 (millions).
- Gini index (2022): 45.1.
- Life expectancy at birth (2021): 70 (female: 7.1; male: 4.6) [as presented].
- Adult literacy rate (2020): 94.5.
- Percentage of population below the poverty line (2022): 24.7 (of which, female: 94.2; male: 94.9) [as presented].
- Rank in UNDP development index (2022): 102 of 193.
- GDP per capita (US$, 2023): 6,316.

*Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1pryea2024004-print-pdf.pdf*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### External Risks
- Intensification of regional conflicts (High / ST)
  - Expected impact: High. "Markets of grains and meat might see unexpected volatility. In addition, the war affected the availability and prices of imported fertilizers, key for soy production."
  - Recommended response: "The government should continue facilitating access to alternative meat and fertilizer markets."
- Deepening geoeconomic fragmentation (High / ST)
  - Expected impact: High. "Markets of grains and meat might see unexpected volatility. In addition, fragmentation affects the availability and prices of imported goods which are inputs for exports."
  - Recommended response: "The government should continue facilitating access to alternative meat and fertilizer markets."
- Commodity price volatility (High / ST)
  - Expected impact: High. "Higher commodity prices would benefit fiscal revenues and trade balance, but supply disruptions could lead to production stoppages."
  - Recommended response: "Monetary policy should be calibrated to face scenarios with lower growth and volatile prices."
- Slowdown in major economies (Medium / ST)
  - Expected impact: Medium. "Global financial tightening, possibly combined with volatile commodity prices, could lead to spiking risk premia, widening external imbalances, and fiscal pressures. It may dampen external demand, foreign inflows, and border trades."
  - Recommended response: "Monetary policy should balance the impact of lower activity with volatile prices."

### Monetary and Financial Risks
- Monetary policy calibration by major central banks (Medium / ST)
  - Expected impact: Medium.
  - Recommended response: "The government should continue to implement a successful data-driven inflation-targeting framework and continue to allow the exchange rate to work as an important shock absorber."
- Systemic financial instability (Medium / ST)
  - Expected impact: Medium. "Adverse financial conditions may increase insolvencies in weak banks or non-bank financial institutions, causing market dislocations."
  - Recommended response: "The government should continue enhancing financial system supervision and the AML/CFT framework. Monetary policy should continue to allow the exchange rate to work as an important shock absorber."
- Social discontent (High / ST, MT)
  - Expected impact: Medium. "Social unrest may exacerbate imbalances, slow growth, and trigger market repricing."
  - Recommended response: "Social policies need to continue supporting the most vulnerable population. Governance and anti-corruption reforms need to move forward to strengthen the transparency of public sector operations."
- Climate change (Medium / ST)
  - Expected impact: High. "This may amplify supply chain disruptions and inflationary pressures, causing water and food shortages and reducing growth. Exchange rate depreciation would serve as a short-term buffer."
  - Recommended response: "In the medium term, reducing export concentration, diversifying the mix of clean power generation, and facilitating adaptation in agriculture would be important."

### Domestic Risks
- Weather-related shocks (Medium to High / ST)
  - Expected impact: "Medium to High. Shocks to the agriculture sector and construction affect GDP growth, export performance and exchange rate, and the financial sector due to banks' agricultural lending. Shocks to the energy sector would lessen government revenue. The exchange rate could absorb some of the shocks."
- Fiscal sustainability (Medium / ST, MT)
  - Expected impact: "Medium to High. Fiscal stability is the cornerstone of macroeconomic stability in Paraguay, thus deviating from the path longer than planned could significantly impact investor confidence, raise financing costs, and affect growth performance."
  - Recommended response: "The government needs to strengthen its ability to raise revenues and control expenditure. There is a need for reforming civil services, public procurement processes, and address serious pension system imbalances."

### Program Statement — Key Economic Developments and Outlook (December 2024–November 2025)
- Growth and inflation
  - "Growth of 4 percent is expected in 2024, driven mainly by strong domestic demand."
  - "Inflation is expected to remain around 4 percent."
  - "The monetary policy rate has remained at 6 percent since March 2024."
- Fiscal stance and debt
  - "By the end of 2024, the annualized budget deficit of the Central Government is projected to be 2.6 percent of GDP."
  - Fiscal convergence plan: "foresees a gradual reduction of the deficit to 1.5 percent of GDP in 2026."
- External sector
  - "The current account balance is expected to register a deficit of about 3 percent of GDP."
  - "Net international reserves have remained above 6 months of import coverage."
- Risks and upside factors
  - Downside risks: "reduction in external demand," "unpredictability of oil prices," "adverse weather conditions and geopolitical unrest."
  - Upside: "domestic activity has been very strong, supported by low inflation and benign borrowing conditions. Higher investment is expected in the medium term thanks to the fact that investment grade has been reached."

