## IMF Executive Board Concludes First Review Under the Policy Coordination Instrument for Paraguay _IMF News, June 8, 2023_ ## Source details **Canonical URL:** [IMF Executive Board Concludes First Review Under the Policy Coordination Instrument for Paraguay](https://www.imf.org/en/news/articles/2023/06/08/pr232023-imf-executive-board-concludes-first-review-under-the-pci-for-paraguay) ## Other formats - [Markdown version](/en/news/articles/2023/06/08/pr232023-imf-executive-board-concludes-first-review-under-the-pci-for-paraguay/index.md) - [Structured JSON version](/en/news/articles/2023/06/08/pr232023-imf-executive-board-concludes-first-review-under-the-pci-for-paraguay/index.json) - [Bundle manifest](/en/news/articles/2023/06/08/pr232023-imf-executive-board-concludes-first-review-under-the-pci-for-paraguay/bundle-manifest.json) ## Bibliographic details - Published: June 8, 2023 --- ### Economic performance and recent shocks - Paraguay experienced a four-year period of multiple adverse shocks, including the impact of the Covid-19 pandemic and a severe drought in early 2022. - Economic growth is rebounding, mainly on behalf of the recovering agricultural sector. - Inflation peaked in 2022 but has since declined following a proactive and persistently tight monetary policy stance that helped anchor inflation expectations close to the central bank’s target. - The fiscal deficit was reduced to 3.0 percent of GDP in 2022 due to strengthening revenue and expenditure constraint. - The negative impact of lower exports on the external current account was absorbed by private-sector financing and a flexible exchange rate. ### Medium-term outlook and projections - Economic growth is projected at 4.5 percent for 2023. - The external current account is projected to improve notably. - The rate of inflation is expected to converge back to the central bank’s target of four percent in the first half of 2024 at the latest. - The banking system is projected to remain stable, assuming continued sound supervision and healthy internal safeguards. - Paraguay is exposed to various external risks, but their potential impact appears moderate in the near-to-medium term. - Continued sound and credible fiscal policies will be critical to safeguard the favorable scenario. ### Executive Board assessment and findings - The Executive Board concluded the First Review under the Policy Coordination Instrument for Paraguay on June 7, 2023, endorsing the staff appraisal on a lapse-of-time basis. - The two-year program under the PCI was approved in November 2022; the program supports macroeconomic policies and structural reforms to ensure macroeconomic and fiscal stability, foster economic growth, and enhance social protection and inclusion. - The program is performing well; all but two of the program’s targets for December 2022 were met. - The Board found Paraguay’s policy responses effective and appropriate: - The shortfall in export earnings caused by the 2022 drought was weathered through private sector mobilization of external resources and moderate exchange rate adjustment, yielding a better-than-expected international reserves position at year-end. - Fiscal policy held a steady course despite challenging international shocks to energy and food prices. - The central bank’s early and proactive monetary tightening corresponded with a steadily decreasing inflation rate, with a favorable outlook to converge to the midpoint of the inflation target band by end-2023. - Paraguay's banking system remains stable and solvent. ### Policy recommendations and required reforms - Rebuild fiscal buffers and reverse the significant build-up of public debt by reestablishing the fiscal deficit rule. - Advance structural reforms to strengthen public sector efficiency as part of a sustainable fiscal strategy. - Contain losses from the public servants’ pension fund (“Caja Fiscal”) and address contingent financial risks from unsupervised pension funds. - Improve public companies' oversight and strategic management to reduce fiscal risks. - Raise more domestic tax revenue to provide sufficient investment in infrastructure, health, and education to enhance productivity and shared prosperity. - Continue implementation of the structural reform agenda to modernize public institutions, increase government effectiveness, strengthen governance, control corruption, and improve the business climate. - Maintain sound supervision and healthy internal safeguards to preserve banking system stability. ### Social protection and inclusion - Paraguay has made significant strides in developing social programs but still faces high informality, inequality, and poverty rates. - Recommended measures include improving the efficiency of social expenditure, expanding reach to more vulnerable populations, enhancing social program targeting, promoting greater formalization of the economy, and strengthening financial inclusion. - IMF staff concurs that reforms covered by this PCI would strengthen the efficient use of public resources and create more favorable conditions for private investment. *IMF Press Release No. 23203, June 8, 2023* --- ## References - [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/2023/06/08/pr232023-imf-executive-board-concludes-first-review-under-the-pci-for-paraguay_