Paraguay's Growth Masks Rising Fiscal Pressures and Wage Tensions

Paraguay navigates between solid macro fundamentals and labor tensions that are testing the reformist architecture of the Peña administration

Paraguay's economy closed 2025 with growth of 6.6% according to data from the Banco Central del Paraguay, consolidating its position as one of South America's most vigorous expansions, while the first four months of the current year have accumulated a 5.1% advance. Yet that macroeconomic strength now coexists with internal frictions that lay bare the structural contradictions of the model: a politically sensitive minimum wage, a public debt growing at an accelerated pace, mounting pressures on the pension fund, and an energy sector under legislative scrutiny. Country risk stands at 104 basis points, a competitive level for the region but one that, according to ABC Color, still sits alongside underlying challenges that markets cannot afford to ignore.

The issue dominating the agenda is the wage adjustment. President Santiago Peña announced a 5% increase in the minimum wage after receiving the report from the Comisión Nacional del Salario Mínimo (Conasam), which failed to reach internal consensus on the percentage and passed the decision to the Executive. The resolution satisfied neither side of the debate. Union groups labeled the increase a "swindle," arguing that the minimum wage functions in practice as a ceiling rather than a reference floor. At the opposite pole, the Asociación de Industriales Maquiladores y Complementadores del Paraguay (Asimcopar) warned that increases above the Consumer Price Index without technical criteria deter investment — a position shared by the industrialists grouped in the Unión Industrial Paraguaya. Economists consulted by ABC Color cautioned that the adjustment will have a limited impact on real purchasing power, will aggravate inflationary pressure, and could deepen labor informality, which already accounts for close to 46% of GDP according to recent estimates. Paraguayan labor productivity, which trails eight countries in the region, makes clear that the wage debate cannot be divorced from a long-haul agenda of training and formalization.

Peña responded to business sector criticism by promising a "balanced decision," though the 5% announcement will hardly dispel doubts about the technical criteria underpinning it. The Minister of Economy and Finance traveled to Paris to meet with international organizations — a move ABC Color described as contradictory in light of the austerity measures the Ministry itself is pushing internally, and amid complaints from companies that supply the State and remain awaiting overdue payments. The MEF announced partial cancellations — close to ten million dollars to a group of suppliers and 80 million to pharmaceutical firms — even as the fiscal deficit reached 0.9% of GDP through May, within the parameters of the fiscal rule, but with the Caja Fiscal accumulating a shortfall of 182 million dollars over five months. Public debt grew by 1.333 billion dollars in just four months, and interest service rose 16.8% year-on-year — figures that complicate the official narrative of fiscal consolidation.

The institutional architecture supporting these policies is, in itself, a story of transformation. According to the magazine Hoy, two of the most ambitious reforms of the Peña era are the creation of the Ministerio de Economía y Finanzas — which absorbed the Ministerio de Hacienda, the Secretaría Técnica de Planificación, and the Secretaría de la Función Pública — and the merger of the Subsecretaría de Tributación with the Dirección Nacional de Aduanas into the new Dirección Nacional de Ingresos Tributarios (DNIT). Óscar Orué, who heads DNIT, has pledged to lift the tax burden from 10% to 12% and collect an additional 400 million dollars per year. Revenues are already showing encouraging signs, with the government projecting 8% growth for the fiscal year, but critics warn that the merger could complicate the 5,000 daily foreign trade operations if Customs loses operational autonomy.

On the energy front, the Senate demanded that the Administración Nacional de Electricidad (ANDE) make transparent its agreement with green hydrogen mining firm Atome, after engineers within ANDE itself publicly dismantled the arguments in favor of a subsidized tariff for that company — which would have implied, according to figures presented by ABC Color, a direct cost to Paraguayan users. ANDE also announced an investment of more than 6.4 million dollars in its own solar plant in the Chaco, a sign that energy diversification is advancing, albeit cautiously. Meanwhile, Itaipú covered 87.9% of Paraguay's electricity consumption in 2025 according to its annual report, and this year marks the 60th anniversary of the Acta de Foz de Yguazú, with Paraguay still demanding equitable terms in negotiations with Brazil over the distribution of binational revenue.

The International Monetary Fund praised the country's macroeconomic solidity, and the World Bank projects Paraguay as the second-fastest growing economy in the region in 2025, while Spain highlighted at recent forums the country's stability as a platform for European investment. Family remittances — 732 million dollars annually — sustain domestic consumption and energize the real estate market. Treasury bonds in the local market have already reached 1.2 billion dollars, and the government is seeking to launch a new issuance. The modernization of the stock exchange aims to double its weight in the economy by 2030.

What investors will need to monitor in the coming weeks is the approval, with modifications, of the Caja Fiscal reform — whose pension shortfall is the greatest structural threat to medium-term fiscal sustainability — the final definition of ANDE's tariff adjustment and its impact on industrial competitiveness, and the evolution of the exchange rate against the dollar in a context where the BCP is weighing possible interventions to moderate volatility. Social spending reached 2.590 billion dollars through May; if growth decelerates in the second half, as FocusEconomics anticipates, the combination of higher debt, lower revenue, and wage pressures will put to the test the credibility of the adjustment that new minister Óscar Lovera has committed to sustaining.