### Strategic Objectives under the PCI — Pillar I: Ensuring Macroeconomic Stability and Resilience
- Fiscal policies and consolidation
  - 2025 budget: "authorizes a deficit of up to 1.9 percent of GDP for the central administration."
  - Trajectory: "towards the maximum ceiling of the fiscal rule of 1.5 percent of GDP for 2026."
- Public expenditure and investment management
  - SIGEBYS/SIARE progress: implementation of the submodule of the Goods and Services Management System (SIGEBYS) "reform target by December 2024" and integration of public works expenditures into SIABYS targeted for completion "in the first half of 2025."
  - Public investment monitoring: prepare and publish a procedural guide and "start applying it to a selection of pilot investment projects by June 2025 (reform target by June 2025)."
- Tax administration and tax policy
  - Completed: "A study on tax expenditures focused on VAT was completed."
  - Ongoing: review of special tax regimes (free zones, maquila regime, Law 60/90) "reform target by June 2024."
  - DNIT measures: create the Risk Management Committee (reform target by June 2025) and develop a risk-based compliance improvement plan to address at least one key risk to customs collection (reform target by October 2025).
- Reform of the Public Sector Retirement System (Caja Fiscal)
  - Noted as an area requiring reform to support fiscal sustainability.

*Annex I. Risk Assessment Matrix*

### 10.      Work is under way to ensure the sustainability of the public sector retirement and

### 10.      Work is under way to ensure the sustainability of the public sector retirement and pension system.

### Public sector retirement and pension system
- Work is focused on finalizing the actuarial study with the aim of reviewing and designing the parameters for a legislative proposal that establishes comprehensive RMs, aimed at ensuring the sustainability of the Public Sector Retirement and Pension System ("Caja Fiscal").

### Monetary and Exchange Rate Policies
- Inflation and monetary policy
  - Inflation has been fully under control and remains within the inflation consultation band.
  - Proactive management of the monetary policy rate proved crucial to mitigate inflationary pressures.
  - Current inflation and medium-term inflation expectations remain in line with our 4 percent target.
  - Commitment to closely monitor economic indicators to maintain price stability and ensure inflation remains within the desired range.
- Exchange rate framework
  - The flexible exchange rate system has underpinned Paraguay's macroeconomic stability.
  - Currency is vulnerable to both real and financial shocks.
  - Foreign exchange market interventions focus on moderating sharp fluctuations that do not respond to economic fundamentals, while preserving flexibility in the inflation targeting framework.
  - Full transparency on interventions is provided through relevant information on the BCP website.

### Pillar II: Improving Productivity and Fostering Economic Growth — Strengthening the Business Climate
- Bankruptcy and collateral reforms
  - Ongoing task of reforming the legal framework for bankruptcies.
  - Complementary reforms include the law on simplified procedures (already approved) and the law on movable collateral (currently under consideration by Congress).
  - A revised and improved draft law will be submitted to Congress by October 2025 (reform target revised date by October 2025).
- Public-Private Partnerships Act
  - Preparing a significant revision to make the law more attractive to the private sector.
  - A version of the draft law agreed with the private sector, the MOPC, and specialized legal firms was sent to the IMF in June.
  - IMF organized a legal mission from July 22 to August 2; key recommendations were incorporated.
  - IDB comments received in August were evaluated and incorporated.
  - The draft was sent to Congress on November 6.
  - Objective: strengthen private sector confidence and accelerate implementation of essential projects.
- General Directorate of the National Cadaster regulatory reform
  - Proposal to review at least 30 percent of the regulatory standards in force in the Directorate that depend on the General Management and are the responsibility of the MEF (reform target by March 2025).
  - Renew technological infrastructure to reduce processing time of all institutional processes by at least 20 percent to meet established deadlines.
  - Improvements will support the functioning of the new National Unified Registry (RUN); the law creating the RUN received preliminary approval in October 2024.

