Paraguay's Growth Story Masks Rising Debt and Fiscal Strain Concerns
Share this digest
Paraguay is navigating a moment of genuine but politically complex economic expansion, one in which the macroeconomic headlines collide with fiscal tensions, disputes over the minimum wage, and a rising public debt that is beginning to consume resources at a worrying pace.
The Banco Central del Paraguay (BCP) confirmed that the economy grew 6.6% in 2025, a figure President Santiago Peña presented as validation of his management model and that the International Monetary Fund accompanied with praise for the solidity of Paraguay's macroeconomic framework. In the first quarter, growth came in at 5.8% according to the BCP, and the MEF highlighted that agriculture and industry sustained activity in the first part of the year, with the soy complex contributing some US$2.492 billion through May. Activity accelerated in April on the back of services, energy, and agriculture, and private economists estimate the year could close above 5%. The World Bank projects Paraguay as the second-fastest-growing economy in the region in 2025, and the country climbed positions in the 2026 Economic Freedom Index.
Even so, country risk stands at 104 points — a competitive level for the region, though with room for improvement — and public debt has accumulated an increase of US$1.333 billion in just four months, while interest service grew 16.8% year-on-year. The fiscal deficit reached 0.9% of GDP through May according to the MEF, but the Caja Fiscal posted a shortfall of US$182 million in the first five months of the year, and Senator Barreto proposed drafting a new convergence plan in light of the difficulty of meeting the fiscal ceiling established by law. The MEF is pushing austerity measures, although the optics turned awkward when it emerged that the minister traveled to Paris in the midst of complaints from suppliers awaiting overdue payments. The construction sector is owed more than US$300 million by the State, and MSMEs are publicly questioning why, if revenue is growing, the State is not honoring its commitments.
On the tax front, the Dirección Nacional de Ingresos Tributarios (DNIT) — created through the merger of the SubsecretarÃa de Tributación and the Dirección de Aduanas, one of the Peña government's first institutional reforms — reported that IDU revenue grew close to 30% following controls on discretionary reserves. Its director, Óscar Orué, pledged to raise the tax burden from 10% to 12% of GDP and increase revenue by some US$400 million annually. Treasury bonds in the local market total approximately US$1.2 billion, and the government is seeking to finalize new debt via bond issuance, with the MEF having already opened the period for receiving creditor offers.
The hottest debate of the week was the minimum wage adjustment. The Minister of Labor defended the increase, arguing it will generate a virtuous circle of consumption and growth, but the business association Asimcopar warned that a hike without technical criteria will slow investment, and economists cautioned that the impact will be limited, with greater pressure on prices and informality. Paraguayan labor productivity already lags behind eight countries in the region, which weakens the argument that higher wages self-finance through greater efficiency. President Peña himself responded to business leaders in defense of the adjustment, amid crosscurrents of pressure that illustrate the difficulty of managing an economy that is growing fast but distributing unevenly and with high informality.
On the external front, family remittances continue to be a key cushion: Spain, Argentina, and the United States sustain the flow into Paraguay, which reached US$732 million annually and has accumulated US$11.907 billion in transfers since 2008. Those resources are also fueling real estate development. The rehabilitation of the Yacyretá navigation lock, which has resumed operations after corrective works, reinforces the logistics infrastructure on which foreign trade flows depend. Nevertheless, the geographic concentration of activity persists: three departments account for nearly 90% of international revenues, an asymmetry that researchers point to as a structural brake on inclusive development.
The focus in the coming months will need to settle on several simultaneous fronts: the evolution of the fiscal deficit and the government's ability to contain spending without paralyzing public investment; the resolution of the debt owed to the construction sector, which the Senate has already summoned the MEF to explain; the definition of the ANDE tariff adjustment, which could add inflationary pressure; and possible BCP intervention in the FX market in response to dollar movements that analysts are watching closely. The growth narrative remains the Peña government's strongest political asset, but the debt numbers and the discontent of suppliers and workers signal that sustaining it will require more than solid macroeconomic figures.