{ "title": "IMF Executive Board Concludes 2022 Article IV Consultation with Paraguay", "publication": "IMF News, June 21, 2022", "sourceUrl": "https://www.imf.org/en/news/articles/2022/06/21/pr22217-imf-executive-board-concludes-2022-article-iv-consultation-with-paraguay", "canonical": "https://www.imf.org/en/news/articles/2022/06/21/pr22217-imf-executive-board-concludes-2022-article-iv-consultation-with-paraguay", "overlayPath": "/en/news/articles/2022/06/21/pr22217-imf-executive-board-concludes-2022-article-iv-consultation-with-paraguay/index.md", "summary": "IMF Executive Board Concludes 2022 Article IV Consultation with Paraguay", "publishDate": "2022-06-21", "sections": [ { "heading": "Overview", "content": "- The Executive Board concluded the Article IV consultation with Paraguay on June 15, 2022 and endorsed the staff appraisal without a meeting on a lapse-of-time basis.\n- After two consecutive years of GDP decline, Paraguay’s economy rebounded in 2021, growing by 4.2 percent.\n- The Covid-19 pandemic currently appears under control and most remaining restrictions have recently been lifted.\n- Annual headline inflation reached 11.8 percent in April 2022, driven primarily by higher food and fuel prices and exacerbated by the war in Ukraine.\n- The Central Bank of Paraguay raised its policy rate by a cumulative 650 basis points to 7.25 percent by end-May 2022.\n- The fiscal deficit fell from 6.1 percent of GDP in 2020 to 3.7 percent of GDP in 2021, partly due to expiration of one-off emergency measures.\n- The authorities remain committed to the medium-term fiscal target of converging back to the 1.5 percent of GDP deficit limit under the Fiscal Responsibility Law." }, { "heading": "Recent Macroeconomic Developments", "content": "- 2021 real GDP growth: 4.2 percent.\n- Contractions in 2021: agricultural production and electricity generation.\n- Inflation dynamics: annual headline inflation rose sharply in second half of 2021 and reached 11.8 percent in April 2022.\n- Monetary policy response: policy rate increased by 650 basis points to 7.25 percent by end-May 2022.\n- Fiscal position: deficit peaked at 6.1 percent of GDP in 2020 and declined to 3.7 percent of GDP in 2021." }, { "heading": "Outlook and Projections", "content": "- 2022 GDP growth projected at 0.3 percent (diminished by heatwaves and a severe drought).\n- 2023 GDP growth projected at 4.5 percent.\n- Medium-term growth projected at 3.5 percent.\n- End-2022 inflation projected at about 8 percent (above the central bank’s tolerance corridor of 4 percent +/- 2 percent) with convergence back to the authorities’ target by end-2023.\n- Table highlights (selected series, actuals and projections):\n - Real GDP: 2018: 3.2; 2019: -0.4; 2020: -0.8; 2021: 4.2; 2022: 0.3; 2023: 4.5; 2024: 3.5.\n - Nominal GDP (annual percent change): 2018: 5.2; 2019: 2.6; 2020: 1.4; 2021: 10.1; 2022: 10.9; 2023: 8.9; 2024: 7.2; 2025: 8.1; 2026: 7.7; 2027: 7.9.\n - Per capita GDP (U.S. dollars, thousands): 2018: 5.7; 2019: 5.3; 2020: 4.9; 2021: 5.6; 2022: 5.9; 2023: 6.2; 2024: 6.5; 2025: 6.8; 2026: 7.1.\n - Consumer prices (end of period): 2018: 2.2; 2019: 8.0; 2020: 4.0.\n - Nominal exchange rate (Guarani per U.S. dollar, eop): 2018: 5,961; 2019: 6,453; 2020: 6,917; 2021: 6,879.\n - Monetary policy rate, year-end: 0.75; 5.25 (years not specified in table snippet).\n - Gross international reserves (millions of U.S. dollars): 2018: 8,004; 2019: 7,500; 2020: 9,976; 2021: 10,570; 2022: 10,070; 2023: 11,120; 2024: 11,670; 2025: 12,220; 2026: 12,770.\n - Reserves in months of next-year imports of goods and services: 7.0; 8.3; 8.2; 8.4; 8.5.\n - Public sector debt (excl. central bank bills): 2018: 22.3; 2019: 25.8; 2020: 36.9; 2021: 37.7; 2022: 39.5; 2023: 39.0; 2024: 38.7; 2025: 37.9; 2026: 37.2; 2027: 36.5.\n - Central government revenues (percent of GDP): 14.0; 14.2; 13.5; 13.6; 13.8; 13.7.\n - Central government expenditures (percent of GDP): 15.4; 17.0; 19.7; 17.8; 16.7; 16.0; 15.3; 15.2.\n - Central government net lending/borrowing (percent of GDP): -1.4; -6.1; -3.7; -3.2; -2.3.\n - Central government primary balance (percent of GDP): -0.7; -2.0; -0.9; 0.0; 0.1.