### Improving Governance and Reducing Corruption Vulnerabilities
- Harmonization of procurement standards for medicines
  - Commit to standardize and harmonize inconsistent definitions between the Ministry of Health and the Institute of Social Forecasting regarding the procurement of medicines.
  - Harmonization of standards for essential medicines expected to allay concerns regarding procurement costs (reform target for December 2024).
  - ENCC promotes implementation of the Health Information System (HIS) to efficiently administer pharmaceutical inventories.
  - Ministries of Health and Information and Communication Technologies commit to completing pilot programs at two public hospitals in the Asunción area by June 2025 (reform target for June 2025).
  - ENCC projects system implementation throughout the public health network for the beginning of 2026.
- Public accountability and illicit enrichment
  - The Office of the Comptroller General and the Ministry of Information and Communication Technologies will create an information-sharing system to verify consistency of information on the wealth of public officials to combat illicit enrichment (legal category to be in force in Paraguay in 2026).
  - A first pilot program of this information-sharing system will be launched in August 2025 to cross-check asset information of public officials (reform target for August 2025).
- AML/CFT framework
  - Considerable progress in finalizing the update of the National Risk Assessment; aim to publish it before the end of 2024 following Decree 2463 of September 2024 (reform target for June 2024).
  - Identifying and understanding AML/CFT risks is crucial to lay a foundation for financial and non-financial institutions to update risk assessment frameworks and models/matrices.
- BCP governance
  - BCP is reviewing the policy on the selection and engagement of external auditors; new version will include more rigorous technical criteria on experience and suitability in audits of central banks and establish the role of the Audit Committee in the selection process.
  - Introduce a strict regime of restrictions and incompatibilities regarding non-audit services that contracted external auditors may provide to the institution.
  - Commitment to evaluate technical solutions to improve the constitution of the BCP Audit Committee with IMF support.

### Pillar III: Improving Social Protection and Inclusion — Social Program Administration System
- SIPEN implementation
  - Implementing the Pension System (SIPEN) to harmonize administration of social programs.
  - Provided technological coverage to the Ministry of Social Development as the new authority for the application of the pension for the elderly, implementing SIPEN and giving predictability to more than 300,000 beneficiaries.
  - Continue progress to improve data cross-referencing with dependencies within the Ministry of Economy and Finance or other State Agencies.
  - Continue work with the Ministry of Children and Adolescents (MINNA) to include its programs (reform target by June 2024).

### Strengthening Social Inclusion
- National Care Policy
  - The Inter-Institutional Care Commission will approve the Action Plan for the National Care Policy before the end of the year (reform target by December 2024).
- Protection of women from violence
  - Under the ENCC, the Ministry of Women’s Affairs will implement a system for receiving complaints of violence against women and will establish a single registry of these complaints by March 2025 (reform target for March 2025).

### Formalization of Employment
- MSME law reform and financial products
  - Law No. 4457/12 "For Micro-, Small and Medium-sized Enterprises (MSMEs)" is under review to strengthen the sector and promote business formalization.
  - Proposed amendment seeks to simplify procedures, facilitate access to financing, and improve legal categorization of MSMEs.
  - Progress in creation of new financial products to guarantee credit operations for working capital and investment, and renegotiations or purchase of debts of MSMEs through the Development Finance Agency and the National Development Bank.
  - Development of similar financial products focused on MSMEs and independent workers in the agricultural sector is underway through the Development Finance Agency and the Agricultural Empowerment Credit.

### Building Climate Change Resilience
- Climate risks and vulnerabilities
  - Climate shocks expected to recur with greater frequency and intensity, including droughts and floods affecting agriculture; impacts on hydroelectric energy generation shared with Brazil and Argentina; and river navigability affecting international trade.
  - Recent drought-aggravated forest fires in the Chaco region highlighted forest risk.
- RSF adaptation and mitigation measures
  - Implementing adaptation and mitigation measures under the RSF to improve resilience and reinforce Paraguay’s position in production and export of clean and renewable energy.
  - Progress described across multiple reforms (details referenced in Table 4).

### Sustainable Management of Public Investment
- Public investment approach
  - Working towards public investment focused on economically and environmentally sustainable projects (RM1).
  - MEF received a C-PIMA mission at the end of 2023 and a second technical assistance mission in October on integrating climate-related aspects into project design, selection, and evaluation.
  - These missions informed revision of Decree 4436/20, with promulgation of the new Decree 2882 in November 2024 (reform measure).

