Paraguay's Growth Masks Rising Fiscal Strains and Currency Pressures

Paraguay boasts one of South America's most solid macroeconomic profiles, but the buildup of domestic pressures—rising public debt, an exchange rate eroding export competitiveness, and unpaid state liabilities—is testing the narrative of stability that Santiago Peña's government has made its principal political asset.

The Banco Central del Paraguay reported GDP growth of 6.6% in 2025, a figure the institution's head characterized as a genuine rather than fortuitous result, while market participants surveyed project an expansion of close to 5% for the current period, supported by simultaneous expansion in services, manufacturing, and construction. Economic activity accumulated a 5.2% rise through the close of the first quarter, according to the BCP's own data, consolidating Paraguay as the economy with the strongest growth outlook in the region. Fitch Ratings maintains a BB+ rating on the sovereign debt, and country risk stands at just 104 basis points—a level that, while reflecting market confidence, does not exempt the country from underlying structural challenges, as ABC Color warns.

That confidence, however, coexists with signs of fiscal strain that cannot be overlooked. Public debt rose by US$1.333 billion in just four months, and interest payments grew 16.8% year-on-year. The construction sector has accumulated unpaid receivables exceeding US$300 million, while the Ministry of Economy and Finance—an institution created by the first law promulgated by Peña last August 23, which absorbed the functions of the former Ministry of Finance and the Technical Planning Secretariat—opened a round to receive offers from creditors and began the week with payments of roughly US$41 million to state suppliers. Cifarma, representing the pharmaceutical sector, pragmatically backed the debt assignment under the principle that "something is better than nothing." The government foresees savings of up to US$262 million through an expenditure adjustment plan, although Minister Óscar Lovera traveled to Paris to meet with international bodies—including the OECD and CAF—at a moment when road contractors denounce outstanding payments. An IMF technical mission arrived in the country to review existing macroprudential measures, and the Fund, while highlighting Paraguay's macroeconomic strength, warns of risks that persist.

The currency front concentrates the productive sector's greatest irritation. The decline of the dollar, attributed by the BCP to its restrictive monetary policy aimed at containing inflation, has generated mounting discontent among exporters, who maintain that the guaraní's appreciation squeezes margins and discourages investment. Several economists consulted by ABC Color agree that the BCP should intervene with greater presence in the foreign exchange market, while others warn that an excessively restrictive policy penalizes external competitiveness without resolving the structural drivers of foreign currency inflows. Remittances contribute US$732 million annually to the economy and energize the real estate market, and three departments concentrate nearly 90% of the country's international receipts, evidencing a marked geographic concentration of wealth.

On the energy front, the contract between the Administración Nacional de Electricidad and British firm Atome for the development of a green fertilizer plant has become the focus of sharp controversy. ANDE's unions denounce that the preferential tariff agreed constitutes a "millionaire subsidy" and accuse the Executive of tariff favoritism; the government defends the agreement by citing its benefits for the green economy, and there is discussion of having Itaipú compensate ANDE for the differential tariff granted. ANDE itself has yet to define the date of its general tariff adjustment, adding uncertainty to a sector already burdened with questions over the operational state of Yacyretá's turbines.

Wage negotiations are also generating tension. The business sector insists that the minimum wage adjustment must be tied exclusively to the consumer price index, rejecting any increase above CPI. Workers, who directly challenge President Peña, demand an increase of G.70,000. Analysts estimate that the adjustment methodology will not change. Meanwhile, IPS remains in financial "intensive care," and its leadership trusts that the agreement with the Dirección Nacional de Ingresos Tributarios—the body created through the merger of SET and Customs, whose director Óscar Orué pledged to raise the tax-to-GDP ratio from 10% to 12% with additional revenue of US$400 million annually—will allow it to improve its income. Tax collection is already showing signs of a rebound, with the government projecting growth of 8% in this area.

The next inflection points will be precisely the resolution of the wage dispute, the approval with modifications of the fiscal pension reform announced by the President of the Chamber of Deputies, Raquel Alliana, and the outcome of Minister Lovera's talks in Paris. The trajectory of the exchange rate and the BCP's definitive stance in the face of exporter pressure will set the tone for markets in the weeks ahead.