## 1pryea2025001-print-pdf ## Source details **Canonical URL:** [1pryea2025001-print-pdf](https://www.imf.org/-/media/files/publications/cr/2025/english/1pryea2025001-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1pryea2025001-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1pryea2025001-print-pdf.pdf.json) --- ### Executive summary — context, program, and implementation - Economic context and macro stance: - Economic activity remains robust; inflation is within the central bank’s tolerance range; public debt and the external position are sustainable. - Outlook favorable but subject to elevated global risks and vulnerable to adverse weather shocks. - Authorities reaffirmed commitment to the fiscal consolidation plan. - Paraguay’s sovereign debt trades with one of the lowest risk spreads in the region. - PCI and RSF implementation (selected outcomes and requests): - All end-December 2024 PCI quantitative targets (QTs): met. - PCI Reform Targets (RTs) assessed in the review: - 2 RTs met. - 2 RTs not met but 1 implemented with delay. - 1 RT not met and proposed to be reset. - 1 June 2025 RT completed ahead of time. - RSF Reform Measures (RMs) progress: - Significant advances on remaining RMs; RM3 completed in this review. - RM5, RM6, RM9, RM10 expected for next review. - Specific developments: independent cost study for ANDE finalized and external audit well advanced (RM5); draft law for explicit carbon tax prepared and under technical evaluation (RM9); charging stations for electrical buses received; first buses delivered; white paper being developed (RM10). - Authorities requested modifications and extensions: - Modification of one June-2025 QT. - Resetting of two RTs. - Rephasing of four RMs. - Extension of the PCI and RSF arrangements through February 2026. - Based on past completion of six selected RMs, requested disbursement of 72.5 percent of quota, or SDR 146 million. ### Recent economic developments — key indicators and statistics - Growth and activity: - Real GDP growth: 2024: 4.2 percent. - Economic activity excluding agricultural production and electricity: grew 5.6 percent in 2024. - Monthly economic indicator: grew 5.5 percent year-on-year through March 2025. - Projection: Real GDP growth projected at 3.8 percent in 2025. - Labor market: - Unemployment rate: 4.6 percent at end-2024. - Inflation and expectations: - 12-month headline inflation as of end-December 2024: 3.8 percent. - Core inflation (excluding fruits and vegetables) end-December 2024: 4.5 percent. - Central Bank adjusted headline inflation target to 3.5 percent in December; horizon 18–24 months. - Headline year-on-year inflation in May 2025: 3.6 percent. - Services year-on-year inflation as of May 2025: 3.8 percent. - 24-month-ahead inflation expectations remain well anchored around the new inflation target. - External sector: - Current account deficit: 2024: 3.7 percent of GDP (from 0.4 percent in 2023). - Guaraní depreciation: 7.6 percent vis-à-vis the U.S. dollar by end-December 2024 (year-on-year, nominal). - REER appreciated 0.4 percent in 2024. - Foreign reserves assessed as adequate under IMF metrics; gross international reserves (US$ billion): 2022: 9.5; 2023: 9.9; 2024: 9.6; 2025: 9.8; projections to 2030: 11.3. - Fiscal sector: - Fiscal deficit 2024: 2.6 percent of GDP (down from 4.1 percent in 2023). - Tax revenue grew about 20 percent year-on-year; tax-to-GDP ratio: 11.4 percent (from 10.1 percent in 2023). - Current primary expenditures grew about 11 percent year-on-year. - Public debt 2024: 44.8 percent of GDP (increasing by around 4 percentage points of GDP in 2024). - Financial sector: - Liquid assets: 24.6 percent of total liabilities by March 2025. - Capital adequacy ratios: 17.8 percent and 12.5 percent. - ROA: 2.2 percent; ROE: 18.6 percent. - Total bank credit increased 17 percent year-on-year as of March 2025; consumer credit increased 20 percent year-on-year as of March 2025. - Nonperforming-to-total loans ratio: 2.3 percent (total) and 4.7 percent (consumer) in March 2025, down from 3 percent and 6 percent year-on-year, respectively. ### Performance under the arrangements — targets and reform status - Quantitative Targets (end-December 2024): all QTs met, including ceilings on the central government fiscal deficit, current primary expenditure, net incurrence of floating debt, continuous target on external debt payment arrears, and inflation (within consultation band). Memorandum item: Social assistance benefits met. - Selected PCI RTs met by December 2024: - Extension of SIGEBYS submodule of SIARE to all entities for goods expenditure stages. - Development of SIGEBYS for services for pilot entities. - Standardization of technical specifications for the List of Essential Medicines and the vade mecum of IOS. - RTs not met or reset: - Partial review of cadastral regulatory standards (March 2025): not met. - Action Plan for the National Care Policy (PNCUPA) approved by Interinstitutional Care Commission (December 2024): not met by deadline but policy approved in April (implementation delay). - System for recording cases of violence against women and single registry (March 2025): not met; proposed reset to September 2025. - Procedures’ manual for the National Directorate for Public Investment: proposed reset from June 2025 to September 2025. - RSF RMs status (selected): - RM3: met. - RM5: independent cost study for ANDE finalized; external audit well advanced. - RM6: tariff adaptation methodologies advancing in parallel with RM5. - RM9: draft law for explicit carbon tax prepared, under technical evaluation. - RM10: evaluating fiscal incentive adjustments for electric vehicles; charging stations and bus deliveries progressing. - RSF financing and requests: - RSF amounts to SDR 302.1 million or 150 percent of quota. - Based on completion of RM4, RM7, RM8, RM11, RM12 and RM13, authorities requested disbursement of 72.5 percent of quota, or SDR 146 million, upon completion of this review. - Authorities requested rephasing of RMs 5, 6, 9, and 10 to November 1, 2025; expected IMF Executive Board date in December 2025; actual disbursements expected in early 2026. ### Outlook, projections, and risks - Central projections (selected, preserved exactly where provided): - Real GDP growth (annual): 2022: 0.2; 2023: 5.0; 2024: 4.2; 2025: 3.8; 2026–2030: 3.5 (each year 2026–2030 listed as 3.5). - Consumer prices (end of period; percent): 2022: 8.1; 2023: 3.7; 2024: 3.8; 2025: 3.7; 2026–2030: 3.5 (table indicates 2025: 3.7; 2026–2030: 3.5). - External current account (percent of GDP): 2022: -7.0; 2023: -0.4; 2024: -3.7; 2025: -2.4; 2026: -2.8; 2027: -2.1; 2028: -1.8; 2029: -1.4; 2030: -1.2. - Central government fiscal balance (percent of GDP): 2022: -2.7; 2023: -4.1; 2024: -2.6; 2025: -1.9; 2026–2030: -1.5 each year. - Public sector debt (percent of GDP): 2022: 40.5; 2023: 41.1; 2024: 44.8; 2025: 44.1; 2026: 43.0; 2027: 42.1; 2028: 41.2; 2029: 40.5; 2030: 39.9. - Risks (tilted to the downside; short list): - Global risks: escalation of global trade tensions, deceleration in global demand, commodity price fluctuations, slower FDI, tightening global financial conditions. - Domestic risks: extreme weather events affecting agriculture, transport, and hydroelectric power; financial situation of public pension system and health funds; contingent liabilities. - Upside possibilities: stronger-than-expected services and construction growth; larger/faster FDI inflows; expansion of export markets. - External shock example: - Additional tariffs (10 percent) on Paraguayan exports to the United States announced April 2 have limited direct effect given about 4 percent of total exports go to the U.S. market. ### Policy recommendations (program and staff appraisal) - Fiscal policy: - Stay the course on fiscal consolidation to mitigate external risks and policy uncertainty. - Strengthen tax administration and enhance efficiency of public spending to create space for priority social and infrastructure investments while meeting consolidation objectives. - Ensure long-term sustainability of the public pension system. - Monetary policy: - With inflation contained, monetary policy should continue to be data driven and geared toward facilitating convergence of inflation to the target. - Structural reforms and resilience: - Maintain momentum on reforms to reduce informality, enhance governance, combat corruption, and increase resilience to natural disasters. - Continue RSF-related reforms to build resilience to climate shocks, including electricity sector measures, carbon pricing, and electric public transport transitions. - Program implementation: - Proceed with agreed adjustments to PCI/RSF timelines and targets as requested, while ensuring completion of outstanding RTs and RMs to support disbursement and program objectives. ### Fiscal outlook, budget execution, and debt management (additional detail) - 2025 budget and execution: - Fiscal deficit budgeted at 1.9 percent of GDP (down from 2.6 percent of GDP in 2024). - Under fiscal convergence plan, fiscal deficit projected to decline to 1.5 percent of GDP in 2026 (Fiscal Responsibility Law limit). - Budget execution strategy: cautious within-year execution contingent on revenue; expenditure restraint while prioritizing health, education, security, and social protection; smoothing capital spending. - Performance through April 2025: cumulative tax revenue growing 10.5 percent year-on-year; primary expenditure growing 5.8 percent year-on-year. - Zero Hunger program: provides free meals at schools; 963,975 students benefiting as of April 2025 (target is more than one million students). - Debt, market access, and issuance: - Overall risk of sovereign stress assessed as low; debt sustainable. - Authorities aim to gradually reduce share of FX debt (currently around 85 percent). - Market operations: additional US$600 million placed in February 2025 following first global local-currency bond issuance in February 2024. - Note on prior placement: part of a US$1.2 billion placement—half in US dollars with a 30-year maturity and an interest rate of 6.65 percent, and the rest in Guaraníes at a 10-year maturity with a rate of 8.5 percent. ### Revenue mobilization, public financial management, and pensions - Revenue and tax administration: - Strategy: first exhaust efficiency gains in tax collection via improvements in tax administration. - With IADB and IMF support: implement a robust compliance risk management framework (Risk Management Committee RT October 2025) after institutional framework RT (June 2025). - If efficiency gains exhausted, consider review of tax regimes to meet social and infrastructure needs. - Expenditure efficiency and SIGEBYS: - SIGEBYS modules implemented for goods expenditures; remaining RT: procedural manual for monitoring and evaluation unit of National Directorate of Public Investment proposed to be reset from June 2025 to September 2025. - Pensions and social security: - Law No. 7446/24 enacted to strengthen IPS sustainability; includes direct transfers of employers’ contribution to the health fund and parametric reform of pension system for private sector employees. - Caja Fiscal spending increased by around 0.5 ppt of GDP over past 10 years to 1.5 percent of GDP in 2024. - Actuarial study finalized to inform parametric reform of Caja Fiscal; digital registration of pension fund participants progressed. ### Structural, governance, social, and inclusion reforms - Governance and anti-corruption: - Law 7389/24 enacted to establish National Regime for Integrity, Transparency, and Prevention of Corruption; National Anti-Corruption Council to be formed. - Health sector: standardized List of Essential Medicines and IPS vade mecum to contain fiscal costs. - Health Information System pilots in two public hospitals and over 900 public health facilities (June 2025 RT). - AML/CFT: - SEPRELAD capacity being enhanced; NRA delayed and should be accelerated; remaining actions include addressing technical deficiencies in AML Law 1015 and ensuring supervision of specific sectors. - Business climate: - Land registration: revised cadastral standards planned for approval by early 2025Q3 (March 2025 RT). - RUN law promulgated January 2025; RUN expected operational January 2026. - Insolvency Law work ongoing, target completion October 2025 (October 2025 RT). - Labor formalization and social programs: - Labor regularization campaign (July 2024–January 2025): formalized 27,875 workers and 9,372 productive units (47 percent increase in formalized workers vs same period one year earlier). - “Youth Employment” program launched May 1 to subsidize social security contributions for young employees for a year. - Informality remains high (around 70 percent). ### Building resilience, climate adaptation, and energy sector reforms - Green investment, taxonomy, and forestry: - MEF and BCP published a green taxonomy (RM2). - National Forest Policy and RSF RMs for forest conservation (RM11 and RM12) to foster sustainable forestry and attract investment. - Promulgation of regulation of the Carbon Credits Law in February 2025 to mobilize resources for forest protection. - Climate-related financial frameworks: - Superintendency of Banks working with World Bank to incorporate climate