Paraguay: IMF Staff Concluding Statement—2026 Article IV Consultation Mission
IMF News, June 29, 2026
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- Published: June 29, 2026
Mission and context
- An International Monetary Fund (IMF) team led by Fabián Valencia conducted discussions with Paraguayan authorities during June 15–26, 2026, engaging with private sector, civil society, and development partners.
- The authorities consented to the publication of this statement. The views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
- Press contact: June 29, 2026; IMF Communications Department; PRESS OFFICER: Julie Ziegler; Phone: +1 202 623-7100; Email: MEDIA@IMF.org; @IMFSpokesperson.
Outlook and risks
- Growth projections and drivers:
- Real GDP growth is projected at 4.4 percent in 2026.
- Growth is projected to average 3.8 percent over the medium term.
- Growth drivers include strong private consumption and investment.
- Paraguay’s growth has been largely insulated from the effects of the war in the Middle East due to fully renewable electricity generation and favorable soybean production and price developments.
- Current account and external sector:
- The current account deficit is projected to narrow gradually over the medium term as new export capacity comes online.
- Downside risks:
- Weather shocks.
- A prolonged war in the Middle East that could keep energy and fertilizer prices elevated.
- Medium- to long-term fiscal contingent liabilities, including from the pension system.
- Upside risks:
- Stronger agricultural and meat exports, including through access to new markets.
- Larger investment flows supported by the investment-grade rating and opportunities in renewable energy and artificial intelligence.
- Productivity gains from ongoing structural reforms and large-scale investments that could boost potential growth above baseline projections.
Fiscal policy — findings and recommendations
- Key findings:
- Paraguay has gradually restored fiscal discipline; completing the fiscal consolidation plan remains a priority.
- Sovereign spreads have declined to among the lowest levels in the region, supported by the attainment of investment-grade (IG) rating from two major rating agencies.
- Arrears and fiscal recording:
- Publicly disclosing a strategy to clear domestic arrears and strengthening public financial management are critical to preserving fiscal policy credibility.
- Settling claims in a timely manner and transparently recording and reporting them in fiscal statistics would reinforce fiscal credibility.
- US$220 million in total reported arrears to construction companies and about half of the US$1000 owed to pharmaceutical companies is projected to be cleared in 2026, pending the outcome of the factoring operations.
- Under these prospects, the 2026 fiscal deficit would stand above the initially envisaged target, mainly reflecting the impact of the regularization of accumulated obligations with suppliers and a less dynamic evolution of tax revenues related to external trade, partly affected by the appreciation of the guaraní.
- Public financial management reforms:
- Align the budget with cash-flow planning and strengthen expenditure monitoring and controls to prevent re-emergence of arrears.
- Complete rollout and ensure full enforcement of the Ministry of Economy and Finance’s integrated system for the management of goods and services (SIGEBYS), and advance interoperability with expenditure planning and control systems across line ministries.
- Progress toward accrual-based recording of expenditure to reduce the lag between delivery of goods and services and their recognition in the fiscal deficit.
- IMF stands ready to support authorities through capacity development.
- Fiscal consolidation strategy:
- Consolidation should remain anchored on restoring compliance with the Fiscal Responsibility Law (FRL) in the near term while avoiding undue compression of essential spending.
- The authorities project a gradual fiscal consolidation path aimed at resuming compliance with the FRL and converging toward a deficit equivalent to 1.5 percent of GDP in 2028.
- Revenue mobilization and expenditure efficiency:
- Continue improving tax administration efficiency and broadening the tax base, including through further expansion of electronic invoicing, stronger compliance enforcement, and promoting economic formalization.
- Review the tax regime to rationalize tax expenditures; options include:
- Better targeting tax incentives for electric vehicles.
- Narrowing deductions under the personal income tax.
- Revisiting reduced VAT rates for selected goods.
- Protect vulnerable households through targeted social programs, which are a more efficient instrument than broad-based tax relief.
- Fiscal framework review:
- Once consolidation goals have been achieved, review the fiscal framework to ensure alignment with evolving economic fundamentals and development financing needs.
- Consider introducing a debt anchor and calibrating operational deficit targets to ensure that public debt remains below that anchor with high probability.
- Note: The 2013 FRL has historically served Paraguay well.
Monetary and financial sector policies
- Monetary stance and inflation:
- The monetary policy stance remains appropriately slightly above neutral.
- Medium-term inflation expectations remain well anchored at the Central Bank of Paraguay’s target of 3.5 percent despite the energy shock.
- There would be scope for gradual further easing if the energy shock proves temporary, inflation expectations remain anchored, and growth moderates as projected; however, policy should remain guided by incoming data given elevated uncertainty.
- Paraguay’s credible inflation targeting regime with a flexible exchange rate has served the economy well; the exchange rate should continue to absorb external shocks, with foreign exchange intervention limited to addressing disorderly market conditions.
- Financial stability and macroprudential policy:
- Systemic risk appears contained; financial soundness indicators and authorities’ stress tests point to a sound and resilient banking system.
- Rapid consumer credit growth warrants continued vigilance and readiness to act if underwriting standards weaken.
- Develop a macroprudential toolkit, especially borrower-based tools such as debt-service-to-income limits, to promote sustainable household indebtedness.
- Further strengthen the Anti-Money Laundering and Countering the Financing of Terrorism framework, including approval of the updated National Risk Assessment and timely addressing of identified gaps.
- Capital markets and pensions:
- Continue efforts to deepen domestic capital markets.
- Develop a reliable local-currency yield curve to facilitate pricing of longer-term instruments, including mortgages, and strengthen monetary policy transmission.
- This requires a gradual increase in government bond issuance in the domestic market, coordinated with the Central Bank of Paraguay to avoid overlapping maturities, and measures to broaden the investor base.
- Easing legal restrictions on pension funds’ investments in government securities would be an important step.
- The Pension Funds Superintendency is now operational; ensuring it is adequately resourced is critical.
Structural issues and reforms
- Formalization and social protection:
- Sustaining progress on formalization and social protection is essential for lasting and inclusive growth; informality remains high and broad‑based.
- Recent efforts to modernize and integrate social program administration have improved efficiency, transparency, and effectiveness of benefit delivery.
- Reforms to reduce informality should seek to lower the costs of formal participation and improve incentives at the margin; options include adjusting taxes and social contributions to avoid sharp increases in liabilities at low-income levels and easing cliff effects in benefit systems.
- Such measures—if carefully designed to be broadly revenue‑neutral—could support a gradual transition into formality while preserving medium‑term fiscal and human capital development objectives.
- Governance and anti-corruption:
- Further strengthen governance and anti-corruption institutions and sustain momentum in implementing the National Regime for Integrity, Transparency and Prevention of Corruption.
- Launch of the information-exchange system to cross-check public officials’ asset declarations is a welcome step.
- The National Unified Registry became operational in 2026, marking an important step in strengthening property rights.
Closing
- The IMF team expressed gratitude: “The IMF team is grateful to the Paraguayan authorities and counterparts for the productive discussions.”
Source: IMF staff concluding statement for the 2026 Article IV consultation mission to Paraguay (published June 29, 2026).