### Resilient Financial Sector and Mobilizing Financial Resources for Climate Change
- Green Taxonomy (RM2)
  - MEF and the BCP, with IDB support and after technical roundtables and public consultations, published a Green Taxonomy aligned with Paraguay's Nationally Determined Contributions (NDCs) in November 2024 (reform measure).
  - Taxonomy provides eligibility criteria based on science and economic activities, addressing energy, construction, agriculture, livestock, and forestry in the first phase, with financial sector and public investment as cross-cutting sectors.
  - Timeline established for implementation and incorporation of remaining sectors in future editions.
- Climate-related financial risk assessment (RM3)
  - Superintendency of Banks working with the World Bank to include climate-related risks in the financial sector risk assessment framework to build banking sector capacity for climate-related stress tests.
  - BCP will adopt a climate-related financial risk monitoring and assessment framework for the banking sector, including reporting requirements and a data repository for significant climate-related financial risks.
  - BCP will issue supervisory guidelines by May 2025 for banks to incorporate climate-related risks into their risk management frameworks, along with timelines for adoption (reform measure).

### Policies for a Sustainable Energy Sector
- Non-conventional renewable energy (RM4)
  - MOPC, through the VMME, enacted regulation of Law 6977/2023 on non-conventional renewable energies by Decree 1168/2024 in February 2024 (reform measure).
  - Continued work with the World Bank on further modifications to facilitate preparation of specifications for the tender for the first photovoltaic power plant in the Chaco and other private investment projects.
- ANDE audit, cost study, and rate adjustment (RM5, RM6)
  - A renowned international firm selected to audit ANDE's financial statements for 2022 and 2023; IDB and consultants to prepare a study to establish ANDE’s costs by business segment.
  - Complexity of hiring process extended timeframe; audit and cost study estimated to conclude and be published in early 2025 (reform measure).
  - Using audit and study, ANDE will develop, publish, and gradually adopt specific and transparent methodologies to adjust electricity rates by May 2025 (reform measure), in consultation with the VMME and the National Council of State-Owned Enterprises.
  - Long-term governance reforms recommended: separation of generation, transmission, and distribution activities; establish a transmission system operator to set transparent transmission rates; enable ANDE to access capital markets without sovereign guarantee.
- Energy efficiency (RM7)
  - After private sector consultations, MOPC (through VMME) and MIC issued Decree 2853 in November 2024 creating the National Energy Efficiency Labeling Program and the gradual application of minimum energy performance standards on the three electrical appliances for domestic use with the highest consumption (reform measure).
  - National Energy Efficiency Committee to implement labeling program and identify appliances and coordinate technical regulations with a timeframe for effective implementation.
- Loss reduction and dynamic electricity rates (RM8)
  - ANDE to use price signals and progressive implementation of regulations on hourly rates in Regulations 49887 and 49888 of November 2024 to distribute demand and reduce maximum costs.
  - More than 20,000 smart meters installed to date (27,760 at the end of September 2024), concentrated among consumers representing a high percentage of ANDE's revenues.
  - ANDE increasing inspections by much more than 10 percent compared to 2023 to reduce electricity theft (18,356 at the end of September 2024).
  - Strengthened penalties against electricity theft including clandestine cryptomining; Executive Branch enacted Law 7.300 to protect the integrity of the electricity system, provide for seizure and confiscation of property associated with the punishable act and modify Article 173 of Law No. 1160/1997 of the Penal Code.
  - Law 7.300 increases expectation of imprisonment from 3 to 10 years and establishes seizure and confiscation of assets used for illicit activities.

_https://www.imf.org/-/media/files/publications/cr/2024/english/1pryea2024004-print-pdf.pdf_

### 33.      Carbon tax on liquid fuels (RM9). To tackle emissions from the transport sector, RM9 aims

### Carbon tax on liquid fuels (RM9). To tackle emissions from the transport sector, RM9 aims

### Carbon tax on liquid fuels (RM9)
- Objective: introduce an explicit carbon tax (changing the tax base from liters to carbon content, per ton of CO2 equivalent) on liquid fuels by May 2025 (reform measure).
- Design:
  - Establish a carbon tax equivalent to the level of current diesel taxes, which will also apply to gasoline and liquefied petroleum gas (LPG).
  - Selective taxes on the consumption of gasoline and LPG will be reduced so that the total effective tax rate imposed on each does not change.
- Governance and review:
  - The carbon tax rate will be reviewed and adjusted in accordance with the result of a technical analysis published by the MEF and BCP.
  - The technical analysis will be conducted periodically to assess changes in the tax, conditional on the state of macroeconomic variables and the initial carbon price when the policy was originally implemented.
  - The tax will be established in consultation with IMF staff, whose technical assistance we began receiving in November.