\n - GDP (billions of Guaranies): 2018: 230,576; 2019: 236,567; 2020: 239,915; 2021: 264,103; 2022: 292,829; 2023: 318,781; 2024: 341,889; 2025: 369,614; 2026: 398,138; 2027: 429,456.\n - GDP (US$ billions): 40.2; 35.4; 38.3 (years corresponding to entries in table snippet)." }, { "heading": "Risks and Vulnerabilities", "content": "- Near-term risks include fiscal pressures from demands for salary increases and various bills in Congress.\n- Paraguay is vulnerable to climate change over a longer horizon, facing risks from changes in precipitation patterns and the frequency and intensity of severe weather events.\n- Recent heatwaves and a severe drought diminished 2022 GDP growth prospects to 0.3 percent.\n- External position in 2021 was stronger than implied by fundamentals and desirable policies, but external and global inflationary pressures continue to pose challenges." }, { "heading": "Executive Board Assessment", "content": "- Executive Directors endorsed the staff appraisal.\n- After three years of continuous external shocks, Paraguay faces difficult challenges in 2022 and beyond.\n- Countercyclical fiscal policies since 2019 mitigated shocks but raised public debt and depleted fiscal buffers.\n- Monetary policy needs to maintain a tightening bias in the face of global inflationary pressures while avoiding undue strains on the financial system and the economy.\n- The commitment to the Fiscal Responsibility Law (FRL) fiscal rule should be maintained to protect fiscal credibility.\n- Codifying the return to the deficit ceiling in the updated Fiscal Responsibility Law (awaiting discussion in Congress) would be helpful given rocky transition prospects." }, { "heading": "Policy Recommendations and Structural Priorities", "content": "- Fiscal policy and revenue:\n - Rebuild fiscal space to address substantial spending needs in public health, education, basic infrastructure, and climate resilience.\n - Eliminate waste and raise public spending efficiency.\n - Increase private sector involvement, for example through public-private partnerships.\n - Raise more domestic revenue: there is room to increase the tax-to-GDP ratio over the medium term.\n - Continue improving tax administration and reassess Paraguay’s special tax regimes for specific sectors and activities.\n - Consider a tax reform that goes beyond improvements enacted in 2020.\n- Social protection:\n - Carry lessons from Covid-19 temporary social assistance programs into upgrading the system of beneficiaries of the overall social safety net.\n - Improve targeting of cash transfers where feasible using data collected during the pandemic response.\n- Monetary and financial sector policy:\n - Return to price stability remains the main objective of the Central Bank; maintain a balanced, patient, and data-dependent approach to monetary policy.\n - Further monetary policy adjustments should be flexible and informed by inflation drivers and feedback effects between actual inflation and inflation expectations.\n - Continue to deepen and widen financial supervision and implement risk-based supervision.\n - Extend the supervisory perimeter to include pension funds and strengthen the independence and integrity of the regulatory agency for financial cooperatives.\n - Continue efforts to enhance financial inclusion and follow guidance from the peer evaluation on AML/CFT issues.\n- Structural reforms and governance:\n - Step up implementation of structural reforms to improve governance, business climate, and public sector efficiency.\n - Prioritize reforms of public procurement, the civil service, and the structure of the state—legal bills for these reforms are already largely formulated.\n - Integrate policies to counteract climate change into national development planning and the medium- and long-term fiscal budget.\n - Leverage Paraguay’s favorable electricity matrix for the transition toward net-zero GHG consumption and production routines.\n - Complement transition efforts with further investment in renewable energy supply and revitalized initiatives to stop deforestation and degradation.\n\nPress Release No. 22/217 — IMF Communications Department, June 21, 2022.