Paraguay's Growth Masks Debt Crisis and Energy Policy Breakdown
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Paraguay is going through a moment of sustained macroeconomic expansion, but the buildup of public debt, tensions around energy policy and a structurally weak labor market reveal that growth is far from uniform or risk-free.
The Banco Central del Paraguay reported GDP growth of 6.6% in 2025, a figure the institution's president was careful to clarify "is not the result of a miracle," but rather of stability-oriented policies sustained over time. Economic activity accumulated expansion of 5.1% in the first four months of the year, according to La Nación, with market participants estimating that growth will hover around 5% for the full year. The International Monetary Fund acknowledged the strength of Paraguay's performance but warned of mounting external risks, a signal local analysts are not overlooking. Country risk sits at just 104 basis points, an enviable level by regional standards, though economists consulted by ABC Color insist that Paraguay needs a credible fiscal strategy to preserve that advantage.
The problem is that public finances are sending mixed signals. Public debt rose by USD 1.333 billion in just four months, while interest payments climbed 16.8% year-on-year. Public liquidity stands at 11.822 trillion guaranÃes, but is down 24.5% versus April 2025. The Ministerio de EconomÃa y Finanzas — an institution created only in August 2023, at the start of Santiago Peña's administration, as Hoy points out — is pushing austerity measures while the government seeks to complete a new bond issuance. Treasury bonds in the local market already total some USD 1.2 billion. Social spending reached USD 2.59 billion through May, according to the MEF itself, a figure that contrasts with pressures from the private sector: the Consejo Empresarial is demanding that ANDE resolve the crisis triggered by repealed decrees that left several companies without a tariff framework, warning that "here, everyone loses." Construction firms, for their part, continue to demand payment of outstanding debts, and the MEF has settled payments to suppliers worth roughly USD 56 million in recent days.
The energy question is absorbing much of the attention from markets and the business community. The British firm Atome's project to install a USD 665 million green fertilizer plant is at risk if ANDE fails to approve a preferential electricity tariff, sources tied to the negotiation told ABC Color. The government is defending the contract, with the minister arguing that "concessions" are necessary to attract large industries, but ANDE's unions denounce it as a "massive subsidy." The state-owned utility itself contends that its generation cost will rise to USD 50 per megawatt-hour, which would make the fixed tariff Atome is demanding unviable. One possible way out under consideration is for Itaipú to "compensate" ANDE for the tariff gap, a solution that has yet to gain consensus. In parallel, ANDE pulled 22% more energy from Itaipú through the end of May, underscoring the national grid's growing dependence on the binational entity.
On the labor front, negotiations over the minimum wage adjustment have reached a breaking point: workers are demanding a 20% increase and protested in front of the Ministerio de Trabajo, while analysts consulted by ABC Color estimate that there will be no changes to the calculation methodology. One economist noted that low labor productivity is the main structural constraint on real wage growth — an argument the union movement rejects. The next meeting, scheduled for Wednesday, could be the last before the government imposes an adjustment by decree.
The geographic concentration of economic activity remains an Achilles heel: a researcher cited by ABC Color warned that three departments concentrate nearly 90% of international revenues, while the informal economy accounts for between 20% and 40% of GDP, depending on the estimate. Family remittances, which grew 26% and now reach USD 732 million annually, act as a cushion for vulnerable households and energize the real estate market. The IPS Social Security Fund, meanwhile, saw its reserves shrink by close to 2 trillion guaranÃes, and the institution issued a public warning about the timeline for the depletion of its funds.
Several fronts will require close monitoring in the coming weeks: the resolution of the tariff dispute with Atome, which will test the coherence of the government's energy policy; the determination of the new minimum wage, with potential impact on consumption and the labor climate; the trajectory of public debt and the possible bond issuance against a backdrop of still-elevated international rates; and the Banco Central's ability to manage the guaranÃ's appreciation against the dollar, amid growing voices calling for more active intervention by the monetary authority.