## IMF Executive Board Concludes 2020 Article IV Consultation with Paraguay

_IMF News, March 4, 2021_

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## Bibliographic details
- Published: March 4, 2021

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### Pandemic shock, policy response, and social impact
- Paraguay was rebounding from a bad weather induced downturn in 2019 with full-year growth forecast at over 4 percent in early 2020; the Covid-19 epidemic halted the recovery.
- An early lockdown kept the death toll among the lowest in the region but led to a sharp economic contraction, with women, informal sector workers and service workers particularly hard hit.
- Government measures:
  - Health: quickly expanded medical resources.
  - Social: started two new and temporary social assistance programs and temporarily expanded a third.
  - Economic: increased investment and other spending; central bank lowered interest rates, increased liquidity provision, and allowed banks to renew, refinance and restructure loans without penalty.
- Fiscal outcome: emergency spending together with a fall in tax revenues led to a further increase of the deficit to 6½ percent of GDP, well above the ceiling set by the Fiscal Responsibility Law.

### Macroeconomic developments and outlook
- Real GDP:
  - Likely shrunk by about 1 percent in 2020.
  - Projected to rebound by 4 percent in 2021.
- Inflation:
  - Hit a historical low in mid-2020.
  - Recovered to 2.2 percent in December 2020.
  - Projected to remain below the midpoint of the central bank’s target range through 2021.
- Key downside risk: the Covid-19 epidemic poses the highest risk to the outlook.

### Executive Board assessment — key findings and policy guidance
- Commendation:
  - Directors commended the authorities for their response to the COVID-19 pandemic, which limited the number of cases and deaths and mitigated negative economic and social impacts.
- Risks:
  - Downside risks remain substantial, including from a worsening of the COVID-19 pandemic and negative weather shocks.
- Fiscal policy:
  - Directors agreed the widening of the fiscal deficit in 2020 had been appropriate.
  - Fiscal support should not be withdrawn prematurely, particularly if risks such as a worsening of the COVID-19 pandemic or negative weather shocks materialize.
  - Important to uphold health and social spending while protecting public investment.
  - Encouraged a gradual return to lower deficits once the pandemic abates to maintain fiscal sustainability.
  - Welcomed authorities’ plan to return to the deficit ceiling under the fiscal responsibility law by 2024.
  - Improving expenditure efficiency and transparency and domestic tax revenue mobilization would be important to cover social and investment spending needs.
- Monetary and financial sector policy:
  - Noted that monetary and financial sector policies were appropriately accommodative.
  - Encouraged close monitoring of financial sector stability while gradually phasing out emergency measures.
  - Recommended allowing exchange rate flexibility in line with fundamentals and limiting foreign exchange interventions to prevent disorderly market conditions.
- Structural reforms and governance:
  - Emphasized need to press ahead with structural reforms to improve governance, business climate, and human capital.
  - Welcomed the authorities’ reform agenda as formulated in their Economic Recovery Plan.
  - Commended efforts to safeguard integrity of COVID-19 funds for social transfers and emergency spending.
  - Took note of the newly adopted anti-corruption plan, partly based on staff’s governance assessment project recommendations.
  - Welcomed recent progress in the AML/CFT regulatory framework and encouraged further strengthening of institutional capacity for effective implementation.

