Paraguay's Growth Paradox: Rising Debt Threatens Regional Economic Star
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Paraguay is navigating one of the densest moments in its economic agenda so far this year: a wage adjustment that has split the business community, a public debt that keeps climbing, fiscal tensions on multiple fronts, and a macroeconomic backdrop that, despite it all, remains enviable by regional standards.
The hottest debate of the day revolves around the minimum wage adjustment. The Labor Minister defended the measure with optimism, arguing that the increase will spark a virtuous cycle of consumption and growth. President Santiago Peña publicly backed the position before a visibly uneasy business sector. But the private sector's counterargument was not long in coming: Asimcopar warned that an adjustment made without technical criteria stifles investment, while economists consulted by ABC Color noted that the impact on prices will be real but contained, and that the greater threat is not inflation but the deepening of labor informality. For workers themselves, the discussion has another nuance: in practice, the minimum wage functions as a ceiling rather than a floor, structurally limiting its redistributive effect. The adjustment will also have direct consequences on pension payments from IPS and the Caja Fiscal, whose deficit already reached $182 million in the first five months of the year, according to data from the Ministry of Economy and Finance.
On the broader fiscal front, the picture is one of managed tension. The overall deficit stands at around 0.9% of GDP as of May, within the limits set by the fiscal rule, although public debt rose by $1.333 billion in just four months, and liabilities to private suppliers grew by $488 million in 2025, according to Última Hora. The construction sector is pressing urgently: accumulated debt to that segment exceeds $300 million, and construction firms are counting on the new Economy Minister, Óscar Lovera, to accelerate disbursements. The MEF made partial payments this week, including roughly $15 million distributed in two tranches to state suppliers, in addition to a disbursement of 184.194 billion guaraníes reported by La Nación. Still, the situation contrasts with the minister's trip to Paris to meet with international organizations, against a backdrop of domestic pressures that show no sign of letting up.
On sovereign risk, Paraguay maintains a spread of 104 basis points, a figure that reflects the country's relative strength but also the structural challenges still pending. The IMF publicly acknowledged the strength of the Paraguayan economy, although it warned of growing external risks. Spain also highlighted the country's stability as a platform for attracting investment. The local stock market holds roughly $1.2 billion in Treasury bonds in circulation, and the government is seeking to place new debt in the market, with the MEF recently opening a window to receive offers from creditors. A capital markets reform, currently under discussion, projects doubling the stock exchange's weight in the economy by 2030.
Real activity continues to show momentum. The Central Bank of Paraguay confirmed GDP growth of 6.6% in 2025 and 5.8% in the first quarter, with agriculture, services, and energy as the main engines. The soy complex contributed $2.492 billion through May, and private consumption expanded 4.8% in the quarter. Private analysts estimate that the country could grow above 5% this year, in line with World Bank projections, which position Paraguay as one of the fastest-growing economies in the region. Itaipú transferred $462 million to the Paraguayan state so far in 2025, an inflow that remains key to public financing, although 60 years after the Act of Foz de Yguazú, Asunción is still pushing for more equitable terms in the binational treaty with Brazil. Yacyretá, for its part, completed rehabilitation works on its navigation lock. Family remittances, which have accumulated $11.907 billion since 2008 and represent some $732 million a year, remain a quiet anchor for consumption and the real estate market.
Even so, structural tensions persist that no macroeconomic data can fully paper over. A U.S. government report cited by Última Hora notes that corruption remains a first-order obstacle to growth. The informal economy is equivalent to roughly 46% of GDP. And one researcher warned that economic activity remains geographically concentrated: just three departments account for nearly 90% of international revenues, revealing a territorial asymmetry that aggregate growth does not correct on its own. ANDE is preparing a tariff adjustment whose date has yet to be confirmed, and the Senate is demanding transparency from the electricity utility over its agreement with the firm Atome, generating a new source of regulatory uncertainty. The SIARA registration system, which contemplates million-dollar fines for those who fail to comply with registration obligations, is also weighing on the accounting and business sector, which is calling for an extension of the deadlines.
What lies ahead demands attention on several fronts simultaneously: the final negotiation of the Caja Fiscal reform, which according to the President of the Chamber of Deputies, Raquel Alliana, will be passed this week with modifications; the evolution of the exchange rate and a possible intervention by the Central Bank of Paraguay in the FX market, in a context where the budgeted dollar has already created distortions in the calculation of the deficit; and the new economic team's ability to unblock supplier debt without compromising the fiscal rule. The gap between the upbeat headlines on growth and the tensions accumulating on the state's balance sheet will set the pulse of the Paraguayan economy in the months ahead.