exposures into risk assessment. - Amendments to credit registry data collection published (Resolutions 22/2025, 23/2025, Circular 61/2025). - Framework to monitor and assess climate-related financial risks and supervisory guidelines completed in June 2025 (RM3). - ANDE sustainability and electricity policy: - IDB/regional firm prepared comparative cost study for ANDE; external audit for 2022 and 2023 well advanced (RM5). - Cost study and audit plus loss reduction plan (RM8) to support transparent electricity tariff methodologies (RM6). - ANDE loss reduction plan, smart meters, and other efficiency measures prioritized. - Carbon tax and transport electrification (RM9 and RM10): - Draft law for explicit carbon tax prepared; main design: change tax base from liters to carbon content per ton CO2 equivalent; carbon tax replacing selective taxes on diesel, gasoline, and LPG; carbon tax rate in local currency set at 250,000 Guaraníes per ton of CO2 in program definitions and to be periodically reviewed. - Electrification measures: 8 charging units for electric buses received; pilot program with 30 electric buses in Asunción metropolitan area; white paper being developed. ### External Sector Assessment — position, NIIP, and reserves - Overall assessment: - External position 2024: broadly in line with medium-term fundamentals and desirable policy settings. - 2024 current account deficit: 3.7 percent of GDP. - EBA-Lite CA model indicates CA gap of 0.3 percentage point in 2024. - NIIP worsened to -38 percent of GDP in 2024 from -35 percent in 2023. - External debt increased to 39.4 percent of GDP in 2024 from 35.9 percent in 2023. - Current account trajectory and drivers: - CA deficit expected to decline to 2.4 percent of GDP in 2025. - Imports associated with Atome and Paracel projects will impact CA from 2026–2028; exports from those projects improve CA afterwards. - CA averaged -2.2 percent of GDP per year for 2020–2024. - Foreign exchange intervention and reserves: - Gross international reserves: $9.6 billion at end-2024 (down from about $10 billion at end-2023). - Reserve coverage: declined slightly to 6 months of imports in 2024; projected at 6.1 months of imports in 2025. - BCP intervened to avoid excessive volatility in a shallow FX market and announced daily FX sales of at least USD 15 million starting March 27 (announcement on March 26); similar strategy announced October 2024. - Capital flows and financing: - Government Eurobond issuances and FDI are major inflow sources; total issuances since 2013 around US$9,400 million. - In February 2025, authorities issued US$600 million equivalent Guaraní-denominated Eurobonds and US$600 million USD-denominated ones. - FDI inflows about 0.9 percent of GDP in 2024; projected to rise to over 2 percent of GDP during 2026–2028. ### Debt sustainability, baseline projections, and stress diagnostics - Overall risk of sovereign stress: "Low"; staff assessment: debt sustainable; baseline: "Debt stabilization in the baseline". - Public debt (percent of GDP) — baseline path: - 2024: 44.8 - 2025: 44.1 - 2026: 43.0 - 2027: 42.1 - 2028: 41.2 - 2029: 40.5 - 2030: 39.9 - Continued gradual decline thereafter to 38.2 (2034) per projections. - Debt dynamics details (selected): - Change in public debt (percent of GDP): 3.6 (2024); -0.5 (2025); -0.8 (2026); -0.8 (2027). - Primary deficit (percent of GDP): 0.1 (2024); -0.7 (2025); -0.9 (2026). - Gross financing needs (GFN, percent of GDP): 3.1 (2024); 3.2 (2025); 2.4 (2026); 3.0 (2027). - Debt service (percent of GDP): 3.0 (2024); 3.9 (2025); 3.3 (2026). - Long-term risks: - Long-term risk assessed "Moderate" driven by demographics, pensions, health, and climate adaptation and mitigation costs. - Pension financing needs increases: 30 years: 0.2% (ppt of GDP per year); 50 years: 1.9%; Until 2100: 3.9%. - Climate adaptation scenarios envisage additional annual investment of about 1 percent of GDP in standardized scenario; customized scenario assumes 0.2 percent for next 10 years then defaults. - Policy priorities from debt analysis: - Maintain fiscal consolidation consistent with deficit ceiling of 1.5 percent of GDP by 2026. - Proactive debt management to preserve favorable repayment profile (e.g., buy-back operations). - Reduce share of dollar-denominated debt and mobilize domestic revenue. - Implement meaningful pension reforms and strengthen preparedness for climate investment needs. ### Risk Assessment Matrix — selected external, structural, and domestic risks - Conjunctural external risks: - Trade policy/investment shocks: High. - Commodity price volatility: High. - Tighter financial conditions/systemic instability: Medium. - Regional conflicts: Medium. - Structural external risks: - Deepening geoeconomic fragmentation: Medium (assessed High in description). - Climate change: Medium (assessed High in description). - Domestic risks: - Weather-related shocks: Medium to High. - Fiscal sustainability (Caja Fiscal deterioration): Medium (Medium to High if unaddressed). - Probability language: RAM dated As of February 20, 2025; "low" means probability below 10 percent, "medium" between 10 and 30 percent, "high" between 30 and 50 percent. ### Program monitoring, reporting, and operational requirements - Monitoring and reporting: - PCI monitored semi-annually through QTs, continuous targets, RTs, and inflation consultation clause; last review date November 1, 2025; PCI expires November 22, 2025. - Authorities requested 3-month extension through February 2026 for PCI and RSF. - Monthly data reporting lag: no more than 30 days after month close for provisional fiscal data; final data no more than two months after provisional. - Central Bank to transmit monthly balance sheet (lag one month), monthly consolidated banks balance sheet (lag two months), and other monetary/FSI data on specified lags. - Selected QTs (preserved exact table entries where provided): - Ceiling on central government fiscal deficit (billions of guaraníes): end-Dec 2024: -8,580 (Actual Status: Met); end-Jun 2025: -2,322 (Proposed QT). - Ceiling on current primary expenditure (billions of guaraníes): end-Dec 2024: 43,151 (Actual Status: Met); end-Jun 2025: 21,304 (Proposed QT). - Ceiling on net incurrence of floating debt: end-Dec 2024: -3,017 (Actual Status: Met); end-Jun 2025: -1,800 (Proposed QT). - Continuous target — Ceiling on accumulation of external debt payment arrears: end-Dec 2024: 0.0 (Actual Status: Met); end-Jun 2025: 0.0 (Proposed QT). - Inflation consultation band: center point end-Jun 2025: 4.0 (upper 6.0; lower 2.0); end-Dec 2024: 3.8 (Actual Status: Met). - RSF program modalities and availability: - RSF amounts: Total 302.10 SDR (150.00 percent of quota); Quota: 201.40. - Based on completion of two previous RSF reviews, 92.5 percent of quota, or SDR 186.28 million, remain available for disbursement. - Authorities requested disbursement of 72.5 percent of quota, or SDR 146 million, based on completion of selected RMs in this review. _Italics: Source: PARAGUAY — INTERNATIONAL MONETARY FUND_ ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and outlook - Paraguay’s economic activity remains robust, supported by ongoing reforms and sound macroeconomic fundamentals. - Inflation is within the central bank’s tolerance range, and both public debt and the external position are sustainable. - The outlook is favorable but subject to elevated global risks and vulnerable to adverse weather shocks. - The authorities reaffirmed their strong commitment to the fiscal consolidation plan—an essential anchor of macroeconomic stability. - Paraguay’s sovereign debt trades with one of the lowest risk spreads in the region. ### PCI and RSF program implementation - All end-December 2024 PCI quantitative targets (QTs) were met. - PCI Reform Targets (RTs): Of the 5 RTs assessed in the review: - 2 RTs were met. - 2 RTs were not met but 1 was implemented with a delay. - 1 RT was not met and is proposed to be reset. - 1 June 2025 RT was completed ahead of time. - RSF Reform Measures (RMs): - Significant advances on all remaining RMs under the RSF, with one RM completed in this review (RM3). - Completion of RM5, RM6, RM9, and RM10 is expected for the next review. - Specific developments: - Independent cost study for ANDE finalized and external audit well advanced (RM5). - Draft law for an explicit carbon tax to replace excise taxes on liquid fuels drafted and under technical evaluation (RM9). - Charging stations for electrical buses received; first buses delivered; white paper being developed (RM10). - Authorities requested: - Modification of one June-2025 QT. - Resetting of two RTs. - Rephasing of four RMs. - Extension of the PCI and RSF arrangements through February 2026. - Based on past completion of six selected RMs, a disbursement of 72.5 percent of quota, or SDR 146 million. ### Recent economic developments (selected findings and statistics) - Real GDP growth: - 2024: grew 4.2 percent, underpinned by services, manufacturing, livestock, and construction. - Economic activity excluding agricultural production and electricity grew 5.6 percent in 2024. - Monthly economic indicator: grew 5.5 percent year-on-year through March 2025. - Labor market: - Unemployment rate: 4.6 percent at end-2024. - Inflation: - 12-month headline inflation as of end-December 2024: 3.8 percent. - Core inflation (excluding fruits and vegetables) as of end-December 2024: 4.5 percent. - Central Bank adjusted the headline inflation target to 3.5 percent in December (to be reached within the monetary policy horizon of 18-24 months). - Headline year-on-year inflation in May 2025: 3.6 percent. - Services year-on-year inflation as of May 2025: 3.8 percent. - 24-month-ahead inflation expectations remain well anchored around the new inflation target. - External sector: - Current account deficit widened to 3.7 percent of GDP in 2024 (from 0.4 percent in 2023), mainly due to lower export revenues (soybean prices and hydroelectricity exports) and higher imports. - Guarani depreciation: 7.6 percent vis-à-vis the U.S. dollar by end-December 2024 (year-on-year, nominal). - Real effective exchange rate (REER) appreciated 0.4 percent in 2024. - Foreign reserves: assessed as adequate under IMF metrics. - Fiscal sector: - Fiscal deficit for 2024: 2.6 percent of GDP (down from 4.1 percent in 2023). - Tax revenue grew about 20 percent year-on-year; tax-to-GDP ratio reached 11.4 percent of GDP (from 10.1 percent in 2023). - Current primary expenditures grew about 11 percent year-on-year. - Public debt in 2024: 44.8 percent of GDP (increasing by around 4 percentage points of GDP in 2024). - Financial sector: - Liquid assets: 24.6 percent of total liabilities by March 2025. - Capital adequacy ratios: 17.8 percent and 12.5 percent (both comfortably above minimum requirements). - ROA: 2.2 percent; ROE: 18.6 percent. - Total bank credit increased 17 percent year-on-year as of March 2025; consumer credit increased 20 percent year-on-year as of March 2025. - Nonperforming-to-total loans ratio: 2.3 percent (total) and 4.7 percent (consumer) in March 2025, down from 3 percent and 6 percent year-on-year, respectively. ### Performance under the arrangements (detailed outcomes) - Quantitative Targets (end-December 2024): - Ceiling on the central government fiscal deficit: met. - Ceiling on current primary expenditure of the central government: met. - Ceiling on the net incurrence of floating debt by the central government: met. - Continuous targets met: ceiling on accumulation of external debt payment arrears by the central administration. - Inflation: met (within consultation band). - Memorandum item: Social assistance benefits met. - Selected PCI RTs met by December 2024: - Extension of SIGEBYS submodule of SIARE to all entities under the executive branch for expenditure on goods (commitment, accrual, payment order stages). - Development of SIGEBYS for services for pilot entities. - Standardization of technical specifications for the List of Essential Medicines of the Ministry of Health and the vade mecum of the Social Security Institute (IOS). - RTs not met or reset: - Partial review of regulatory standards of the General Directorate of the National Cadaster Service (March 2025): not met. - Action Plan for the National Care Policy (PNCUPA) approved by Interinstitutional Care Commission (December 2024): not met by deadline but policy approved in April (implementation delay). - Implementation of the system for recording cases of violence against women and establishing a single registry (March 2025): not met; proposed reset to September 2025. - Preparation and publication of procedures’ manual for the National Directorate for Public Investment: proposed to be reset from June 2025 to September 2025. - RSF RMs progress: - RM3 (reduce financial sector vulnerability to climate-related financial risks): met. - RM5: independent cost study for ANDE finalized; external audit well advanced. - RM6: tariff adaptation methodologies advancing in parallel with RM5. - RM9: draft law for explicit carbon tax prepared, under technical evaluation. - RM10: evaluating fiscal incentive adjustments for electric vehicles; progress on charging stations and bus deliveries. ### Outlook and risks - Projections: - Real GDP growth projected