### Electrification of private and public transport (RM10)
- Activities and status:
  - Preparation of the decree that will regulate the Electromobility Law and that will restrict tax exemptions and fees to hybrid and electric vehicles (in progress).
  - Acquisition of 30 rapid charging units to be installed throughout the country as soon as they are delivered, to facilitate the use of electric vehicles.
  - Since May 2024, the Government, through the Vice Ministry of Transport (VMT) of the MOPC, has begun to work on a proposal for a comprehensive reform of public transport, materialized in the draft soon to be presented to Congress.
- Draft law scope:
  - Regulation of public transport in Asunción.
  - Development of regulations to define the operating model of incrementally electric public transport considering international experience and the technical work with which the VMT has already begun (reform measure).
- Implementation note:
  - To finalize the regulation of the Electromobility Law, acquire and install the charging units and incorporate observations collected in public consultations on the Comprehensive Public Transport Reform draft law — which will serve as a framework for the selection of the operational model and the development of regulations for electric public transport in the metropolitan area of Asunción along with objectives to increase the percentage of electric buses in this area — the implementation of this reform measure will be delayed.

### Forest conservation and methane emissions capture (RM11–RM13)
- Industrial biomass user registry and joint intervention protocols (RM11):
  - Implementation of Decree 1788, approved in May 2024, on the registration of industrial users of biomass is ongoing.
  - Prioritizing resources for the implementation of the platform that will be used for the implementation of the biomass certification process from 2026.
  - Regulate and formalize Article 4 of Decree 6797/2022 through an inter-institutional operating regulation for the procedure for the use of firewood from land use plans in the scheme of the National Biomass Program, used as a complement to certified biomass.
  - Implement joint intervention protocol for land use change based on the National Forestry Monitoring System established by Decree 1746 of May 2024 to ensure efficient joint work of INFONA, MADES, the National Police, and SENAD, with coordination with the Public Prosecutor's Office (reform measure).
  - Operational outcome: authorities' quick reaction to recent fires in the Chaco demonstrates these efforts have been worthwhile.
- Institutional reform to strengthen INFONA (RM12):
  - INFONA is implementing Decree 1745, approved in May, to strengthen its institutional and financial capacity.
  - Creation of the Directorate of the National Forestry Monitoring System (reform measure).
  - The new Directorate will contribute towards adoption of the measurement, reporting, and verification of emissions system in accordance with UNFCCC standards, including independent third-party verification, to increase transparency in emissions accounting and generate high-quality information on land use changes in Paraguay.
- Capture of methane emissions (RM13):
  - MIC enacted Resolution No. 1025 in October 2024 which regulates Law 7014/2022 (reform measure).
  - Regulations will establish a legal framework to support the implementation of the Circular Economy Packaging Roadmap, to facilitate reuse, recycling, and use of plastic packaging (polyethylene terephthalate), contribute to better waste management and contain methane emissions in line with the National Plan for the Integrated Management of Urban Solid Waste and NDCs.

### Program monitoring and timing
- Monitoring framework:
  - Quantitative targets, continuous targets, and reform targets will continue to be used to monitor progress in the implementation of policies in the context of this program.
  - Quantitative targets have been set for end-December 2024 and end-June 2025, along with targets to be monitored on an ongoing basis.
- Review schedule:
  - The fifth review is scheduled to be completed in May 2025, and the sixth in November 2025.
- Adjustments requested:
  - Requesting modification to end-December 2024 and end-June 2025 QTs ceilings on primary expenditure given larger than expected revenue would allow more expenditure while maintaining capital spending and the fiscal deficit.
- Relevant dates and numeric targets referenced in the program context:
  - Implementation of biomass certification platform from 2026.
  - Acquisition of 30 rapid charging units.
  - Decree 1788 approved in May 2024.
  - National Forestry Monitoring System established by Decree 1746 of May 2024.
  - INFONA implementing Decree 1745, approved in May.
  - MIC Resolution No. 1025 enacted in October 2024.
  - Law 7014/2022 referenced for circular economy packaging regulations.
  - Quantitative targets set for end-December 2024 and end-June 2025.
  - Fifth review completion: May 2025.
  - Sixth review completion: November 2025.

