Paraguay's growth masks fiscal crisis as debt service surges 16.8 percent.

Paraguay closes the first half of the year with a macroeconomy that appears robust on the surface but is crossed by mounting fiscal tensions, an unresolved labor debate, and a public debt that continues to pile up at a worrying pace.

The Banco Central del Paraguay confirmed that GDP grew 6.6% in 2025, a performance that President Santiago Peña took pains to defend before international organizations during his recent visit to Paris, where the IMF again praised the country's macroeconomic solidity, highlighting its "more equitable and prosperous economy." The Ministry of Economy and Finance (MEF) specified that economic activity advanced 5.1% in the first four months of the year, with agriculture, industry, services and energy as the main engines. Country risk remains at just 104 basis points, a level that reflects market confidence in Paraguay's macroeconomic discipline — though analysts warn that this figure coexists with structural vulnerabilities that are becoming harder to disguise.

The more uncomfortable side of that solidity shows up in the fiscal accounts. Public debt rose by US$1.333 billion in the first four months of the year, while the cost of servicing it climbed: the State paid 16.8% more in interest compared with the same period a year earlier. The Caja Fiscal accumulated a deficit of US$182 million over five months, and the overall fiscal deficit stood at 0.9% of GDP through May, according to the MEF itself. Against this backdrop, the Chamber of Deputies opted to postpone a bill on interest payments to the private sector that it described as an "outrage," while legislator Barreto proposed drafting a new fiscal convergence plan in light of the manifest difficulty of meeting the legal spending ceiling.

The tension between austerity pledges and outstanding obligations is perhaps the most visible feature of the moment. The MEF is pushing adjustment measures and its head traveled to Paris amid complaints from State suppliers, whose outstanding debt in the construction sector exceeds US$300 million. MSMEs publicly questioned the paradox of a State that collects ever more revenue but fails to honor its invoices. The Ministry itself made partial disbursements — roughly US$10 million to general suppliers and an additional G.184.194 billion announced by La Nación — in what looks more like liquidity management than a structural fix. Social spending reached US$2.590 billion through May, suggesting the State is not compressing spending in absolute terms, but rather redistributing pressures.

The hottest debate of the week was the minimum wage adjustment. The Labor Minister argued that the increase will generate "a virtuous circle" of consumption and investment, and President Peña defended the measure against pushback from the business sector. Conasam, the tripartite commission charged with setting the percentage, failed to reach an agreement and sent its report directly to the Executive. Unions branded the 5% increase a "scam," while the Asimcopar chambers association warned that an adjustment without technical criteria deters investment. Economists consulted by ABC Color noted that the real impact will be limited: Paraguay's labor market has such entrenched structural informality that the minimum wage functions more as a ceiling than as an actual floor, as workers themselves have denounced. The DNIT, for its part, projects a rebound in revenue collection in the second half despite the impact of the dollar, and noted that the IDU — the tax on dividends and profits — grew close to 30% following controls on discretionary reserves, suggesting that the tax burden is advancing through alternative channels even as the government rules out formal tax hikes.

On the energy front, Itaipú has transferred US$462 million to Paraguay so far in 2025, an extraordinary inflow that remains crucial for Treasury liquidity. In parallel, the Senate demanded that ANDE bring transparency to its agreement with the British firm Atome, putting governance questions in the sector on the table. The rehabilitation of the Yacyretá navigation lock, previously subjected to corrective works, was highlighted as a sign of operational continuity in the binational hydroelectric infrastructure. On fuels, a private operator announced a cut in the diesel price of up to G.730 per liter, while uncertainty persists over when Petropar will adjust its own prices downward.

On the financial front, Treasury bonds in the local market reached around US$1.2 billion, and the government opened a window to receive creditor offers as part of a new bond issuance. The modernization of the stock market, which aims to double its weight in GDP by 2030, and the expansion of credit through bank cards are signals of a growing financial system — though the geographic concentration of economic activity (three departments account for nearly 90% of international revenue) remains a structural constraint that researchers and the MEF itself acknowledge. Family remittances, which contributed US$732 million annually and a historical cumulative total of US$11.907 billion since 2008, continue to serve as a silent cushion for domestic demand.

The coming days will bring high-impact decisions: the passage of the Caja Fiscal reform with modifications which, according to Chamber of Deputies President Alliana, will be finalized this week; the definitive setting of the new minimum wage by executive decree; and the trajectory of the exchange rate, whose pressure on tax collection is being closely monitored by the BCP, which is weighing the possibility of intervening in the FX market. Investors and business leaders will be watching closely to see whether new minister Óscar Lovera can accelerate payment of debt owed to the private sector without further deteriorating a fiscal deficit that already demands a new convergence plan.