at 3.8 percent in 2025. - End-year inflation expected to be close to the target. - External current account expected to record a smaller deficit in 2025 as electricity exports recover and beef exports increase, but remain negative over the medium term due to large expected imports associated with large-scale FDI projects. - Specific short- to medium-term indicators (Text Table 2 excerpts): - Real GDP growth (annual): 2022: 0.2; 2023: 5.0; 2024: 4.2; 2025: 3.8; 2026–2030: 3.5 (each year 2026–2030 listed as 3.5). - Consumer prices (end of period; in percent): 2022: 8.1; 2023: 3.7; 2024: 3.8; 2025–2030: 3.7 then 3.5 for 2026–2030 (table shows 2025: 3.7; 2026–2030: 3.5). - External current account (percent of GDP): 2022: -7.0; 2023: -0.4; 2024: -3.7; 2025: -2.4; 2026: -2.8; 2027: -2.1; 2028: -1.8; 2029: -1.4; 2030: -1.2. - Gross international reserves (in US$ billion): 2022: 9.5; 2023: 9.9; 2024: 9.6; 2025: 9.8; 2026: 10.1; 2027: 10.4; 2028: 10.7; 2029: 11.0; 2030: 11.3. - Central government fiscal balance (percent of GDP): 2022: -2.7; 2023: -4.1; 2024: -2.6; 2025: -1.9; 2026–2030: -1.5 each year. - Public sector debt (percent of GDP): 2022: 40.5; 2023: 41.1; 2024: 44.8; 2025: 44.1; 2026: 43.0; 2027: 42.1; 2028: 41.2; 2029: 40.5; 2030: 39.9. - Risks (tilted to the downside, highly influenced by external environment): - Global risks: escalation of global trade tensions, deceleration in global demand, commodity price fluctuations, slower FDI flows, tightening global financial conditions increasing sovereign borrowing costs. - Domestic risks: extreme weather events (droughts, floods) affecting agriculture, transport, and hydroelectric power; financial situation of public pension system and health funds; contingent liabilities. - Upside possibilities: stronger-than-expected growth of services and construction; larger- and faster-than-expected FDI inflows if large-scale projects materialize sooner; expansion of export markets (e.g., meat exports to Asia); trade diversion benefiting Paraguayan agricultural exports. - External shock example: additional tariffs (10 percent) on Paraguayan exports to the United States announced April 2 have limited direct effect given about 4 percent of total exports go to the U.S. market. ### Policy recommendations - Fiscal policy: - Stay the course on fiscal consolidation to mitigate external risks and policy uncertainty. - Strengthen tax administration and enhance the efficiency of public spending to create space for priority social and infrastructure investments while meeting consolidation objectives. - Ensure long-term sustainability of the public pension system. - Monetary policy: - With inflation contained, monetary policy should continue to be data driven and geared toward facilitating convergence of inflation to the target. - Structural reforms and resilience: - Maintain momentum on structural reforms focused on reducing informality, enhancing governance, combating corruption, and increasing resilience to natural disasters. - Continue RSF-related reforms to build resilience to climate shocks, including measures for the electricity sector, carbon pricing, and electric public transport transitions. - Program implementation: - Proceed with agreed adjustments to PCI/RSF timelines and targets as requested by the authorities, while ensuring completion of outstanding RTs and RMs to support disbursement and program objectives. *International Monetary Fund. Executive Summary, Paraguay, June 12, 2025.* ### 13. The 2025 budget execution is on track and ### 13. The 2025 budget execution is on track and ### Fiscal outlook and budget execution - The fiscal deficit is budgeted at 1.9 percent of GDP, down from 2.6 percent of GDP in 2024. - Under the authorities’ fiscal convergence plan, the fiscal deficit would decline further to 1.5 percent of GDP in 2026, the limit set by the Fiscal Responsibility Law. - Budget execution strategy: - Proceed cautiously with within-year budget execution, contingent on revenue collection. - Provide room for maneuver through expenditure restraint while prioritizing health, education, security, and social protection. - Smooth within-year execution of capital spending to help protect public investment if downside risks materialize. - Performance through April 2025: - Cumulative tax revenue growing 10.5 percent, year-on-year. - Primary expenditure growing by 5.8 percent, year-on-year. - The flagship “Zero Hunger” program provides free meals at schools; prioritization and increased spending efficiency are intended to contain current spending even with its implementation. ### Debt, debt management, and market access - Overall risk of sovereign stress assessed to be low; debt is sustainable. - Public debt is expected to gradually decline and stabilize at low levels under the planned fiscal consolidation path. - The authorities aim at gradually reducing the share of FX debt (currently around 85 percent). - Market operations: - Following its first global local-currency bond issuance in February 2024, Paraguay placed an additional US$600 million in February 2025. - Intent to increase issuance of bonds in the local debt market and develop domestic financial markets. - Note on a prior placement: part of a US$1.2 billion placement—half in US dollars with a 30-year maturity and an interest rate of 6.65 percent, and the rest in Guaraníes at a 10-year maturity with a rate of 8.5 percent. ### Revenue mobilization and tax administration - Strategy focuses first on exhausting efficiency gains in tax collection through improvements in tax administration. - With support from the IADB and the IMF, the authorities plan to: - Implement a robust compliance risk management framework monitored under a Risk Management Committee (October 2025 RT), after putting in place a proper institutional framework (June 2025 RT). - Enhance efficiency and optimize data usage to boost tax collections. - Once efficiency gains are exhausted, a review of the tax regimes should be considered to attend to social and infrastructure spending needs. ### Expenditure efficiency, public financial management, and health sector reforms - SIGEBYS rollout: - SIGEBYS modules implemented to improve procurement; line ministries’ goods and services expenses at commitment, accrual, and payment stages are monitored and recorded through SIGEBYS as part of SIARE (June and December 2024 RTs). - Remaining RT: publication of procedural manual for the monitoring and evaluation unit of the National Directorate of Public Investment and its implementation for pilot projects—staff propose to reset this RT from June 2025 to September 2025. - Social Security Institute (IPS) and health fund: - Law No. 7446/24 enacted to strengthen IPS sustainability; includes direct transfers of employers’ contribution to the health fund and a parametric reform of the pension system for private sector employees. - The IPS pension scheme could pose significant fiscal risks in the long-term as population ages and contributors become eligible for benefits. ### Pensions and social security sustainability - Caja Fiscal: - Spending related to Caja Fiscal has increased by around 0.5 ppt of GDP over the past 10 years to 1.5 percent of GDP in 2024. - An actuarial study has been finalized to inform a legislative proposal for a parametric reform of Caja Fiscal. - Progress in digitally registering pension fund participants to account for most beneficiaries. - Institutional reforms: - Progress in forming and operationalizing the Council of Social Security to oversee the Pensions Superintendency. ### Monetary policy, exchange rate, and financial sector - Monetary policy stance: - The BCP has kept the policy rate at 6 percent since March 2024. - Inflation expectations at the 18–24-month horizon are well-anchored around the new inflation target of 3.5 percent. - The ex-ante real policy rate is close to the estimated neutral level (1-2 percent). - Pace of interest rate adjustments should remain data driven given heightened global uncertainty and risks to commodity and import prices. - Exchange rate policy: - The exchange rate is an instrumental shock absorber; the BCP intervenes to avoid excessive volatility in a shallow FX market subject to highly seasonal flows. - The BCP announced daily FX sales of at least USD 15 million starting on March 27 (announcement made on March 26); a similar strategy was last announced in October 2024. - The BCP consistently publishes detailed reports of its foreign exchange activities on its website. - Financial sector reforms: - Planned Securities Bill to modernize legal framework for securities and investment products, prepared with Fund CD support. - BCP is implementing recommendations from the safeguards assessment (institutional delegation framework proposal; exclusion of Chief Auditor from the Audit Committee; review of draft policy for external auditor selection; consultancy to analyze Internal Audit conformity with international standards). ### Structural reforms to boost productivity, governance, and inclusion - Governance and anti-corruption: - Law 7389/24 enacted to establish the National Regime for Integrity, Transparency, and Prevention of Corruption; National Anti-Corruption Council to be formed. - Strengthened technical specifications of the List of Essential Medicines and the IPS handbook (vade mecum) to contain health-related fiscal costs (December 2024 RT). - Pilot projects for the Health Information System executed in two public hospitals (June 2025 RT) and in more than 900 public health facilities. - Pilot information exchange system for cross-checking public officials' net worth declarations progressing (August 2025 RT). - AML/CFT: - SEPRELAD enhancing capacity for operational and strategic analysis; supervisory agencies strengthening risk-based supervisory frameworks. - Completion and approval of the National Risk Assessment (NRA) has been delayed and should be accelerated. - Remaining actions: address technical deficiencies in AML Law 1015; ensure supervision of notaries, gaming operators, and lawyers; reassess reporting entity list; strengthen oversight of natural persons conducting currency exchange; reallocate supervisory responsibilities for money remitters; ensure SEPRELAD adequately resourced. - Business climate improvements: - Land registration: revised regulatory standards at National Directorate of Cadastral Services; plan to approve revised standards by early 2025Q3 (March 2025 RT). - National Unified Registry (RUN) law promulgated January 2025 to merge DGRP, SNC, and Department of Surveying and Geodesy; RUN expected operational in January 2026. - Insolvency Law work ongoing with target completion by October 2025 (October 2025 RT). ### Social protection, labor formalization, and financial inclusion - Labor formalization: - Labor regularization campaign (July 2024 to January 2025) formalized 27,875 workers and 9,372 productive units in six months—a 47 percent increase in formalized workers compared to the same period one year earlier. - Zero Hunger program participation premised on providers registering their employees. - “Youth Employment” program launched May 1 to subsidize social security contributions of young employees for a year. - Informality remains high (around 70 percent). - Financial inclusion and payment systems: - Financial inclusion strategy being updated; SIPAP operates efficiently and competitively. - BCP supports modernization, including QR payment standardization and “Digital Economy” program to promote electronic payments in micro-, small-, and medium-sized companies. - Measures to boost women’s access to finance: regulations on basic savings accounts (Resolution 05/13, July 2024) and collection/publication of sex-disaggregated data; BCP data suggest the gender gap in formal account ownership has been largely closed, but women are still less likely to have access to credit. - Social programs and protection: - Action Plan for the National Care Policy approved in April 2025 (December 2024 RT). - Zero Hunger Program progress toward universal coverage: 963,975 students benefiting as of April 2025 (target is more than one million students). - RT on launch of system for recording cases of violence against women and establishing a single registry (March 2025 RT) was not met; staff propose to reset to September 2025 to complete administrative procedures and institutional coordination. ### Building resilience, climate adaptation, and energy policy - Disaster resilience in public investment: - Revisions incorporated at each stage of public investment projects to make them resilient to natural disasters (RM1); see Decree 2882. - Agriculture and disaster risk: - Agriculture affected by droughts and floods; financial support limited. - Staff analysis suggests expanding insurance coverage could substantially enhance agricultural productivity and sector resilience; a mix of private insurance and targeted public support recommended. - Improving land registry and financial literacy would support insurance development and reduce reliance on temporary regulatory measures. - Energy sector: - Paraguay has a fully renewable energy matrix and is a large exporter of clean energy. - Surplus available for export from binational dams may disappear within the next ten years as domestic