*Source: Excerpt from the Program Statement and Technical Memorandum of Understanding (Paraguay) contained in the provided IMF document.*

### 1.      Unless otherwise indicated, in this TMU “government” refers to the budgetary central

### 1pryea2024004-print-pdf - 1.      Unless otherwise indicated, in this TMU “government” refers to the budgetary central

### Definitions and scope
- “Government” refers to the budgetary central government of the Republic of Paraguay; it excludes the central bank, financial and non-financial state-owned enterprises, and governments at the departmental and municipal levels.
- “Public sector” refers to the government, local governments, and all entities owned, or majority controlled by the government.
- Obligated government expenditure is recorded on the basis of a payment order accepted by the Treasury, as well as those executed with external resources. (Footnote: Under the Paraguayan Treasury’s accounting system, obligated expenditure differs from accrued expenditure in that future payment is assured under the Treasury’s cash flow plan. The recording of this expense is somewhere in between the accrual basis and cash basis.)

### B. PCI Program Targets — Cap on the Central Government Fiscal Deficit (program definition) and reporting
- Definition of overall fiscal balance (net lending/borrowing): difference between total government revenues and total government outlays (total obligated expenditure (gasto total obligado) plus net acquisition of nonfinancial assets); broadly consistent with GFSM 2001.
- Reporting requirements:
  - Authorities will report to IMF staff, on a monthly basis, provisional data on the overall fiscal balance (program definition) and its components, with a lag of no more than 30 days after the end of the month.
  - Revenue and expenditure data used will be drawn mainly from preliminary Treasury account balances.
  - Final data will be transmitted as soon as final Treasury account balances are available, but no more than two months after reporting the provisional data.

### Cap on Central Government Primary Current Expenditure (program definition)
- Definition:
  - Primary current expenditure includes (i) compensation of employees; (ii) expenditures for the use of goods and services; (iii) subsidies; (iv) current grants to foreign governments, international organizations, and other general government units; (v) social benefits; (vi) and other current expenditures.
  - Equivalently: total obligated expenditure less interest expense, less grants and other capital expenditures.
  - The quantitative target is set as a ceiling to the primary current expenditure accumulated since the beginning of the year.
- Reporting requirements:
  - Authorities will report to IMF staff, on a monthly basis, provisional data on central government primary current expenditure (program definition) and its components, with a lag of no more than 30 days after the end of the month.

### Cap on Net Incurrence of Central Government Floating Debt (program definition)
- Definition:
  - Domestic arrears are defined as floating debt = difference between the expenditure recorded on an obligated basis and the amounts transferred for payment by the Treasury (based on SICO and SITE).
  - Change in stock of floating debt recorded in SITUFIN as the balance of net changes in floating debt attributable to the current budget year and the change in floating debt attributable to the previous year (repayment).
  - Quantitative target: total floating debt is capped at its cumulative net change since the beginning of the year.
- Reporting requirements:
  - Data recorded on a monthly basis will be provided to the Fund with a lag of no more than 30 days after the close of each month.

### Cap on Accumulation of Arrears on Foreign Debt Payments by the Central Government
- Definition:
  - External debt service arrears = overdue debt service arising from obligations contracted directly or guaranteed by the central government, except for debt subject to rescheduling or restructuring.
  - Program requires that no new external arrears accumulate at any time under the arrangement.
- Reporting requirements:
  - Reports of external arrears by creditor (if any), with detailed explanations, are to be transmitted monthly, within 30 days after the close of each month.

### Inflation consultation band (linked to Central Bank of Paraguay projections)
- Definition:
  - Inflation = 12-month change in the consumer price index (CPI) at the end of the period, base index (December 2017=100), published by the Central Bank of Paraguay. When the official press release differs from the index calculation, the index calculation will be used.
- Reporting requirements:
  - Inflation reports and their components must be transmitted monthly, within two weeks after the close of each month.
- Noncompliance:
  - Failure to comply with the inflation consultation band limits (specified in the Program Statement, Table 1a) at the end of a six-month period would trigger discussions with IMF staff and a consultation with the IMF Executive Board.

### Social assistance benefits (memorandum item)
- Definition:
  - Follow GFSM 2001 classification; defined as the Social Assistance Benefits subcomponent of the Social Benefits account of central government expenditure accounts in SITUFIN.
  - Not part of formal program conditionality, but execution outcome must be reported for comparison with original projection (memorandum item).
- Reporting requirements:
  - Reports on social assistance benefits and their components must be transmitted monthly, within 30 days after the close of each month.

