{
  "title": "IMF Executive Board Concludes 2017 Article IV Consultation with Paraguay",
  "publication": "IMF News, July 24, 2017",
  "sourceUrl": "https://www.imf.org/en/news/articles/2017/07/24/pr17295-imf-executive-board-concludes-2017-article-iv-consultation-with-paraguay",
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  "summary": "Economic momentum and growth",
  "publishDate": "2017-07-24",
  "sections": [
    {
      "heading": "Background and recent performance",
      "content": "- Economic momentum and growth\n  - Real GDP expanded by 6½ percent (y/y) during the first quarter of 2017.\n  - Real GDP growth is projected to reach 4.2 percent in 2017.\n  - Over the medium term, real GDP growth is expected to remain near potential of just below 4 percent.\n  - Growth drivers: record soy harvest, booming construction activity, rebound in the maquila industry, strengthened private investment and consumption, and public investment.\n  - Private credit growth remains weak.\n\n- Inflation and monetary policy\n  - Inflation remains below the newly lowered target of 4 percent, though underlying inflationary pressures are rising.\n  - Monetary policy remains accommodative after two policy rate cuts in mid-2016.\n  - Recommendation: monetary accommodation should be gradually removed as underlying inflationary pressures rise and bank credit growth resumes.\n\n- Fiscal policy\n  - Fiscal deficit outturn of 1.4 percent of GDP last year complied with the Fiscal Responsibility Law (FRL).\n  - Fiscal policy characterized by restraint in current expenditures and a shift towards capital spending.\n  - The 2017 budget culminated in an unprecedented presidential veto, indicating need to strengthen the budget process and Public Financial Management (PFM) framework.\n  - Recommendation: modify assessment of FRL compliance to include the execution stage as well as the budget approval stage; reform pension and health systems to address imbalances.\n\n- External sector\n  - Current account surplus expected to narrow to 1.2 percent of GDP in 2017 from 1.7 percent in the previous year, despite solid export growth.\n  - The external position is assessed to be stronger than implied by fundamentals and desirable policies.\n  - Recommendation: drain excess liquidity through additional issuance of BCP paper (IRMs) and selling dollar reserves; limit discretionary FX interventions to exceptional circumstances."
    },
    {
      "heading": "Executive Board assessment and policy advice",
      "content": "- Overall assessment\n  - Paraguay has grown faster than others in the region, with above-potential growth around 4 percent in 2016 and 2017, outperforming main trading partners and the Latin-American average.\n  - Some positive supply shocks (climate-related) acted as tailwinds in agriculture and electricity.\n\n- Monetary policy guidance\n  - The IT framework is serving Paraguay well but can be further strengthened.\n  - Recommendations:\n    - Tighter operation of the policy corridor.\n    - Strengthen predictability of foreign exchange operations.\n    - Limit discretionary FX interventions to exceptional circumstances (e.g., disorderly market conditions).\n    - Increase forward-looking policy guidance in public statements to enhance communications and predictability.\n    - Address high credit dollarization, which limits BCP’s ability to affect market interest rates.\n\n- Fiscal and structural policy guidance\n  - Strengthen the budget process and PFM framework.\n  - Further fiscal reforms needed; pension and health system reforms required to tackle near- and longer-term imbalances.\n  - Tax reform advice: rebalance away from indirect taxation, maintain low income tax rates but limit deductions to improve progressivity and finance education, training, and conditional cash transfers.\n  - Increase investment in transportation and electricity transmission and distribution to close infrastructure gaps.\n  - Strengthen implementation of National Development Plan (NDP) priorities to secure gains in reducing inequality."
    },
    {
      "heading": "Financial sector and supervision",
      "content": "- Banking system soundness and challenges\n  - Banking system remains profitable; reported capital ratios appear comfortable.\n  - Broad-based measures of loan quality deteriorated and remain at elevated levels; banks have increased provisioning and NPLs remain manageable.\n  - Credit from unregulated non-traditional lenders is growing but remains a small fraction of credit.\n  - Ongoing adjustment in bank balance sheets will take more time to complete.\n\n- Regulatory and supervisory priorities\n  - Progress: ratification of a new banking law in December 2016 and introduction of risk-based bank supervision.\n  - Further priorities:\n    - Revisions to the BCP organic charter.\n    - Establishment of a financial stability council.\n    - Implementation of deposit insurance for savings and loan cooperatives.\n    - Integrating financial information through a single credit bureau.\n    - Approve legislation regarding the Sociedades Anonimas and bearer securities in line with international standards to enhance entity transparency and safeguard correspondent banking relationships."
    },
    {
      "heading": "Data, transparency, and statistical dissemination",
      "content": "- Paraguay implemented an enhanced general data dissemination (e-GDDS) system to make essential macroeconomic data available.\n- Executive Directors encouraged completing remaining steps to satisfy Special Data Dissemination Standard (SDDS) requirements."