electricity demand grows. - Authorities working to expand generation capacity per ANDE's master plan and diversify the clean electricity matrix. - Government collaborating with the World Bank on modifications to the renewable energy law (RM4) to facilitate private sector participation, including extension of maximum length of power purchasing agreements before first photovoltaic tenders. - Emphasis on well-financed investments in transmission and distribution to maintain electricity provision and reduce ANDE's technical and non-technical losses (loss reduction plan, RM8). - National Program for Energy Efficiency Labeling (RM7) expected to yield efficiency gains from high-consumption domestic appliances. *INTERNATIONAL MONETARY FUND* ### 33. Progress under the RSF has contributed to positioning Paraguay as a green investment ### Progress under the RSF has contributed to positioning Paraguay as a green investment destination ### Green investment, taxonomy, and forest policy - The MEF and BCP published a green taxonomy that enables the identification and classification of economic activities meeting environmental objectives based on scientific eligibility criteria (RM2). - Abundant clean energy may attract manufacturing projects, such as green hydrogen and fertilizer producers, that have already signed Power Purchase Agreements (PPAs) with ANDE. - The taxonomy may allow large sectors (construction, agriculture, and cattle ranching, which already represent about a fifth of the economy) to access greater and more diverse financing. - The implementation of the National Forest Policy and RSF reform measures for forest conservation (RM11 and RM12): - Foster sustainable development of the forestry sector. - Diversify the economy, its energy sources and exports. - Attract foreign investment in an emerging pulp mill industry. - The promulgation of the regulation of the Carbon Credits Law in February 2025 may help mobilize additional financial resources for protecting forests. - The taxonomy includes plans for updates and expansion to support sustainability of other sectors; authorities are working on sustainable waste management in commerce (RM13). ### Climate-related financial frameworks and banking sector resilience - The Superintendency of Banks of the BCP has been working with the World Bank on incorporating climate-related exposures into its risk assessment framework. - Amendments to the resolution governing data collection of the credit registry to ensure banks provide geographic information on loan portfolio and associated collateral have been published (Superintendency of Banks’ Resolutions 22/2025 and 23/2025, and Circular 61/2025). - The development of the framework to monitor and assess climate-related financial risks and the supervisory guidelines for the banking sector to incorporate climate-related risks into their risk management frameworks were completed in June 2025 (RM3). ### ANDE financial sustainability, tariff methodology, and clean electricity expansion - ANDE has received a comparative study of its costs against regional benchmarks prepared by the IDB and a regional consulting firm. - The external audit of ANDE’s financial statements for 2022 and 2023 is well advanced and expected to be completed in June (RM5). - The cost study and external audit, along with ANDE’s loss reduction plan (RM8), will support the development, publication and gradual implementation of transparent methodologies for adapting ANDE’s electricity tariffs (RM6). - These measures aim to buttress ANDE’s financial sustainability, fund investment needs, and support expansion of the clean energy matrix. ### Containing imported fossil fuel consumption and transport electrification - Authorities advanced a draft law, currently under technical evaluation, for an explicit carbon tax on liquid fuels that will replace existing selective taxes on diesel, gasoline, and LPG (RM9). - Electrification of private and public transportation, powered by domestic clean electricity, can significantly reduce reliance on imported fossil fuels. - The government will continue adjusting tax incentives to favor electric vehicles while minimizing tax expenditures. - Eight charging units for electric buses have been received and will be installed to support a pilot program with 30 public electric buses in the metropolitan area of Asunción. - A regulatory framework for private sector operation of the government’s charging units and buses in the pilot will inform plans to increase overall electrification of public transport. - Authorities are preparing a white paper to reflect plans and set targets for an increased share of electric buses in the metropolitan area of Asunción (RM10). ### Program modalities, monitoring, and RSF financing status - The PCI expires on November 22, 2025, with November 1, 2025, as the last review date. - The PCI will continue to be monitored semi-annually through QTs, standard continuous targets, RTs, and the inflation consultation clause. - The authorities requested a modification to the end-June 2025 QT ceiling on primary expenditure and resetting two RTs to align with the approved budget. - The RSF arrangement also expires in November 2025. Pending RMs will be assessed at the time of the last PCI review. - RSF amounts to SDR 302.1 million or 150 percent of quota. - Based on completion of two previous RSF reviews, 92.5 percent of quota, or SDR 186.28 million remain available for disbursement. - Based on completion of RM4, RM7, RM8, RM11, RM12 and RM13, the authorities requested a disbursement of 72.5 percent of quota, or SDR 146 million, upon completion of this review. - The authorities requested rephasing of RMs 5, 6, 9, and 10 to November 1, 2025, with an expected IMF Executive Board date in December 2025; actual disbursements are expected in early 2026 reflecting the new timeline and 2025 borrowing constraints. - The authorities prioritized borrowing in local currency, leveraging recently obtained investment grade status to improve the currency composition of public debt and reduce space to access RSF funds under legal limits imposed by the 2025 budget law. ### Program duration, extension request, and financing assurances - Paraguay’s two-year PCI was approved in November 2022 and extended by 12 months in December 2024 when the new government took office and requested an RSF arrangement. - Four PCI and two RSF reviews have been completed. - The authorities request a 3-month extension through February 2026 of the PCI and RSF arrangements to conclude the sixth and final PCI review and facilitate completion of RMs requiring more time. - The program is fully financed for the next 12 months. - Paraguay's outstanding credit is projected to rise to 72.5 percent of quota (or 0.4 percent of GDP) by 2025 and subsequently to 150 percent of quota (or 0.8 percent of GDP) by 2026 if the RSF arrangement is completely disbursed. - Obligations to the Fund are expected to stay at or below: - 0.2 percent of exports of goods and services, - 0.5 percent of government revenue, - 0.4 percent of gross international reserves throughout the repayment period. ### Safeguards, capacity development, and data initiatives - Progress addressing recommendations from the 2024 update safeguards assessment has been gradual. - Efforts include increased delegation to enhance decision-making and initial steps to improve the composition of the Audit Committee, but further efforts are required to transform it into a truly independent oversight body. - Legal reforms are still necessary to strengthen aspects of the BCP’s autonomy and governance arrangements. - Outstanding recommendations include strengthening the internal audit function and aligning its practices with international standards. - Fund CD support focuses on domestic revenue mobilization, cybersecurity, macroprudential policies, national accounts, and balance of payments. - Paraguay subscribed to the IMF’s Special Data Dissemination Standard (SDDS) last year to improve capacity on data compilation and dissemination. ### Staff appraisal and policy recommendations - Real GDP is expected to moderate somewhat but economic activity would remain robust in 2025 driven by buoyant domestic demand; outlook remains subject to elevated global risks and vulnerable to adverse weather shocks. - Monetary policy: With inflation contained within the central bank’s tolerance range, decisions should remain data driven. - Fiscal policy and public debt management: - Authorities remain committed to the fiscal consolidation plan to reduce the fiscal deficit toward the limit of 1.5 percent by 2026 set by the fiscal responsibility law. - Continued adherence to the plan is critical to preserve macroeconomic stability, including further strengthening revenues and enhancing public spending efficiency. - Taking steps to ensure sustainability of the public pension system is vital to contain medium-term fiscal risks. - Efforts to gradually reduce the share of debt denominated in foreign currency are welcome to strengthen the risk profile of public debt. - Structural reforms: Maintain momentum on reforms to reduce informality, enhance governance, combat corruption, and increase resilience to natural disasters to support investment and inclusive, sustainable growth. - Overall assessment: The banking sector is well-capitalized, liquid, and profitable; the external position is broadly in line with medium-term fundamentals and desirable policy settings; overall risk of sovereign stress is low and debt is sustainable. *Source: PARAGUAY — INTERNATIONAL MONETARY FUND* ### 43. Staff supports completion of the fifth review under the PCI and third review under the ### Staff supports completion of the fifth review under the PCI and third review under the RSF arrangement ### Reviews, authorities’ requests, and staff endorsement - Staff supports completion of the fifth review under the PCI and third review under the RSF arrangement. - Staff supports authorities’ request to: - modify the end-June 2025 QT ceiling on primary expenditure to align it with the approved budget; - reset two RT completion dates; - extend the PCI and RSF arrangements by 3-months through February 2026; - rephase four RMs (reform measures). - Based on the completion of past six selected RMs, staff supports disbursement of 72.5 percent of quota, or SDR 146 million, under the RSF. ### RSF reform measures, timing, and status - RM rephasing and timing: - RM 5, 6, 9, and 10 are requested to be rephased to November 1, 2025, with an expected IMF Executive Board date in December 2025. The actual disbursements are expected to take place in early 2026 reflecting the new timeline and the authorities’ 2025 borrowing constraints. - Selected Reform Measures (status as reported): - RM1 (Decree 4436/20 amendment to incorporate climate aspects in public investment): 4th Review — Met. - RM2 (MEF and BCP to publish a green taxonomy aligned with Paraguay’s NDC): 4th Review — Met. - RM3 (BCP to establish climate-related reporting, monitoring framework, and supervisory guidelines): 5th Review — Met. - RM4 (Regulation of non-conventional renewable energy law 6977/2023): 3rd Review — Met. - RM5 (ANDE external audit and international benchmark study by an internationally reputed firm): 6th Review — In progress (requested rephasing). - RM6 (ANDE methodologies for electricity tariffs in line with Law 966/64): 6th Review — In progress (requested rephasing). - RM7 (Energy efficiency standards for three household appliances): 4th Review — Met. - RM8 (ANDE loss reduction plan, install 20,000 smart meters; hourly/dynamic tariffs; increase inspections by 10 percent above same period in 2023): 4th Review — Met. - RM9 (Adopt explicit carbon tax replacing excise taxes on liquid fuels): 6th Review — In progress (requested rephasing). - RM10 (Electromobility Law 6925/2023 regulation; fiscal incentives; charging infrastructure; electric public transport targets): 6th Review — In progress (requested rephasing). - RM11 (Replace Decree 4056 of 2015; create registry of industrial biomass users; joint intervention protocols): 3rd Review — Met. - RM12 (INFONA normative framework strengthening; National Directorate for National Forest Monitoring System): 3rd Review — Met. - RM13 (MIC regulation of law 7014/2022 on reutilization/recycling of plastic containers): 5th Review — Met. ### Key macroeconomic and social indicators (selected, preserved exactly) - Population 2024 (millions): 6.9 - Gini index (2022): 45.1 - Unemployment rate (2024): 5.8 (of which, female: 7.4; male: 4.6) - Life expectancy at birth (2022): 70.5 - Adult literacy rate (2020): 95.0 - Percentage of population below the poverty line (2022): 24.7 (of which, female: 94.0; male: 95.0) - Rank in UNDP development index (2022): 102 of 193 - GDP per capita (US$, 2024): 6,456 ### Recent economic developments (selected projections and indicators, preserved exactly) - Real GDP (annual percent change): 0.2 (2022); 5.0 (2023); 4.2 (Act.CR 24/36); 4.0 (Proj.CR 24/36); 3.8 (2026); 3.8 (2027); 3.5 (2028–2030). - Consumer prices (end of period): 8.1 (2022); 3.7 (2023); 3.8 (Act.CR 24/36); 4.0 (Proj.CR 24/36); 3.7 (2026); 4.0 (2027); 3.5 (2028–2030). - Current account balance (in percent of GDP, memorandum): -7.0 (2022); -0.4 (2023); -3.7 (2024); -2.4 (2025); -2.8 (2026); -2.1 (2027); -1.8 (2028); -1.4 (2029); -1.2 (2030). - Exports of goods and services (in percent of GDP, memorandum): 35.7 (2022); 43.1 (2023); 39.1 (2024); 40.9 (2025); 40.6 (2026); 40.4 (2027); 39.5 (2028); 38.8 (2029); 38.1 (2030); 36.6 (2031). - Gross international reserves (in US$ millions, from Table 9 and other tables): - 9,520 (2022) - 9,893 (2023) - 9,568 (2024) - 9,818 (2025 projection in several tables) - Reserve projections up to 11,293 in later memoranda (Table 5 memorandum). ### Fiscal developments and projections (selected, preserved exactly) - Fiscal consolidation aims to reduce the deficit to the Fiscal Responsibility Law ceiling by 2026. - Central government finances (percent of GDP, Table 4b selected lines): - Revenue: 14.3 (2022); 14.0 (2023 Act.CR 24/36); 15.1 (Proj.CR 24/36); 15.2 (2026); 15.3 (2027); 15.2 (2028); 15.3 (2029); 15.4 (2030). - Expenditures: 17.0 (2022); 18.1 (2023); 17.7 (Act.CR 24/36); 17.8 (Proj.CR 24/36); 17.2 (2026); 17.1 (2027); 16.8 (2028); 16.9 (2029); 16.9 (2030). - Net lending/borrowing (Overall Balance): -2.7 (2022); -4.1 (2023); -2.6 (Act.CR 24/36); -2.6 (Proj.CR 24/36); -1.9 (2026–2030). - Central government gross debt (percent of GDP): 34.3 (2022); 34.8 (2023); 38.4 (Act.CR 24/36); 38.2 (Proj.CR 24/36); 38.7 (2026); 36.2 (2027); 38.2 (2028); 37.7 (2029); 36.6 (2030). ### External sector and financing (selected exact figures) - Balance of payments (Table 5, selected lines, In millions of U.S. dollars): - Current account balance: -2,948 (2022); -177 (2023); -1,666 (2024); -1,071 (2025); -1,338 (2026). - Goods balance (registered and totals): Credit and Debit lines preserved in tables (see source tables). - Gross external financing needs and sources (Table 8): - Gross Financing Requirements: 3,479 (2022); 672 (2023); 2,146 (2024); 1,794 (2025); 1,943 (2026). - Sources include Direct investment (net): 803 (2022); 324 (2023); 335 (2024); 382 (2025); 759 (2026). - IMF: RSF financing line shows 000 (2022–2024) and 195/209 (2025 depending on scenario) as displayed in table. - Capacity to Repay (Table 10, selected): - Net outstanding Fund credit (in millions of SDR): 146.03 (2025); 302.13 (2026–2031 series where indicated). - Disbursements: 146.0 and 156.1 (initial years per table). - Total obligations based on existing and prospective credit (in millions of SDR): 8.6 (2025); 17.3 (2026); 17.6 (2027–2034 repeated values as tabulated). ### Financial sector and stability (selected exact indicators) - Banks remain liquid and well-capitalized; bank profitability recovered close to pre-pandemic levels. - Credit to private sector (annual percent change, Table 7/monetary survey): 11.6 (2022); 10.1 (2023); 17.4 (2024); 15.4 (2025); 16.5 (2026); 8.5 (2027); 15.0 (2028); 12.1 (2029); 11.7 (2030); 8.0 (2031); 7.1 (later projections as shown). - Financial soundness indicators (Table 9, selected): - Regulatory capital/risk-weighted assets: 18.0 (2016); 17.8 (2024); 17.0 (2025). - NPLs/total loans: 2.8 (2016); 2.2 (2022); 2.9 (2023); 3.0 (2024); 2.2 (2025); 2.3 (2026). - Return on assets: 2.2 (2022); 2.4 (2023); 2.2 (2024); 2.2 (2025). ### Policy implications highlighted by the program documentation - Align quantitative targets (primary expenditure QT ceiling) with approved budget to preserve program credibility. - Rephasing of specific RMs (RM 5, 6, 9, 10) to November 1, 2025, and extension of program timelines to reflect authorities’ 2025 borrowing constraints and realistic implementation/disbursement timing. - Continued completion of climate and energy-related reforms (green taxonomy, ANDE audit and tariff methodologies, renewable energy regulation, electromobility regulation, carbon tax, loss reduction and smart meter rollout) to strengthen fiscal, external, and financial resilience, and to promote investment and BOP benefits. *Source: IMF staff report excerpt, Paraguay (program documentation and tables).* ### Annex I. External Sector Assessment ### Annex I. External Sector Assessment ### Overall Assessment - The external position of Paraguay was, in 2024, broadly in line with the level implied by medium-term fundamentals and desirable policy settings. - 2024 current account (CA) deficit: 3.7 percent of GDP. - EBA-Lite CA model indicates a CA gap of 0.3 percentage point in 2024. - Projected CA path: - CA deficit expected to decline to 2.4 percent of GDP in 2025. - Projected FDI inflows are expected to widen the gap to 2.8 percent in 2026 before a gradual decline in the deficit to 1.2 percent of GDP in medium term. - External stability risks are contained given Paraguay’s sizable reserve buffers and the long-term maturity profile of its external debt. ### Potential Policy Responses - Continue with the fiscal consolidation plan. - Improve governance and the business climate by reducing vulnerabilities to corruption and strengthening legal protections for investors. - Diversify exports through the production of higher-value goods. - Boost human capital. - Expand green energy production. - Formalize the economy. - Expected aggregate effect: these policies will enhance Paraguay’s attractiveness for growth enhancing foreign direct investment (FDI) and capital inflows. ### Foreign Assets and Liabilities: Position and Trajectory Background and recent moves: - NIIP worsened to -38 percent of GDP in 2024 from -35 percent of GDP in 2023. - NIIP increased by 13 percent in absolute value, largely attributable to an increase in gross liabilities. - Gross liabilities increased by 8 percent, primarily driven by an increase in debt securities under portfolio investments and other investments (general government). - Gross assets increased by 2 percent. - External debt increased to 39.4 percent of GDP in 2024 from 35.9 percent of GDP in 2023. Assessment: - Despite an uptick in 2024 with new disbursements coming on stream, external debt is expected to decline in the medium term due to fiscal consolidation. - Authorities are committed to reduce debt and rebuild buffers. - External position remains sustainable, though with some risks, under a range of adverse shocks. - Gross international reserves coverage ratio expected to be comfortably within the recommended range of the ARA metric. Key 2024 stock figures (percent of GDP): - NIIP: -38 - Gross Assets: 39 - Debt Assets: 16 - Gross Liab.: 78 - Debt Liab.: 58 ### Current Account Background: - Paraguay's CA averaged -2.2 percent of GDP per year for 2020–2024. - CA reached -3.7 percent of GDP in 2024, driven by large declines in electricity exports reflecting drought impacts on hydroelectric generation and increases in imports. - Projections: CA deficit to decline to 2.4 percent in 2025. Imports associated with the Atome and Paracel projects will impact the CA from 2026–2028, with exports from those projects improving the CA afterwards. - Medium-term improvement expected due to rebound in soybean production, uptick in meat production, and stabilization of international oil prices. Model estimates and adjustments (2024, in percent of GDP and model outputs preserved as in source): - CA-Actual: -3.7 - Cyclical contributions (from model) (-): 0.2 - Additional temporary/statistical factors (-) 2/-0.6 - Natural disasters and conflicts (-): 0.0 - Adjusted CA: -3.3 - CA Norm (from model) 3/: -3.4 - Adjustments to the norm (+): 0.3 (reflects anticipated increase in exports associated with Atome and Paracel) - Adjusted CA Norm: -3.1 - CA Gap: -0.32.6 (table presents CA Gap entries as “-0.32.6”; decomposition shows o/w Relative policy gap 2.0; Elasticity -0.3) - REER Gap (in percent)1/: 1.0-9.7 Notes embedded in source: - 1/ Based on the EBA-lite 3.0 methodology. - 3/ Cyclically adjusted, including multilateral consistency adjustments. - 2/ Additional adjustment to account for the temporary impact of the drought on hydroelectricity exports (2.7 percent of GDP in 2024). One-hundred percent of the shock to hydroelectricity is assumed temporary. Assessment: - EBA-Lite CA model estimates a cyclically adjusted current account norm of -3.4 percent of GDP for 2024. - Upward adjustment to the CA norm of 0.3 percent of GDP to reflect Atome and Paracel; adjusted CA norm -3.1 percent of GDP. - Cyclically adjusted current account deficit (including adjustment for 2024 drought) stood at -3.3 percent of GDP. - This yields a negative gap of approximately 0.3 percent of GDP, within the range (-1 to 1 percent of GDP), implying the external position was broadly in line with fundamentals and desired policy settings. - The REER model finds a CA gap of 2.6 percent of GDP, reflecting a REER undervaluation of 9.7 percent. ### Real Exchange Rate (REER) Background: - REER appreciated in 2024 by 0.4 percent, largely driven by differences in inflation with main trading partners and lower commodity prices. Assessment: - REER gap derived from the EBA-Lite CA model (elasticity of -0.3) estimated at 1.0 percent. - EBA-Lite REER model suggests a REER gap of -9.7 percent. - Given Paraguay’s structural characteristics and divergence between models, staff rely on the CA model; the relatively small REER gap from the CA model suggests Paraguay’s current exchange rate policy remains broadly appropriate. - Continued monitoring of commodity price trends and their impact on the REER is essential. ### Capital and Financial Accounts: Flows and Policy Measures Background and recent inflows: - Sovereign bond issuances and FDI have been major sources of capital inflows in recent years. - Since 2013, the government has tapped international capital markets every year except 2015; total amount of issuances so far is around US$ 9,400 million. - In February 2025, authorities issued for the second time US$ 600 million equivalent Guaraní-denominated Eurobonds, along with US$ 600 million USD-denominated ones, following debut issuance of similar bonds totaling $1 billion in 2024. - Outstanding stock of Eurobonds stood at US$ 8,000 million after part of proceeds from the 2025 issuances were used for buy-back of those coming due in the near future. - FDI inflows were about 0.9 percent of GDP in 2024. - FDI projected to pick up to over 2 percent of GDP during 2026–2028, owing to private investment from Paracel (paper pulp from eucalyptus foresting) and Atome (ammonia and hydrogen production). Assessment: - Paraguay maintains a fully open capital and financial account, though financial markets remain relatively shallow with low availability of domestic financing. - External vulnerabilities are contained, with capital inflows primarily driven by government external borrowing, supported by low public debt levels and favorable FDI prospects. - Diversification of sovereign debt portfolio, including Guaraní-denominated bonds, has broadened investor base and can help reduce foreign exchange risk exposure. ### Foreign Exchange Intervention and Reserves Level Background: - Gross international reserves: $9.6 billion at end-2024, down from about $10 billion at end-2023. - BCP intervened in foreign exchange market to avoid excessive volatility in a shallow FX market. Assessment and projections: - Reserve coverage declined slightly to 6 months of imports in 2024. - Reserves level is comfortably above the Fund’s metrics on reserve adequacy for a small open economy. - Reserve coverage for 2025 projected at 6.1 months of imports. - Exchange rate continues to be the first line of defense to absorb external shocks. - Staff advises to continue to limit discretionary interventions to situations of disorderly market conditions. *Annex I. External Sector Assessment, 1pryea2025001-print-pdf* ### 5. The overall risk of sovereign stress is assessed to be low and debt sustainable (Figure ### 1pryea2025001-print-pdf - 5. The overall risk of sovereign stress is assessed to be low and debt sustainable (Figure ### Summary assessment - Overall risk of sovereign stress: "Low". - Staff assessment: Paraguay’s debt is sustainable. - Baseline characterization: "Debt stabilization in the baseline". - Key qualifiers: Medium-term risk "Low"; Long-term modules flag "Moderate" risks from demographics and potential climate adaptation and mitigation costs. - Sovereign spreads: "remain among the lowest in the region reflecting a favorable debt risk profile." *Source: IMF staff.