Paraguay's Growth Masks Fiscal Strain and Energy Investment Battles
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Paraguay is navigating a moment of sharp contrast: a macroeconomy posting growth figures that are the envy of the region coexists with mounting fiscal pressures, a currency battle that is irritating exporters, and energy disputes that put hundreds of millions of dollars in foreign investment on the line.
The Banco Central del Paraguay confirmed that gross domestic product grew 6.6% in 2025, with expansion across all sectors and a cumulative 5.1% gain in the first four months of the year, according to BCP reports cited by La Nación. The head of the monetary authority emphasized that the result "is not down to a miracle," but rather the product of a process of institutional consolidation and structural reforms that President Santiago Peña's government has been pursuing since taking office in August 2023. Among the most significant moves of that administration is the creation of the Ministry of Economy and Finance, which absorbed the Ministry of Finance, the Technical Secretariat for Planning, and the Civil Service Secretariat, concentrating in a single portfolio the levers of spending, planning, and state wage policy. That institutional redesign was complemented by the merger of the Subsecretariat of Taxation and the Customs Directorate into the new National Directorate of Tax Revenues, whose head Óscar Orué pledged to raise the tax burden from 10% to 12% of GDP and generate roughly an additional USD 400 million in annual collection, according to the weekly Hoy.
The latest fiscal data reveal concrete progress but also worrying tensions. Tax revenues are rebounding and the government expects 8% growth, while the Ministry of Economy and Finance reported a recovery in receipts in March and April. Public debt, however, climbed by USD 1.333 billion in just four months, interest payments rose 16.8% year-on-year, and arrears to the construction sector exceed USD 300 million with interest still pending. The MEF began the week disbursing close to USD 41 million to state suppliers, while pharmaceutical companies and construction firms await more substantial payments. Cifarma went along with a debt assignment with an almost philosophical resignation: "something is better than nothing." In parallel, the government is projecting savings of up to USD 262 million through a new adjustment plan, although the credibility of that austerity is eroded by the fact that the minister traveled to Paris —where he is to meet with international organizations— in the middle of suppliers' complaints.
The currency front is perhaps the most agitated of the day. The dollar has accumulated a sustained decline against the guaranĂ, and the BCP's restrictive monetary policy is causing growing collateral damage to exports and the attraction of investment, as one economist quoted by ABC Color warned. The official explanation has not convinced the export sector, and a growing number of specialists insist on the need for a stronger central bank presence in the FX market. Paraguay's country risk stands at 104 basis points —one of the lowest in the region— reflecting market confidence in sovereign solvency, but that indicator coexists with an IMF technical mission that arrived to review macroprudential measures, a sign that the Fund is keeping a close watch on certain imbalances. Treasury bonds in the local market total around USD 1.2 billion, and the government is looking to close new debt issuance on that same venue.
The most heated battle of the day is unfolding in the energy sector. British firm Atome plans to build a USD 665 million green fertilizer plant and, to do so, requires a preferential electricity tariff from ANDE. Unions at the power utility have denounced the contract as a "multimillion-dollar subsidy" and speak of tariff favoritism, while the government defends the "concessions" as a necessary condition to attract industries of that scale. There is even discussion of having ItaipĂş "compensate" ANDE for the tariff differential that would be granted to Atome. The Economy Minister himself warned that if ANDE does not approve the agreed tariff, the project falls through. The situation illustrates a structural tension in Paraguay's economy: the country has cheap hydroelectric power as a competitive advantage, but its distribution raises political and financial dilemmas that are difficult to resolve.
On the labor front, workers took to the streets in front of the Ministry of Labor demanding a 20% increase in the minimum wage, while analysts expect no changes to the adjustment methodology and economists warn that low labor productivity is the real ceiling on wages. Informality —which according to Última Hora represents between 20.5% and 46% of GDP depending on the methodology used— remains the most persistent structural obstacle to translating macroeconomic growth into broad-based wage gains. Remittances, totaling USD 732 million annually, act as a social cushion and energize the real estate market, but they do not solve the underlying problem.
Market attention this week will be focused on the vote on the public pension fund reform —which, according to the Speaker of the Chamber of Deputies, Raquel Llanes Alliana, will be approved with modifications—, on the outcome of the tariff dispute between ANDE and Atome, and on the results of the Economy Minister's meetings with international organizations in Paris, which will set the tone for external financing in the coming months.