IMF Executive Board Approves Paraguay’s Policy Coordination Instrument
IMF News, November 22, 2022
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Bibliographic details
- Published: November 22, 2022
Overview
- Press Release No. 22/406 dated November 22, 2022.
- On November 21, 2022, the Executive Board of the International Monetary Fund (IMF) approved a two-year Policy Coordination Instrument (PCI) for Paraguay.
- The PCI involves no use of IMF resources and is available to IMF members that do not need Fund financial resources at the time of approval.
Program objectives and structure
- Purpose:
- Underpin the implementation of needed structural reforms following very positive experiences with Fund-supported programs.
- Signal Paraguay’s commitment to continued strong economic policies and structural reforms.
- Duration and review schedule:
- Two-year instrument covering the last year of the current and the first year of the next administration.
- Program reviews take place on a semi-annual fixed schedule.
Macroeconomic context and outlook
- Current situation:
- Paraguay continues to recover from the COVID-19 pandemic amidst simultaneous shocks that would lead to flat GDP growth and inflation above the Central Bank’s target range this year.
- The economy faced a severe drought in late 2021/early 2022 and a spike in global inflation exacerbated by Russia’s war in Ukraine.
- Outlook:
- The outlook for a recovery in 2023 is favorable, though risks arise from global headwinds, more frequent adverse climate shocks, and domestic uncertainties.
Three key pillars anchoring the authorities’ reform efforts
- (i) Ensure macroeconomic stability and resilience:
- Rebuild fiscal buffers and ensure fiscal sustainability going forward.
- Continue to implement a data-dependent and forward-looking monetary policy.
- (ii) Enhance productivity and foster economic growth:
- Advance structural reforms to improve the effectiveness of the government, modernize the public sector, and improve the business climate.
- (iii) Enhance social protection and inclusiveness:
- Augment coverage and efficiency of Paraguay's social assistance programs.
- Implement reforms to pull informal workers into the formal economy.
Specific targets, measures, and policy directions highlighted by the Acting Chair
- Fiscal policy:
- Rebuilding policy buffers and returning to the fiscal deficit ceiling of 1.5 percent of GDP in 2024 is identified as critical.
- Important measures include enhancing domestic revenue mobilization, reforming the public pension fund, and raising the efficiency of the public sector.
- Monetary and exchange rate policy:
- Monetary policy is aimed at bringing inflation back to the 4 percent target and keeping inflation expectations well-anchored.
- The authorities are committed to maintaining a strong reserve position and using foreign exchange interventions only to address disorderly market conditions.
- Structural and institutional reforms:
- Modernize public institutions, increase government effectiveness, strengthen governance and controlling corruption, and improve the business climate.
- Build resilience to climate change.
- Social policy and inclusion:
- Improve the impact of social assistance programs, increase their coverage among the vulnerable population, promote the formalization of the economy, and strengthen financial inclusion.
Implementation, signaling, and expected benefits
- Although the PCI uses no IMF resources, successful completion of program reviews would help signal Paraguay’s commitment to continued strong economic policies and structural reforms.
- The PCI is underpinned by strong macroeconomic policy plans and will support ongoing initiatives aimed at implementing a broad structural reform agenda.
IMF Press Release No. 22/406 (November 22, 2022).