* ### Baseline projections and debt dynamics (public debt, percent of GDP unless indicated) - Public debt (actual 2024): 44.8 - Projected public debt by year: 44.1 (2025); 43.0 (2026); 42.1 (2027); 41.2 (2028); 40.5 (2029); 39.9 (2030); 39.5 (2031); 39.1 (2032); 38.6 (2033); 38.2 (2034). - Government-guaranteed debt share: 6.4 (2024); 6.2 (2025); 6.0 (2026); 5.9 (2027); 5.8 (2028); 5.8 (2029); 5.8 (2030); 6.0 (2031); 6.1 (2032); 6.2 (2033); 6.3 (2034). - Change in public debt (percent of GDP): 3.6 (2024); -0.5 (2025); -0.8 (2026); -0.8 (2027); -0.8 (2028); -0.7 (2029); -0.7 (2030); -0.6 (2031); -0.6 (2032); -0.6 (2033); -0.5 (2034). - Contribution of identified flows (percent of GDP): 2.0 (2024); -0.7 (2025); -0.8 (2026); -0.8 (2027); -0.7 (2028); -0.7 (2029); -0.6 (2030); -0.6 (2031); -0.6 (2032); -0.5 (2033); -0.5 (2034). - Primary deficit (percent of GDP): 0.1 (2024); -0.7 (2025); -0.9 (2026); -0.8 (2027); -0.7 (2028); -0.6 (2029); -0.5 (2030); -0.4 (2031); -0.4 (2032); -0.4 (2033); -0.4 (2034). - Noninterest revenues (percent of GDP): 18.9 (2024); 19.0 (2025); 19.0 (2026); 19.1 (2027); 19.1 (2028); 19.1 (2029); 19.2 (2030); 19.2 (2031); 19.2 (2032); 19.2 (2033); 19.3 (2034). - Noninterest expenditures (percent of GDP): 19.0 (2024); 18.3 (2025); 18.1 (2026); 18.2 (2027); 18.4 (2028); 18.5 (2029); 18.6 (2030); 18.8 (2031); 18.8 (2032); 18.8 (2033); 18.9 (2034). - Automatic debt dynamics (percent of GDP): 1.9 (2024); 0.0 (2025); 0.1 (2026); 0.0 (2027); 0.0 (2028); 0.0 (2029); -0.1 (2030); -0.1 (2031); -0.1 (2032); -0.1 (2033); -0.1 (2034). - Real interest rate and relative inflation (percent): 1.2 (2024); 1.4 (2025); 1.4 (2026); 1.3 (2027); 1.2 (2028); 1.2 (2029); 1.1 (2030); 1.0 (2031); 1.0 (2032); 1.0 (2033); 1.0 (2034). - Real interest rate (percent): 1.1 (2024); 1.2 (2025); 0.9 (2026); 0.9 (2027); 0.8 (2028); 0.7 (2029); 0.7 (2030); 0.6 (2031); 0.7 (2032); 0.6 (2033); 0.7 (2034). - Relative inflation (percent): 0.1 (2024); 0.2 (2025); 0.5 (2026); 0.4 (2027); 0.4 (2028); 0.4 (2029); 0.4 (2030); 0.4 (2031); 0.4 (2032); 0.3 (2033); 0.3 (2034). - Real GDP growth (percent): 4.2 (2024); 3.8 (2025); 3.5 (2026); 3.5 (2027); 3.5 (2028); 3.5 (2029); 3.5 (2030); 3.5 (2031); 3.5 (2032); 3.5 (2033); 3.5 (2034). - Gross financing needs (GFN, percent of GDP): 3.1 (2024); 3.2 (2025); 2.4 (2026); 3.0 (2027); 2.7 (2028); 2.9 (2029); 3.2 (2030); 4.3 (2031); 4.1 (2032); 3.9 (2033); 3.0 (2034). - Of which: debt service (percent of GDP): 3.0 (2024); 3.9 (2025); 3.3 (2026); 3.9 (2027); 3.4 (2028); 3.6 (2029); 3.8 (2030); 4.7 (2031); 4.5 (2032); 4.3 (2033); 3.4 (2034). - Debt service split (percent of GDP): local currency: 0.2 (2024); 0.6 (2025); 0.4 (2026); 0.4 (2027); 0.8 (2028); 0.4 (2029); 0.8 (2030); 0.5 (2031); 1.4 (2032); 1.1 (2033); 1.2 (2034). Foreign currency: 2.8 (2024); 3.3 (2025); 2.9 (2026); 3.4 (2027); 2.6 (2028); 3.1 (2029); 3.0 (2030); 4.2 (2031); 3.2 (2032); 3.2 (2033); 2.1 (2034). - Memo: Real GDP growth (percent) projections: 4.2 (2024); 3.8 (2025); 3.5 (2026–2034). - Memo: Inflation (GDP deflator; percent): 2.6 (2024); 2.5 (2025); 3.4 (2026–2034). - Memo: Nominal GDP growth (percent): 6.9 (2024); 6.4 (2025); 7.0 (2026–2034). - Memo: Effective interest rate (percent): 6.1 (2024); 5.8 (2025); 6.0 (2026); 5.8 (2027); 5.7 (2028); 5.6 (2029); 5.5 (2030); 5.3 (2031); 5.5 (2032); 5.5 (2033); 5.5 (2034). Additional baseline notes: - Public debt is expected to peak in 2024 and decrease thereafter. - Drivers of decline: improvement in primary balance consistent with the overall fiscal deficit ceiling of 1.5 percent of GDP under the Fiscal Responsibility Law and robust growth at potential. - Coverage: fiscal account is general government; debts guaranteed by general government are added to those of general government. - Residual: 0.9 ppt of GDP in the residual in 2024 reflects a net reduction in floating debt. ### Public debt structure and financing characteristics - Debt composition notes: "Paraguay’s debt is predominantly denominated in foreign currency at long maturities." - Sovereign bonds: "make up a large share of total debt stock." - Domestic-currency financing: "is expected to rise gradually." - Residual maturity reported: 6. years (caption as provided). - Marketable vs nonmarketable debt: projections show marketable debt predominant in projection horizon. ### Realism and medium-term risk diagnostics - Medium-term final assessment: "Low". - Fan chart module mechanical signal: "Moderate" due to relatively large volatility of key economic indicators in the past five years. - Gross Financing Needs (GFN) module mechanical signal: "Low" reflecting favorable debt repayment profile and ongoing fiscal consolidation. - Debt Fanchart module statistics: Debt fanchart index (DFI) 1.6; Debt fanchart terminal debt-to-GDP x2 3.8; Fanchart width 67.0 (pct of GDP) and contribution 1.0. - GFN metrics: Average baseline GFN 2.9 (percent of GDP); Initial Banks' claims on the general government (pct bank assets) 2.9; Change in banks' claims in stress (pct bank assets) 3.8; GFN financeability index (GFI) 3.2. - Medium-term index outputs: Prob. of missed crisis, 2025-2030, if stress not predicted: 9.1 pct.; Prob. of false alarms, 2025-2030, if stress predicted: 52.3 pct. - Comparator group used: "Emerging markets, commodity exporter, program." - Realism analysis: "Past forecast errors do not exhibit any systematic biases, and financing is favorably structured toward medium- to long-term debt." ### Long-term risks: demographics, pensions, health, climate - Long-term risk overall: "Moderate" driven by demographics and potential climate-related costs. - Pensions (Figure 6a): - Pension financing needs increases highlighted: 30 years: 0.2% (pp of GDP per year); 50 years: 1.9%; Until 2100: 3.9%. - Long-term projection finding: "Long-term demographic projections reveal that Paraguay's pension financing needs as well as public debt will grow substantially over the next 30 years unless meaningful pension reforms are implemented." - Permanent adjustment needed in the pension system to keep pension assets positive shown across projection horizon. - Health (Figure 6b): - Aging population raises healthcare costs and long-term fiscal risk. - Scenarios: Baseline: Extension of fifth projection year; Health (Demographics); Health (Demographics + ECG) show higher GFN-to-GDP and total public debt-to-GDP ratios when ECG (excessive cost growth) assumed. - Climate scenarios (Figures 8a and 8b): - Adaptation: Standardized scenario envisages additional annual investment of about 1 percent of GDP; customized scenario keeps them lower at 0.2 percent through the next 10 years and adopts default values thereafter. - Both adaptation and mitigation increase GFN-to-GDP ratios and total public debt-to-GDP ratios relative to baseline in long run. - Large amortization module (Figure 7): Triggers multiple risk signals; data limitations on long-term amortization schedules noted. Assumptions used: Real GDP growth 3.5%; Primary Balance-to-GDP ratio 0.5% (2030 variable), 0.3% (2034 to 2038 average in custom scenario), 0.4% (historical average assumptions); Real depreciation and inflation values provided for scenarios. ### Key stress-test and scenario takeaways - Fan chart module: Moderate signal driven by wide fan width from volatility and relatively low institutional quality score. - GFN module: Low signal reflecting favorable repayment profile and fiscal consolidation. - Combined medium-term index: Low risk. - Long-term modules: Moderate risks from pensions, health, and climate; debt levels "still manageable under most of these risk scenarios." ### Policy implications and priorities (as stated or implied by staff analysis) - Maintain and deepen fiscal consolidation consistent with the deficit ceiling of 1.5 percent of GDP under the Fiscal Responsibility Law. - Continue proactive debt management to preserve favorable debt repayment profile (examples noted: recent buy-back operations of past Eurobonds that extended bond maturity). - Reduce share of dollar-denominated debt (authorities "are taking steps to reduce it"). - Mobilize domestic revenue further. - Implement meaningful pension reforms to address rapid long-term expenditure and public debt increases from demographic change. - Strengthen preparedness for potential climate adaptation and mitigation investment needs. _Italic: Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1pryea2025001-print-pdf.pdf_ ### Annex III. Risk Assessment Matrix ### Annex III. Risk Assessment Matrix ### Conjunctural External Risks - Trade policy and investment shocks. Higher trade barriers or sanctions reduce external trade, disrupt FDI and supply chains, and trigger further U.S. dollar appreciation, tighter financial conditions, and higher inflation. (High) - High. Export and import goods might see unexpected price volatility, exerting pressure on the exchange rate and domestic prices. The exchange rate should act as a shock absorber while monetary policy remains geared to keeping inflation close to target. FX intervention could be used in the event of disorderly market conditions. - Commodity price volatility. Supply and demand fluctuations (e.g., due to conflicts, export restrictions, OPEC+ decisions, and green transition) cause recurrent commodity price volatility, external and fiscal pressures and food insecurity in EMDEs, cross-border spillovers, and social and economic instability. (High) - High. Higher food commodity prices would benefit fiscal revenues and the trade balance, while high oil prices would increase the value of fuel imports. The exchange rate should act as a shock absorber while monetary policy remains geared towards keeping inflation close to target. FX intervention could be used in the event of disorderly market conditions. - Tighter financial conditions and systemic instability. Higher-for-longer interest rates and term premia amid looser financial regulation, rising investments in cryptocurrencies, and higher trade barriers trigger asset repricing, market dislocations, weak bank and NBFI distress, and further U.S. dollar appreciation, which widens global imbalances, worsens debt affordability, and increases capital outflow from EMDEs. (Medium) - Medium. Global financial tightening, possibly combined with volatile commodity prices, could lead to spiking risk premia, external imbalances, and fiscal pressures. It may dampen external demand, foreign inflows, and investment. Implement additional fiscal consolidation measures. The exchange rate should act as a shock absorber while monetary policy should remain geared towards keeping inflation close to target. FX intervention could be used in the event of disorderly market conditions. - Regional conflicts. Intensification of conflicts (e.g., in the Middle East, Ukraine, Sahel, and East Africa) or terrorism disrupt trade in energy and food, tourism, supply chains, remittances, FDI and financial flows, payment systems, and increase refugee flows. (Medium) - Medium. Markets of grains and meat might see unexpected volatility. The availability and prices of imported fertilizers, key for soy production would be affected. The government should continue facilitating access to alternative meat and fertilizer markets. The exchange rate should act as a shock absorber while monetary policy remains geared to keeping inflation close to target. FX intervention could be used in the event of disorderly market conditions. - Note on probability language and interaction of risks: - As of February 20, 2025. The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. The conjunctural shocks and scenarios highlight risks that may materialize over a shorter horizon (between 12 to 18 months) given the current baseline. Structural risks are those that are likely to remain salient over a longer horizon. ### Structural External Risks - Deepening geoeconomic fragmentation. Persistent conflicts, inward-oriented policies, protectionism, weaker international cooperation, labor mobility curbs, and fracturing technological and payments systems lead to higher input costs, hinder green transition, and lower trade and potential growth. (Medium) - High. FDI could decline and the price volatility of imported goods could increase. The exchange rate should be allowed to adjust. Structural reforms to enhance productivity and efforts to continue facilitating export diversification, including through access to alternative meat and fertilizer markets. - Climate change. Extreme climate events driven by rising temperatures cause loss of life, damage to infrastructure, food insecurity, supply disruptions, lower growth, and financial instability. (Medium) - High. This may create supply chain disruptions and inflationary pressures, causing water and food shortages and reducing growth. The exchange rate should be allowed to adjust. Reducing export concentration, diversifying the mix of clean power generation, and facilitating adaptation in agriculture would help increase resilience in the medium term. ### Domestic Risks - Weather-related shocks (Medium to High): The agriculture, construction and energy sector may be adversely impacted by weather. Delayed rains and heat waves during the planting season may affect output and inflation. - Medium to High. Shocks to the agriculture sector and construction affect GDP growth, export performance and the exchange rate, and the financial sector due to banks' agricultural lending. Shocks to the energy sector would lessen government revenue. The exchange rate should act as a shock absorber. FX intervention could be used in the event of disorderly market conditions. - Fiscal sustainability (Medium): The worsening position of the Caja Fiscal, if unaddressed, could challenge medium-term fiscal sustainability, making it difficult to keep the fiscal deficit below the deficit ceiling stipulated in the Fiscal Responsibility Law in the upcoming years. - Medium to High. Fiscal prudence is the cornerstone of macroeconomic stability in Paraguay. Deviations or reversals from the fiscal consolidation path could significantly impact investor confidence, raise financing costs, and affect growth performance. Accelerate efforts to raise fiscal revenues and increase expenditure efficiency, including through public procurement processes, and resolving pension system imbalances. *Annex III. Risk Assessment Matrix — As of February 20, 2025.