\n\n---\n\n\n References\n\n- Paraguay and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2022/06/21/pr22217-imf-executive-board-concludes-2022-article-iv-consultation-with-paraguay" } ], "bullets": [ "[Markdown version](/en/news/articles/2022/06/21/pr22217-imf-executive-board-concludes-2022-article-iv-consultation-with-paraguay/index.md)", "[Structured JSON version](/en/news/articles/2022/06/21/pr22217-imf-executive-board-concludes-2022-article-iv-consultation-with-paraguay/index.json)", "[Bundle manifest](/en/news/articles/2022/06/21/pr22217-imf-executive-board-concludes-2022-article-iv-consultation-with-paraguay/bundle-manifest.json)", "Published: June 21, 2022", "The Executive Board concluded the Article IV consultation with Paraguay on June 15, 2022 and endorsed the staff appraisal without a meeting on a lapse-of-time basis.", "After two consecutive years of GDP decline, Paraguay’s economy rebounded in 2021, growing by 4.2 percent.", "The Covid-19 pandemic currently appears under control and most remaining restrictions have recently been lifted.", "Annual headline inflation reached 11.8 percent in April 2022, driven primarily by higher food and fuel prices and exacerbated by the war in Ukraine.", "The Central Bank of Paraguay raised its policy rate by a cumulative 650 basis points to 7.25 percent by end-May 2022.", "The fiscal deficit fell from 6.1 percent of GDP in 2020 to 3.7 percent of GDP in 2021, partly due to expiration of one-off emergency measures.", "The authorities remain committed to the medium-term fiscal target of converging back to the 1.5 percent of GDP deficit limit under the Fiscal Responsibility Law.", "2021 real GDP growth: 4.2 percent.", "Contractions in 2021: agricultural production and electricity generation.", "Inflation dynamics: annual headline inflation rose sharply in second half of 2021 and reached 11.8 percent in April 2022.", "Monetary policy response: policy rate increased by 650 basis points to 7.25 percent by end-May 2022.", "Fiscal position: deficit peaked at 6.1 percent of GDP in 2020 and declined to 3.7 percent of GDP in 2021.", "2022 GDP growth projected at 0.3 percent (diminished by heatwaves and a severe drought).", "2023 GDP growth projected at 4.5 percent.", "Medium-term growth projected at 3.5 percent.", "End-2022 inflation projected at about 8 percent (above the central bank’s tolerance corridor of 4 percent +/- 2 percent) with convergence back to the authorities’ target by end-2023.", "Table highlights (selected series, actuals and projections):", "Near-term risks include fiscal pressures from demands for salary increases and various bills in Congress.", "Paraguay is vulnerable to climate change over a longer horizon, facing risks from changes in precipitation patterns and the frequency and intensity of severe weather events.", "Recent heatwaves and a severe drought diminished 2022 GDP growth prospects to 0.3 percent.", "External position in 2021 was stronger than implied by fundamentals and desirable policies, but external and global inflationary pressures continue to pose challenges.", "Executive Directors endorsed the staff appraisal.", "After three years of continuous external shocks, Paraguay faces difficult challenges in 2022 and beyond.", "Countercyclical fiscal policies since 2019 mitigated shocks but raised public debt and depleted fiscal buffers.", "Monetary policy needs to maintain a tightening bias in the face of global inflationary pressures while avoiding undue strains on the financial system and the economy.", "The commitment to the Fiscal Responsibility Law (FRL) fiscal rule should be maintained to protect fiscal credibility.", "Codifying the return to the deficit ceiling in the updated Fiscal Responsibility Law (awaiting discussion in Congress) would be helpful given rocky transition prospects.", "Fiscal policy and revenue:", "Social protection:", "Monetary and financial sector policy:", "Structural reforms and governance:", "[Paraguay and the IMF](http://www.imf.org/external/country/PRY/index.htm)", "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)", "[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)" ], "alternates": { "markdown": "/en/news/articles/2022/06/21/pr22217-imf-executive-board-concludes-2022-article-iv-consultation-with-paraguay/index.md", "json": 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