### Paraguay: Selected economic and social indicators (selected figures preserved exactly)
- Social and demographic (2018 unless noted):
  - Population 2018 (millions): 7.1
  - Gini index (2018): 46.2
  - Unemployment rate (2019): 6.5
  - Life expectancy at birth (2018): 74.1
  - Percentage of population below the poverty line (2018): 24.2
  - Adult literacy rate (2018): 94.0
  - Rank in UNDP development index (2019): 98 of 189
  - GDP per capita (US$, 2019): 5,451
- Selected economic series (annual percent change unless otherwise indicated; columns: 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024, 2025 where provided):
  - Real GDP: 5.0; 3.4; 0.0; -0.9; 4.0; 3.5
  - Nominal GDP: 7.2; 5.6; 2.8; 2.9; 9.5; 6.9; 7.6; 6.8
  - Per capita GDP (U.S. dollars, thousands): 5.7; 5.3; 5.2; 5.5; 6.0; 6.2
  - Consumption (contribution to real GDP growth): 3.1; 0.4; -2.2; 4.4; 3.9; 2.7; 2.4
  - Investment (contribution to real GDP growth): 2.5; -0.4; -0.1; 1.4; 0.7; 0.9; 0.8; 1.0
  - Net Exports (contribution to real growth): -0.7; -1.8; -0.6; -1.5
  - Consumer prices (end of period): 4.5; 3.2; 2.3
  - Nominal exchange rate (Guarani per U.S. dollar, eop): 5,590; 5,961; 6,453; …
  - Credit to private sector 1/: 4.9; 14.1; 9.7; 8.1; 5.4
  - Exports (fob, values): 11.8; -9.3; -13.7; 27.0; 7.3; 7.5; 4.1
  - Imports (cif, values): 17.8; 12.1; -4.6; -23.5; 30.2; 12.6
  - External current account (percent of GDP): 1.5; 0.6
  - Trade balance (percent of GDP): -0.3; 1.6; 2.1; 1.9; 1.7
  - Exports (percent of GDP): 34.3; 34.2; 32.9; 29.8; 36.0; 36.4; 36.7; 36.3; 35.9
    - Of which: Electricity: 4.3; 4.2; 3.8
  - Imports (percent of GDP): -29.5; -32.0; -32.3; -26.0; -32.2; -34.1; -33.9; -33.7; -33.5
    - Of which: Oil imports: -4.0; -3.5; -2.5; -2.8; -2.7
  - Gross international reserves (in millions of U.S. dollars): 8,145.7; 8,004.0; 7,996.1; 8,496.1; 8,996.1; 9,546.1; 10,096.1
  - In months of next-year imports of goods and services: 8.9; 6.7; 6.4; 6.6
  - Ratio to short-term external debt: 2.6; 1.8
  - Gross domestic investment (percent of GDP): 21.2; 22.8; 22.4; 22.3; 22.2
  - Gross domestic saving (percent of GDP): 24.3; 21.8; 23.6; 23.7; 23.0; 22.7
  - Central government revenues (percent of GDP): 14.2; 13.9; 13.1; 13.7; 14.0
    - Of which: Tax revenues: 9.9; 9.2; 9.3; 10.0; 10.1; 10.2
  - Central government expenditures (percent of GDP): 15.3; 16.9; 19.6; 17.1; 16.5; 16.0; 15.4
    - Of which: Compensation of Employees: 6.3; 6.1; 5.8
    - Of which: Net Acquisition of Nonfinancial Assets: 2.0; 3.0
  - Central government net lending/borrowing (percent of GDP): -1.1; -1.4; -6.5; -2.1
  - Central government primary balance (percent of GDP): -2.0; -5.5
  - Public sector debt (excl. central bank bills, percent of GDP): 19.8; 25.6; 34.9; 35.4; 36.1; 35.7
    - Of which: Foreign currency: 15.8; 18.0; 30.1; 30.6; 31.4; 31.2; 31.0
    - Of which: Domestic currency: 4.8; 4.7; 5.1
- Memorandum items:
  - GDP (billions of Guaranies) 3/: 219,188; 231,489; 238,054; 244,955; 268,105; 286,678; 308,567; 329,550; 351,880
  - GDP (US$ billions): 39.4; 40.4; 38.1

Sources noted in original material: Central Bank of Paraguay; Ministry of Finance; and IMF staff estimates and projections.

*Source: IMF Communications Department press release, March 4, 2021.*

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_Source: https://www.imf.org/en/news/articles/2021/03/04/pr2161-paraguay-imf-executive-board-concludes-2020-article-iv-consultation-with-paraguay_