* ### 1. After reaching 4.2 percent in 2024, real GDP growth is projected to remain robust in ### 1pryea2025001-print-pdf - 1. After reaching 4.2 percent in 2024, real GDP growth is projected to remain robust in ### Macroeconomic outlook and inflation - Real GDP growth: - Reached 4.2 percent in 2024. - Projected to be around 4 percent in 2025, driven mainly by strong domestic demand. - Inflation and monetary policy: - Inflation target lowered from 4 percent to 3.5 percent in December (to be reached over the monetary policy horizon of 18 to 24 months). - Monetary Policy Committee (CPM) maintained the monetary policy interest rate at 6 percent at its May 2025 meeting. - Private agents’ inflation expectations are aligned with the new 3.5 percent target. - Exchange rate and reserves: - The Guaraní depreciated 6.5 percent in nominal terms against the US dollar in 2024 and an additional 2.5 percent from late December to late April. - Net international reserves have remained above 6 months of import coverage. - External sector: - Current account deficit reached 3.7 percent of GDP in 2024 and is expected to narrow in 2025 as electricity exports recover and beef exports increase. - Expected increase in imports associated with large-scale FDI projects will imply a temporary deterioration over the medium term followed by a stronger balance as exports come on stream. ### Fiscal policy, consolidation, and debt management - Fiscal outcomes: - Central government budget deficit decreased from 4.1 percent of GDP in 2023 to 2.6 percent of GDP in 2024. - National General Budget for fiscal year 2025 envisages a deficit of up to 1.9 percent of GDP for the central administration. - Gradual reduction of the deficit toward the maximum ceiling of 1.5 percent of GDP set by the fiscal responsibility law by 2026. - Revenue performance and administration: - Tax collection improved notably due to rebound in corporate income tax following the 2022 drought, improvements in collection and enforcement practices, greater efficiency in tax administration, digitalization, tighter control of border areas, and expansion of the taxpayer base. - Debt management: - Debt remains at prudent levels; efforts underway to improve currency composition. - International local-currency bond issuances: first in February 2024 and another equivalent of USD 600 million in February 2025 to reduce risks associated with foreign-currency-denominated debt. ### Public expenditure, investment management, and pensions - Public expenditure systems and transparency: - Implementation progress on submodule of the Goods and Services Management System (SIGEBYS) of SIARE for spending on goods in commitment, accrual, and payment order phases for all Executive Branch entities; pilot phases for services (reform target for December 2024). - Integration of public works expenditures into SIABYS submodule of SIARE expected to be completed in the second half of 2025 and include public works in 2025. - Public investment monitoring: - Preparing procedural guide for the monitoring unit of the General Directorate of Public Investment; plan to publish and apply the guide to pilot investment projects no later than September 2025 (reform target proposed to be reset to September 2025). - New law on public-private partnerships (PPPs) adopted to modernize investment promotion and contracting. - Pensions and retirement system reforms: - Actuarial study completed for the public sector pension system (“Caja Fiscal”) to inform comprehensive legislative reform. - Congress passed Law No. 7446/24 introducing key reforms for the Social Security Institute (IPS), including: - Retirement benefit calculation based on the average salary of the last 120 months (instead of 36). - Possibility of voluntary contributions for members not yet qualifying for retirement. - Gradual redirection of 2.5 percent of the employer's contribution to the Health-Maternity Fund. - Digital census of public sector pension beneficiaries reached 85 percent of the 79,000 beneficiaries. - Progress on establishing the Social Security Council of the Superintendency of Retirement and Pensions; expected completion of Council and related regulations by the second quarter of 2025. ### Revenue administration and tax framework reforms - Tax and customs modernization: - Priority to modernize tax framework and optimize DNIT performance. - Establishing a regularly functioning Risk Management Committee with Tax and Customs subcommittees (reform target for June 2025). - Implementation of a risk-based compliance improvement plan to address at least one key risk to customs tax collection (reform target for October 2025). ### Monetary and exchange rate policies - Inflation management: - Monetary policy oriented to converge inflation toward 3.5 percent over 18-24 months; commitment to monitor and react proactively as needed. - Exchange rate policy: - Exchange rate serves as shock absorber; interventions focus on moderating large fluctuations not corresponding to fundamentals, while preserving the inflation-targeting framework. ### Structural reforms to boost productivity and governance (Pillar II) - Land and property: - Revised regulations of the General Directorate of the National Cadastre Service to be approved by Resolution by the beginning of the third quarter of 2025 (reform target for March 2025). - National Unified Registry (RUN) unifying key registries expected to become operational in January 2026. - Insolvency framework: - Revised bankruptcy bill to be submitted to Congress by October 2025 (reform target for October 2025). - Governance and anti-corruption: - Law 7389/24 enacted establishing the National Regime for Integrity, Transparency and Prevention of Corruption. - New Civil Service Law approved focusing on merit and professionalization. - Standardization and harmonization of procurement definitions for 520 medicines (reform target for December 2024). - Health Information System (HIS) implemented in more than 900 public health facilities, including two public hospitals in Asunción area, scheduled for June 2025 (reform target for June 2025). - Accountability tools: - Progress on an information-sharing system for reviewing public officials’ assets; first pilot program for cross-checking data on public officials’ assets (reform target for August 2025). - AML/CFT: - Delays in completing updated National Risk Assessment, but publication expected this year to support Decree 2463 of September 2024. ### Social inclusion, labor formalization, and social protection (Pillar III) - Social protection and care policy: - Inter-Agency Care Commission developed an Action Plan for the National Care Policy approved in April 2025 (reform target for December 2024). - Protection of women from violence: - Pilot program and single registry for complaints of violence against women developed; administrative procedures for inter-agency coordination pending (reform target proposed to be reset to September 2025). - Formalization of employment and MSME support: - Congress approved revision of the Law for Micro, Small and Medium-Sized Enterprises (MSMEs); regulation being finalized. - Ministry of Labor, Employment and Social Security to finalize worker formalization strategy by the second half of 2025. - BNF and AFD developed a Financial Strengthening Program improving access to credit with lower rates, longer terms, and more flexible requirements. - Partial approval of legal initiative to create a Management Trust for financial support to producers, independent professionals, self-employed, micro, small and medium-sized enterprises; CAH and AFD to develop facilities for small farmers. ### Climate resilience, energy, and financial sector measures - Climate policy and carbon credits: - Government regulated the Carbon Credits Law in February 2025, establishing ownership, an official registration system, and facilitation of commercialization; regulations allow credits generated in Paraguay to be used in regulated markets in other jurisdictions. - Bilateral agreements for trading carbon credits under this legislation are being pursued. - Financial sector resilience to natural disasters: - Superintendency of Banks, with World Bank support, began including climate-related risks in the financial sector risk assessment framework (RM3). - BCP adopted a climate-related financial risk monitoring and assessment framework for the banking sector and issued supervisory guidelines in April, May and June 2025 for banks to incorporate climate-related risks into their risk management frameworks (reform measure). - ANDE and energy sector reforms: - Independent audit of ANDE's financial statements for 2022 and 2023 underway; harmonization of accounting standards expected by the end of June. - IDB and a regional consulting firm prepared a study to establish ANDE costs by business segment (reform measure). - ANDE to publish audit and study results and, using these inputs and the loss reduction plan (RM8), develop, publish, and gradually adopt specific and transparent methodologies for adjusting electricity tariffs (reform measure). - Longer-term governance reforms envisaged to separate generation, transmission and distribution, establish a transmission system operator, and enable ANDE to access capital markets without sovereign guarantee. *Source: 1pryea2025001-print-pdf - 1. After reaching 4.2 percent in 2024, real GDP growth is projected to remain robust in — https://www.imf.org/-/media/files/publications/cr/2025/english/1pryea2025001-print-pdf.pdf* ### 26. Explicit Carbon Tax on Liquid Fuels (RM9). To reduce the use of imported fossil fuels in ### Explicit Carbon Tax on Liquid Fuels (RM9) and Related Transport Reforms ### Explicit Carbon Tax on Liquid Fuels (RM9) - Objective: reduce the use of imported fossil fuels in the transport sector. - Main design features: - Change the tax base from liters to carbon content per ton CO2 equivalent. - Establish a carbon tax equivalent to the level of previous taxes on diesel, and apply it also to gasoline and liquefied petroleum gas (LPG). - Reduce excise taxes on gasoline and LPG so that the total effective rate applied to each fuel remains unchanged. - Implementation status: - A draft law has been prepared, with technical support from IMF staff. - The draft law is under technical review, considering implementation challenges and implications for the National Tax Revenue Directorate. - Adjustment and review: - The carbon tax rate will be revised and adjusted in accordance with the outcome of a technical analysis published by the MEF and the BCP. - The analysis will be performed periodically to assess changes to the tax, depending on the state of macroeconomic variables and the initial carbon price at the time the policy was originally implemented. ### Electrification of Public and Private Transport (RM10) - Objective: support technological transition to electric vehicles while minimizing tax expenditure and prioritizing emissions reductions. - Measures and pilot: - Continue efforts to adjust tax incentives for electric vehicles in line with program objectives, adopting a gradual approach. - Received and will install 8 charging units for electric buses to support a pilot program with 30 new electric buses in the metropolitan area of Asunción. - The government will preserve ownership of the chargers and buses; operation will be run by a private company. - The pilot will inform regulations defining the operating model for an incrementally electric public transport system, taking into account international experience. - A white paper is being developed to set targets to sustainably increase the percentage of electric buses in the Asunción metropolitan area. - Implementation status: - RM10 is listed as "In progress" for the 6th Review. ### Context within the Government’s Structural Agenda - Since August 2023, the government has promoted an expanded structural agenda. - Under this agenda, 14 key reforms have already been approved aimed at strengthening governance, improving the investment climate, and modernizing the functioning of the State. ### Program Monitoring, Targets, and Timetable - Monitoring framework: - Modified quantitative targets, continuous targets, and reform targets will continue to track progress in policy implementation under the PCI program. - Quantitative targets have been set for the end of June 2025, and continuous targets will be monitored (Tables 1a and 1b). - The date of the sixth review is November 1, 2025. - The requested three-month extension for the PCI and RSF will allow more time to implement reforms under the two agreements. - Selected quantitative targets (Table 1a): - Ceiling on the central government fiscal deficit (in billions of guaraníes): - end-Dec 2024: -8,580 (Actual Status: Met) - end-Jun 2025: -2,322 (Proposed QT) - historical/other value shown: -9,106 - Ceiling on current primary expenditure of the central government (in billions of guaraníes): - end-Dec 2024: 43,151 (Actual Status: Met) - end-Jun 2025: 21,304 (Proposed QT) - historical/other value shown: 43,374 - Ceiling on the net incurrence of floating debt by the central government: - end-Dec 2024: -3,017 (Actual Status: Met) - end-Jun 2025: -1,800 (Proposed QT) - historical/other value shown: 0 - Continuous target — Ceiling on accumulation of external debt payment arrears by the central administration (in millions of U.S. dollar): - end-Dec 2024: 0.0 (Actual Status: Met) - end-Jun 2025: 0.0 (Proposed QT) - Inflation Consultation Band (end of period, center point definitions): - Upper band limit (2 percent above center point): 6.0 - End of period inflation, center point: 4.0 (end-Jun 2025) and 3.8 (end-Dec 2024; Actual Status: Met) - Lower band limit (2 percent below center point): 2.0 - Memorandum item — Social assistance benefits: - end-Dec 2024: 3,935 (Actual Status: Met) - end-Jun 2025: 1,689 (Proposed QT) - historical/other value shown: 3,742 - Continuous standard targets (Table 1b) include: - Not to impose or intensify restrictions on payments and transfers for current international transactions. - Not to introduce or modify multiple currency practices. - Not to conclude bilateral payments agreements inconsistent with Article VIII. - Not to impose or intensify import restrictions for balance of payments reasons. - Not to accumulate external payments arrears. ### Reform Targets and RSF Reform Measures Relevant to RM9 and RM10 - RSF Reform Measures (Table 4) — selected entries: - RM9: "MEF, in coordination with DNIT, to adopt an explicit carbon tax replacing existing excise taxes on liquid fuels." - Review: 6th Review - Assessed: In progress - RM10: "10a. MOPC/VMME-VMT, MIC and MEF to enact regulation of the Electromobility Law 6925/2023, and to adjust fiscal incentives in favor of electric vehicles. 