Paraguay's Growth Mirage: Debt Surge Threatens Regional Star Status

Paraguay finds itself at an unprecedented fiscal crossroads in the Peña era: the government is celebrating GDP growth that the Central Bank pegs at 6.6% for 2025, alongside projections positioning it as the region's fastest-expanding economy, while simultaneously grappling with public debt that swelled by US$1.333 billion in just four months, a cash deficit forcing austerity decrees, and exchange-rate pressure that the Central Bank has yet to explain convincingly to exporters.

The anchor of the official narrative is growth. According to the BCP, economic activity posted cumulative expansion of 5.8% through September and consolidated consecutive months of dynamism into year-end, with every sector expanding. Carlos Fernández Valdovinos, the BCP president, has insisted the performance "is not a miracle," attributing it to structural reforms accumulated since 2003. The IMF, for its part, highlighted the country's macroeconomic soundness while flagging risks, and the World Bank lifted its projections for Paraguay, which according to La Nación would be the region's second-fastest-growing economy in 2025. Country risk stands at 104 basis points, a level the financial industry deems competitive but insufficient to resolve the deeper challenges.

Behind those figures, however, fiscal pressure is mounting to levels analysts describe as alarming. Public debt is demanding ever-larger resources: the State paid US$1.678 billion last year in amortizations and interest, with debt servicing rising 16.8% year-over-year. To contain the deterioration, the government issued an adjustment decree designed to save up to US$262 million, while the Ministry of Economy opened a window for creditor bids and is pursuing new debt through Treasury bonds, whose stock on the local market already reaches roughly US$1.2 billion. Minister Óscar Lovera, whose priorities at the helm of the MEF include administrative efficiency and credit access for MSMEs, traveled to Paris to meet with international organizations and the CAF, in what La Nación described as a positioning tour — though ABC Color was quick to note that the trip took place amid complaints from unpaid suppliers.

The debt owed to the construction sector illustrates the tension between the discourse of fiscal adjustment and operational reality: it exceeds US$300 million plus pending interest, and contractors are pressing the new minister to accelerate payments. In response, the MEF disbursed close to US$5 million to State suppliers in recent days and announced an US$80 million payment to pharmaceutical companies — figures the senate considers insufficient and which prompted a legislative summons of the minister.

In the FX market, the dollar's collapse against the guaraní has captured the attention of exporters and analysts alike. The BCP's explanation failed to convince the agro-export sector, according to ABC Color, and multiple specialists insist on the need for stronger central bank intervention to stabilize the exchange rate. The debate over whether the BCP should act more decisively in the spot market is intertwined with the discussion on tax pressure: the government is defending itself against accusations of "inventing rates" through the back door, while pension funds hover around G.20 trillion with 95% denominated in guaraníes, heightening exposure to appreciation risk.

On the institutional front, the public pension reform is advancing through Congress with amendments and could be enacted this week, according to remarks by the President of the Chamber of Deputies, Raquel Llane de Alliana. The IPS, in parallel, has warned of the eventual depletion of its reserves and reports a real-estate portfolio yielding less than G.1 for every G.100 invested, according to ABC Color. The Dirección Nacional de Ingresos Tributarios, the merger of SET and Customs driven since the start of the Peña administration, reports a recovery in tax revenue in March and April, with growth projections of 8%, though the goal of lifting tax pressure from 10% to 12% of GDP remains a medium-term ambition rather than a consolidated achievement.

The controversy surrounding ANDE adds another stormy front with direct economic implications. Unions at the electric utility denounce the contract with Atome — tied to green hydrogen production — as a "multimillion-dollar tariff subsidy," while the government defends it as a strategic investment. ABC Color also reported allegations of "pressure tactics" linked to internal dealings and signs that the head of the agency may be preparing to resign — all this just days before ANDE defines its next tariff adjustment, a decision with direct impact on industrial competitiveness and the cost of living.

What investors will need to monitor in the coming weeks is multiple and convergent: the final passage of the public pension reform and its actual reach on the actuarial deficit; the resolution of the exchange rate and the BCP's stance toward a market demanding intervention; the outcome of ANDE's tariff renegotiation; and the MEF's ability to balance urgent payments to suppliers against a debt trajectory that, if not moderated, could begin to erode the sovereign rating that both the government and the private sector display as a trophy of the Peña administration.