## IMF Executive Board Concludes 2017 Article IV Consultation with Paraguay _IMF News, July 24, 2017_ ## Source details **Canonical URL:** [IMF Executive Board Concludes 2017 Article IV Consultation with Paraguay](https://www.imf.org/en/news/articles/2017/07/24/pr17295-imf-executive-board-concludes-2017-article-iv-consultation-with-paraguay) ## Other formats - [Markdown version](/en/news/articles/2017/07/24/pr17295-imf-executive-board-concludes-2017-article-iv-consultation-with-paraguay/index.md) - [Structured JSON version](/en/news/articles/2017/07/24/pr17295-imf-executive-board-concludes-2017-article-iv-consultation-with-paraguay/index.json) - [Bundle manifest](/en/news/articles/2017/07/24/pr17295-imf-executive-board-concludes-2017-article-iv-consultation-with-paraguay/bundle-manifest.json) ## Bibliographic details - Published: July 24, 2017 --- ### Background and recent performance - Economic momentum and growth - Real GDP expanded by 6½ percent (y/y) during the first quarter of 2017. - Real GDP growth is projected to reach 4.2 percent in 2017. - Over the medium term, real GDP growth is expected to remain near potential of just below 4 percent. - Growth drivers: record soy harvest, booming construction activity, rebound in the maquila industry, strengthened private investment and consumption, and public investment. - Private credit growth remains weak. - Inflation and monetary policy - Inflation remains below the newly lowered target of 4 percent, though underlying inflationary pressures are rising. - Monetary policy remains accommodative after two policy rate cuts in mid-2016. - Recommendation: monetary accommodation should be gradually removed as underlying inflationary pressures rise and bank credit growth resumes. - Fiscal policy - Fiscal deficit outturn of 1.4 percent of GDP last year complied with the Fiscal Responsibility Law (FRL). - Fiscal policy characterized by restraint in current expenditures and a shift towards capital spending. - The 2017 budget culminated in an unprecedented presidential veto, indicating need to strengthen the budget process and Public Financial Management (PFM) framework. - 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. - External sector - 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. - The external position is assessed to be stronger than implied by fundamentals and desirable policies. - Recommendation: drain excess liquidity through additional issuance of BCP paper (IRMs) and selling dollar reserves; limit discretionary FX interventions to exceptional circumstances. ### Executive Board assessment and policy advice - Overall assessment - 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. - Some positive supply shocks (climate-related) acted as tailwinds in agriculture and electricity. - Monetary policy guidance - The IT framework is serving Paraguay well but can be further strengthened. - Recommendations: - Tighter operation of the policy corridor. - Strengthen predictability of foreign exchange operations. - Limit discretionary FX interventions to exceptional circumstances (e.g., disorderly market conditions). - Increase forward-looking policy guidance in public statements to enhance communications and predictability. - Address high credit dollarization, which limits BCP’s ability to affect market interest rates. - Fiscal and structural policy guidance - Strengthen the budget process and PFM framework. - Further fiscal reforms needed; pension and health system reforms required to tackle near- and longer-term imbalances. - 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. - Increase investment in transportation and electricity transmission and distribution to close infrastructure gaps. - Strengthen implementation of National Development Plan (NDP) priorities to secure gains in reducing inequality. ### Financial sector and supervision - Banking system soundness and challenges - Banking system remains profitable; reported capital ratios appear comfortable. - Broad-based measures of loan quality deteriorated and remain at elevated levels; banks have increased provisioning and NPLs remain manageable. - Credit from unregulated non-traditional lenders is growing but remains a small fraction of credit. - Ongoing adjustment in bank balance sheets will take more time to complete. - Regulatory and supervisory priorities - Progress: ratification of a new banking law in December 2016 and introduction of risk-based bank supervision. - Further priorities: - Revisions to the BCP organic charter. - Establishment of a financial stability council. - Implementation of deposit insurance for savings and loan cooperatives. - Integrating financial information through a single credit bureau. - Approve legislation regarding the Sociedades Anonimas and bearer securities in line with international standards to enhance entity transparency and safeguard correspondent banking relationships. ### Data, transparency, and statistical dissemination - 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. ### Selected economic and social indicators (selected exact figures from report) - Social and demographic indicators - Population 2016 (millions): 6.8 - Gini index (2015): 47.1 - Unemployment rate (2016): 6.0 - Life expectancy at birth (2015): 73.0 - Percentage of population below the poverty line (2016): 28.9 - Adult illiteracy rate (2015): 4.5 - Rank in UNDP development index (2015): 110 of 186 - GDP per capita (US$, 2016): 4,003 - Selected economic indicators (annual percent change, unless otherwise indicated) - Real GDP: 2016 = 4.1; 2017 (Proj.) = 4.2; 2018 (Proj.) = 3.9 - Nominal GDP: 2016 = 9.6; 2017 (Proj.) = 8.4; 2018 (Proj.) = 7.7 - Consumer prices (end of period): 2016 = 3.7; 2017 (value not listed) - 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 - 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 - Monetary policy rate, year-end: 2011 = 7.3; 2012 = 5.5; 2013 = 5.8 - Exports (fob, values): 2011 = 20.7; 2012 = -7.8; 2013 = 16.7; 2014 = -3.7; 2015 = -16.8; 2016 = 2.4 - 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 - 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 - 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) - 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 - 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 - 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 - 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 - Gross national saving (in percent of GDP): 2011 = 13.0; 2012 = 21.4 - Central government revenues (in percent of GDP): 2011 = 19.0; 2012 = 17.9; 2013 = 18.7; 2014 = 18.3 - Of which: Tax revenues (in percent of GDP): 2011 = 12.6; 2012 = 12.7; 2013 = 12.5 - Central government expenditures (in percent of GDP): 2011 = 17.0; 2012 = 18.8; 2013 = 20.5; 2014 = 19.5; 2015 = 19.6 - Of which: Compensation of Employees (in percent of GDP): 2011 = 9.4; 2012 = 8.8; 2013 = 9.3; 2014 = 8.5; 2015 = 8.3 - Of which: Net Acquisition of Non Financial Assets (in percent of GDP): 2011 = 2.6 - Central government net lending/borrowing (in percent of GDP): 2011 = -1.7; 2012 = -1.4; 2013 = -1.5 - Central government primary balance (in percent of GDP): 2011 = 1.3; 2012 = -0.7; 2013 = -0.8 - 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 - Of which: Foreign currency (in percent of GDP): 2011 = 11.0; 2012 = 20.8 - Of which: Domestic currency (in percent of GDP): 2011 = 5.4 - Memorandum items: - 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 - GDP (US$ billions): 2011 = 29.0; 2012 = 30.9; 2013 = 27.3; 2014 = 27.4 *Source: 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.* --- ## References - [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) _Source: https://www.imf.org/en/news/articles/2017/07/24/pr17295-imf-executive-board-concludes-2017-article-iv-consultation-with-paraguay_