10b. MIC, MOPC/VMT and ANDE to install additional electric public charging infrastructure. VMT to lead the selection of the operational model and develop regulations for electric public transportation in the metropolitan area of Asuncion and set targets for an increased share of electric buses in the metropolitan area of Asuncion." - Review: 6th Review - Assessed: In progress - RSF rephasing and access (Table 5): - Several RSF tranches have Availability Date June 1, 2024, November 1, 2024, May 22, 2025, and November 1, 2025 with amounts listed in Million of SDR and Percent of Quota. - Entries relevant to RM9 and RM10: - RM5, RM10, RM6 and RM9 are proposed to be rephased to November 1, 2025 (memorandum note 2/). - Aggregate figures: - Total: 302.10 - Percent of Quota: 150.00 - Memorandum Item — Quota: 201.40 ### Implementation and Reporting Requirements (Program Definitions from the TMU) - Fiscal reporting and definitions: - The net lending/borrowing ratio (overall fiscal balance) follows the GFSM 2001 definition; it equals total government revenues minus total government outlays (total obligated expenditure plus net acquisition of nonfinancial assets). - Obligated government expenditure is defined on the basis of a payment order accepted by the Treasury, as well as those executed with external resources. - Reporting requirements: - Authorities will report to IMF staff, on a monthly basis, provisional data on the overall fiscal balance and its components with a lag of no more than 30 days after the end of the month. - 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): - Primary current expenditure includes: (i) compensation of employees; (ii) expenditures for the use of goods and services; (iii) subsidies; (iv) current grants; (v) social benefits; (vi) other current expenditures. - The quantitative target is set as a ceiling to primary current expenditure accumulated since the beginning of the year. - Reporting requirement: monthly provisional data with a lag of no more than 30 days after month end. - Cap on net incurrence of central government floating debt (program definition): - Floating debt equals the difference between expenditure recorded on an obligated basis and amounts transferred for payment by the Treasury (from SICO and SITE). - The quantitative target is capped at the cumulative net change in floating debt since the beginning of the year. *Source: IMF staff summary of the provided program text.* ### 8. Reporting requirements. Data recorded on a monthly basis will be provided to the Fund with a lag ### 8. Reporting requirements. Data recorded on a monthly basis will be provided to the Fund with a lag ### Reporting requirements (general) - 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. - Reports required monthly are to be transmitted within 30 days after the close of each month unless otherwise specified. ### Cap on the Accumulation of Arrears on Foreign Debt Payments by the Central Government - Definition: External debt service arrears are defined as overdue debt service arising from obligations contracted directly or guaranteed by the central government, except for debt subject to rescheduling or restructuring. - Program requirement: 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 Current Central Bank of Paraguay Projections - Definition: Inflation is defined as the 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 on the reasons for the deviation and the proposed policy response, and a consultation with the IMF Executive Board should be held. ### Social Assistance Benefits - Definition: Social assistance benefits follow the GFSM 2001 classification and will be defined as the Social Assistance Benefits subcomponent of the Social Benefits account of the central government expenditure accounts in the Monthly Financial Situation Report of the Central Government (SITUFIN). - Note: This target is not part of the formal program conditionality, but the execution outcome of this expenditure must be reported as a memorandum item to compare with the original projection. - Reporting requirements: Reports on social assistance benefits and their components must be transmitted monthly, within 30 days after the close of each month. ### Additional Information for PCI Monitoring Purposes / Reporting Requirement - Authorities will transmit to IMF staff, if possible, in electronic format, within the specified deadlines, the following: - Within three days after adoption: any decree, decision, circular, edict, supplementary appropriation order, ordinance, or law that has economic or financial implications for the current program, including acts modifying budgetary allocations, creation of a new agency or a new fund. - Within a maximum period of 30 days (except in specific cases explicitly indicated): preliminary data on: - Tax receipts and tax and customs payments by item, accompanied by the corresponding receipts on a monthly basis; - The monthly amount of expenditures committed, certified, or for which payment orders have been issued; - The four-monthly report by the General Directorate of Public Investment (DGIP), based on the National Public Investment System (SNIP), on investment projects, with their progress and execution; - The complete monthly picture of the financial situation of the central government based on the Treasury accounts (SITUFIN), including the breakdown of tax revenues by type of tax; - The monthly statistical report of public debt included in the Debt Management and Financial Analysis System (DMFAS), by creditor category, and separating debt service into amortization and interest payments, providing this information no later than six weeks after the close of the month; - A 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)); - A monthly report on the price structure of fuel products, including an estimate of subsidies involved, if any. - Final data: The final data will be provided as soon as the 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 - The Central Bank of Paraguay will transmit to IMF staff: - The central bank’s monthly balance sheet, with a maximum lag of one month; - The monthly consolidated balance sheet of the banks, with a maximum lag of two months; - The 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; - The 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 (summary of key measures and timelines) - General: For all the 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 must align with technical recommendations of IMF staff, including technical assistance from the IMF or the World Bank, as appropriate. - RM5: - ANDE audit should cover and verify ANDE’s costs, revenues, and administrative and capital expenditures, following standard international accounting practices. - Technical study should cover costs by business segment: generation, transmission, distribution, and marketing; provide comparators and determine cost efficiency by segment; input for rate adjustment mechanism. - Results of the audit and technical study will be made public when delivered by the reputable international firm. - RM6: - Regulation should include mandate, timelines, principles to guide rate adjustments, and specify: - Responsible entity: a 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. - Cost efficiency: methodology should compare ANDE’s performance with comparators and determine cost recovery rates; specify loss reduction trajectory in accordance with RM8, recognizing current transmission losses in 2024 and gradually reducing 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 and establish a plan for gradual rate increases in consultation with the Vice Ministry of Mines and Energy and the National Council of State-Owned Enterprises. - RM7: - Focus on three household appliances prioritized for energy saving potential: residential refrigerators, air conditioners, and industrial electric motors (per UNEP). - 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 International Organization for Standardization best practices. - RM8: - 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. - Smart meter implementation will prioritize consumers accounting for a high percentage of electricity sales and consumption. - By the same date, ANDE will begin the gradual introduction of hourly rates. - Inspections target: - 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 around 16,000 inspections in 2022, so 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 replacing current selective taxes on fuel consumption 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 considering the trends in the CPI, fuel prices, and the exchange rate for any revision. - The draft of the respective decree will be shared with the IMF in advance. ### World Bank Assessment Update — Climate and Resilience (selected findings and policy actions) - Economic impact and climate vulnerability: - Real GDP grew 4.2 percent in 2024, driven by strong domestic demand. - Growth would have been 0.5 percentage points (pp) faster if not for uneven rainfall along the Paraguay and Paraná rivers during most of 2024, which suppressed electricity generation from the binational Itaipú and Yacyreta dams. - Electricity and water account for about 8 percent of nominal GDP. - Record soybean yield in 2024: 11 million tons. - In Q1 2025, navigability challenges and production declines contributed to a 14 percent reduction in soy export volumes. - Climate outlook and impacts: - Uneven rainfall in parts of the soy-producing Eastern region could reduce the main soybean harvest by 15 percent in 2025. - Continued drought in Western Paraguay could cause cattle herd declines and potable water shortages in several districts, affecting poor and vulnerable populations. - Policy and institutional developments: - January 2025: MADES submitted Paraguay’s First Biennial Transparency report to the UNFCCC, summarizing adaptation progress and challenges; National Adaptation Plan envisions 25 actions across 7 priority sectors. - January 2025: Law 7452 enacted updating PPP legal framework, mandating environmental and climate impact assessments for PPP projects. - November 2024: Decree 2882 obligated environmental and climate change criteria to be considered at each stage of public investment projects’ life cycles. - February 2025: Regulatory framework approved for Law 7190/2023 on carbon credits, establishing the Carbon Markets directorate and starting the national Carbon Credit registry. - December 2024: SENACSA published Resolution No. 2103 mandating compulsory individual identification of calves born between July 1, 2024, and June 30, 2025, using official identification devices. - Amendments to Law 6977/2023 to promote non-conventional and non-hydraulic renewable energy generation are under discussion in Congress. - December 2024: Ministry of Economy and Finance published a framework for Green, Social and Sustainable Bonds and a national green finance taxonomy. - World Bank engagement: - World Bank prepared a Country Climate Development Report informing the RSF reform matrix. - Government requested World Bank support to develop a Long-Term Climate Strategy and requested technical assistance on commercial forestry, land administration, a social protection strategy for high climate risk areas, and incorporating climate risks into the banking sector. - World Bank and IFC published a Country Private Sector Diagnostic identifying barriers to private investment in renewable energy, forestry, sustainable agriculture, and light manufacturing. *Source: 1pryea2025001-print-pdf - 8. Reporting requirements. Data recorded on a monthly basis will be provided to the Fund with a lag* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1pryea2025001-print-pdf.pdf_