### C. Additional information for PCI monitoring — reporting requirements and timelines
- Authorities will transmit to IMF staff, if possible in electronic format, within specified deadlines:
  - Within three days after adoption: any decree, decision, circular, edict, supplementary appropriation order, ordinance, or law with economic or financial implications for the current program (including acts modifying budgetary allocations, creating new agencies or funds).
  - Within a maximum period of 30 days (except where indicated):
    - Tax receipts and tax and customs payments by item, accompanied by corresponding receipts on a monthly basis.
    - Monthly amount of expenditures committed, certified, or for which payment orders have been issued.
    - Four-monthly report by DGIP (based on SNIP) on investment projects, with progress and execution.
    - Complete monthly picture of the financial situation of the central government based on Treasury accounts (SITUFIN), including breakdown of tax revenues by type of tax.
    - Monthly statistical report of public debt included in DMFAS, by creditor category, separating debt service into amortization and interest payments, providing this information no later than six weeks after the close of the month.
    - Quarterly update of projected public debt service, separating amortization and interest payments by creditor category (domestic debt: loans, treasury bonds, and others (if any); external debt: multilateral, bilateral, treasury bonds, and others (if any)).
    - Monthly report on the price structure of fuel products, including an estimate of subsidies involved, if any.
  - Final data to be provided as soon as final balances of the Treasury accounts are available, but no later than one month after the communication of the provisional data.
- Central Bank of Paraguay reporting to IMF staff:
  - Central bank’s monthly balance sheet, with a maximum lag of one month.
  - Monthly consolidated balance sheet of the banks, with a maximum lag of two months.
  - Depository corporations’ outlook (consolidated monetary outlook), quarterly, with a maximum lag of two months.
  - Commercial banks’ lending and deposit interest rates, on a monthly basis.
  - Prudential supervision and financial soundness indicators of banking financial institutions, on a quarterly basis, with a maximum delay of two months.

### D. RSF Program Reform Measures — timelines, transparency, and specific measures
- General:
  - For all reform measures (RMs), government authorities will share relevant material at least three months prior to the program reviews so the IMF can comment on progress.
  - Content of measures will be in line with technical recommendations of IMF staff, including technical assistance from the IMF or the World Bank, as appropriate.

- RM5 (ANDE audit and technical study):
  - Audit should cover and verify ANDE’s costs, revenues, and administrative and capital expenditures, following standard international accounting practices.
  - Technical study to cover all costs by business segment: generation, transmission, distribution, and marketing; provide comparators and determine cost efficiency by segment for use in rate adjustment mechanism.
  - Results of the audit and technical study will be made public when delivered by the reputable international firm.

- RM6 (rate adjustment regulation):
  - Regulation should include clear mandate, timelines, and principles to guide rate adjustments, ensuring transparency.
  - Regulation should specify:
    - Responsible entity: lead agency to head development and implementation and resolve impasses.
    - Public availability of inputs: methodology should use public and verifiable information to establish rate tiers considering operating costs, financial costs of projected capital expenditure needs, and efficiency gains.
    - Frequency of adjustment: quarterly, semi-annual, or annual.
    - Smoothing mechanism parameters (e.g., moving average) to reduce impact of cost volatility on final consumers.
    - Cost efficiency: methodology should compare ANDE’s performance with comparators (state-owned enterprises with clean hydroelectric generation) across transmission and distribution losses and administrative costs, and determine cost recovery rates.
    - Methodology should specify loss reduction trajectory in accordance with RM8, to be considered as part of cost structure recoverable through the rate (e.g., recognize current transmission losses in 2024 and gradually reduce them until ANDE reaches cost efficiency by line of business in a specific time period).
  - ANDE will share the preliminary methodology with the IMF at least 3 months prior to the program review.
  - Once methodology is in place, ANDE will establish a plan for gradual increase in rates to match methodology results in consultation with the Vice Ministry of Mines and Energy and the National Council of State-Owned Enterprises.

- RM7 (efficiency standards for household appliances):
  - Focus on three household appliances; UNEP recommends prioritizing residential refrigerators, air conditioners, and industrial electric motors for energy saving potential.
  - Efficiency standards to be established through a participatory approach including the National Institute of Technology, Standardization, and Metrology, producers, importers, and retailers, and in line with ISO best practices.