    },
    {
      "heading": "Selected economic and social indicators (selected exact figures from report)",
      "content": "- Social and demographic indicators\n  - Population 2016 (millions): 6.8\n  - Gini index (2015): 47.1\n  - Unemployment rate (2016): 6.0\n  - Life expectancy at birth (2015): 73.0\n  - Percentage of population below the poverty line (2016): 28.9\n  - Adult illiteracy rate (2015): 4.5\n  - Rank in UNDP development index (2015): 110 of 186\n  - GDP per capita (US$, 2016): 4,003\n\n- Selected economic indicators (annual percent change, unless otherwise indicated)\n  - Real GDP: 2016 = 4.1; 2017 (Proj.) = 4.2; 2018 (Proj.) = 3.9\n  - Nominal GDP: 2016 = 9.6; 2017 (Proj.) = 8.4; 2018 (Proj.) = 7.7\n  - Consumer prices (end of period): 2016 = 3.7; 2017 (value not listed)\n  - Nominal exchange rate (Guarani per U.S. dollar, eop): 2011 = 4,440; 2012 = 4,289; 2013 = 4,524; 2014 = 4,626; 2015 = 5,807; 2016 = 5,767\n  - Credit to private sector 1/: 2011 = 25.6; 2012 = 15.8; 2013 = 19.7; 2014 = 19.8; 2015 = 8.7; 2016 = 1.2; 2017 (Proj.) = 0.7; 2018 (Proj.) = 2.3\n  - Monetary policy rate, year-end: 2011 = 7.3; 2012 = 5.5; 2013 = 5.8\n  - Exports (fob, values): 2011 = 20.7; 2012 = -7.8; 2013 = 16.7; 2014 = -3.7; 2015 = -16.8; 2016 = 2.4\n  - Imports (cif, values): 2011 = 22.9; 2012 = -5.9; 2013 = 7.8; 2014 = 1.1; 2015 = -14.6; 2016 = -5.1; 2017 (Proj.) = 6.6; 2018 (Proj.) = 7.9\n  - Terms of trade: 2011 = 14.3; 2012 = -10.2; 2013 = 11.4; 2014 = 9.8; 2015 = -4.9; 2016 = 3.5; 2017 (Proj.) = -4.3\n  - Current account (in percent of GDP): 2011 = 0.4; 2012 = -2.0; 2013 = 1.7; 2014 = -0.4; 2015 = -1.1; 2016 = 0.1; 2017 (Proj.) = 1.2 (noted earlier in text)\n  - Exports (in percent of GDP): 2011 = 50.3; 2012 = 47.4; 2013 = 47.0; 2014 = 42.4; 2015 = 39.9; 2016 = 40.7; 2017 (Proj.) = 40.4\n  - Imports (in percent of GDP): 2011 = -46.9; 2012 = -45.1; 2013 = -41.2; 2014 = -39.1; 2015 = -37.8; 2016 = -35.7; 2017 (Proj.) = -35.9; 2018 (Proj.) = -36.4\n  - Gross international reserves (in millions of U.S. dollars): 2011 = 4,984; 2012 = 4,994; 2013 = 5,871; 2014 = 6,891; 2015 = 6,200; 2016 = 7,143; 2017 (Proj.) = 8,128; 2018 (Proj.) = 8,244\n  - Gross domestic investment (in percent of GDP): 2011 = 17.1; 2012 = 15.1; 2013 = 15.4; 2014 = 16.3; 2015 = 16.8; 2016 = 18.0; 2017 (Proj.) = 20.2; 2018 (Proj.) = 20.6\n  - Gross national saving (in percent of GDP): 2011 = 13.0; 2012 = 21.4\n  - Central government revenues (in percent of GDP): 2011 = 19.0; 2012 = 17.9; 2013 = 18.7; 2014 = 18.3\n  - Of which: Tax revenues (in percent of GDP): 2011 = 12.6; 2012 = 12.7; 2013 = 12.5\n  - Central government expenditures (in percent of GDP): 2011 = 17.0; 2012 = 18.8; 2013 = 20.5; 2014 = 19.5; 2015 = 19.6\n  - Of which: Compensation of Employees (in percent of GDP): 2011 = 9.4; 2012 = 8.8; 2013 = 9.3; 2014 = 8.5; 2015 = 8.3\n  - Of which: Net Acquisition of Non Financial Assets (in percent of GDP): 2011 = 2.6\n  - Central government net lending/borrowing (in percent of GDP): 2011 = -1.7; 2012 = -1.4; 2013 = -1.5\n  - Central government primary balance (in percent of GDP): 2011 = 1.3; 2012 = -0.7; 2013 = -0.8\n  - Public sector debt (excl. central bank bills, in percent of GDP): 2011 = 16.2; 2012 = 24.0; 2013 = 24.6; 2014 = 25.4; 2015 = 25.1\n  - Of which: Foreign currency (in percent of GDP): 2011 = 11.0; 2012 = 20.8\n  - Of which: Domestic currency (in percent of GDP): 2011 = 5.4\n  - Memorandum items:\n    - GDP (billions of Guaranies): 2011 = 105,203; 2012 = 108,832; 2013 = 125,152; 2014 = 137,798; 2015 = 142,003; 2016 = 155,603; 2017 (Proj.) = 168,691; 2018 (Proj.) = 181,666\n    - GDP (US$ billions): 2011 = 29.0; 2012 = 30.9; 2013 = 27.3; 2014 = 27.4\n\nSource: IMF press release — July 24, 2017. Executive Board concluded the 2017 Article IV consultation with Paraguay and considered and endorsed the staff appraisal without a meeting.\n\n---\n\n\n References\n\n- The Executive Board\n- Paraguay and the IMF\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2017/07/24/pr17295-imf-executive-board-concludes-2017-article-iv-consultation-with-paraguay"
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    "Published: July 24, 2017",
    "Economic momentum and growth",
    "Inflation and monetary policy",
    "Fiscal policy",
    "External sector",
    "Overall assessment",
    "Monetary policy guidance",
    "Fiscal and structural policy guidance",
    "Banking system soundness and challenges",
    "Regulatory and supervisory priorities",
    "Paraguay implemented an enhanced general data dissemination (e-GDDS) system to make essential macroeconomic data available.",
    "Executive Directors encouraged completing remaining steps to satisfy Special Data Dissemination Standard (SDDS) requirements.",
    "Social and demographic indicators",
    "Selected economic indicators (annual percent change, unless otherwise indicated)",
    "[The Executive Board](http://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[Paraguay and the IMF](http://www.imf.org/external/country/PRY/index.htm)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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