- RM8 (smart meters and inspections):
  - Installation and activation of at least 20,000 smart meters before October 1, 2023, to reduce transmission and distribution losses and allow gradual introduction of hourly rates; prioritization of consumers who account for a high percentage of electricity sales and consumption.
  - By the same date, ANDE will begin the gradual introduction of hourly rates.
  - Cut-off date to evaluate the one-year increase in inspections: October 1, 2024.
  - ANDE will increase inspections by 10 percent over those carried out the previous year to reduce electricity theft.
  - ANDE reported that in 2022 it carried out around 16,000 inspections; the target of this reform measure is 13,200 inspections before October 1, 2024, with the aim of reaching 17,600 inspections in 2024.

- RM9 (carbon tax):
  - Carbon tax replaces current selective taxes on fuel consumption and will be set at a rate equivalent in local currency to 250,000 Guaraníes per ton of CO2.
  - Carbon tax will apply to diesel, gasoline, and LPG.
  - Carbon tax rate in local currency will be reviewed periodically, considering a technical report published each year by the MEF and BCP and taking into account trends in the CPI, fuel prices, and the exchange rate as basis for revision.
  - Draft of the respective decree will be shared with the IMF in advance.

### World Bank assessment update for the RSF — key findings and government actions (excerpt)
- A. Country vulnerability to climate change (human, social, economic costs):
  - Paraguay is landlocked and relies heavily on the Paraguay and Paraná rivers, which carry 80 percent of its trade.
  - In 2024, historically low river levels in certain segments led barges to reduce loads and higher transportation costs.
  - Low river levels suppressed electricity generation from Itaípú and Yacyreta, reducing electricity exports by half over January to September 2024 compared to the same period last year.
  - Electricity exports account for about 7 percent of total value added, 15 percent of direct exports and 7 percent of central government revenues.
  - La Niña is a downside risk as it tends to bring below-average rainfall to South America.
  - Dry conditions and illegal activity prompted wildfires; INFONA reported active wildfires from June to September exceeded the 2019-2023 average.
  - Semi-arid Western region (Chaco Paraguayo), experiencing drought for a third consecutive year, saw over 180,000 ha of native forests burned, including part of Cerro Chovoreca national park.
  - World Bank Paraguay Poverty Assessment: drought shocks tend to lead to short-term increases in rural and urban poverty by 2.4 and 1.8 percentage points, respectively (Janz et al., 2024, cited in Rubiano et al., 2024).
  - Background studies indicate mortality associated with fire smoke could increase by 3,500 annual deaths by 2100 (Borchers-Arriagada, et al., 2024).

- B. Government policies and commitments — adaptation:
  - Joint Paraguayan-Argentine Commission of the Paraná River (COMIP) coordinating dredging and other actions to address low waterway levels.
  - Paraguay Ministry of Public Works and Communications (MOPIC) launched a national public tender for emergency maintenance dredging of the river over the next two years.
  - Secretariat of National Emergency transporting potable water to vulnerable communities.
  - ESSAP began efforts to repair a US$130 million aqueduct in the Chaco that has been defunct since 2022.

- C. Government policies and commitments — mitigation:
  - In October 2024, MADES launched a National Strategy for Short-lived Climate Pollutants financed by the Green Climate Fund; includes establishing an inventory and priority sectors (transport and waste).
  - MADES reported its Fourth National Communication with a national GHG inventory until 2019 and is preparing its first biennial transparency report (BTR); BTR to be finalized in December 2024.
  - SENACSA drafting a decree to implement Law 7221/2023 establishing a national traceability system for livestock.
  - Ministry of Industry and Commerce and MADES advancing a national platform to improve traceability of exports.
  - MADES preparing regulations for its Carbon Credits law approved in 2023.

- D. Other challenges and opportunities:
  - No notable updates since the publication of the updated assessment letter in May.

- E. World Bank engagement:
  - World Bank support requested for: scaling up commercial forestry and improving land administration; a budget support loan with a climate focus; technical assistance to the Ministry of Social Development on social protection strategy for adaptation and risk management focused on the poor and vulnerable in high-risk areas.
  - Technical assistance provided on updates to guide for incorporating environmental criteria into public investment project selection (linked to RM1).
  - IFC finalizing a Country Private Sector Diagnostic (CPSD) identifying barriers to private investment in renewable energy, forestry, sustainable agriculture, and light manufacturing.

*Source: 1pryea2024004-print-pdf - 1.      Unless otherwise indicated, in this TMU “government” refers to the budgetary central*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1pryea2024004-print-pdf.pdf_