Paraguay's Growth Masks Fiscal Cracks Officials Prefer Hidden

Paraguay is navigating a period of economic expansion that few countries in the region can match, yet the official narrative around that performance carefully sidesteps some cracks that are beginning to unsettle analysts and investors. The Banco Central del Paraguay reported GDP growth of 6.6% in 2025 and 5.8% in the first quarter of this year, with economic activity accelerating in April on the back of services, energy — including the Itaipú and Yacyretá binationals — and agriculture. The soy complex contributed USD 2.492 billion through May, while the MEF highlighted domestic demand and manufacturing as the growth engines shaping up for 2026. Optimism among economic agents has translated into projections hovering around 5% for this year, although the IMF, which recently dispatched a technical mission to review macroprudential measures, trimmed its estimate to 4.4% and flagged external risks. Country risk sits at just 104 basis points, one of the lowest readings in the region, underpinning the government's ability to press ahead with its borrowing program: Paraguay is processing external loans in excess of USD 1.6 billion, and the MEF has opened a window to receive creditor offers to place new bond debt, while Treasury bonds in the local market now total around USD 1.2 billion.

A more complete read of the fiscal picture, however, reveals tensions that President Santiago Peña opted to leave out of his management report. Public debt grew by USD 1.333 billion in just four months, and servicing that debt has become more expensive: the country paid 16.8% more in interest relative to the comparable prior period. The fiscal deficit stands at 0.9% of GDP as of May, within the legal ceiling, but the Caja Fiscal accumulated a USD 182 million deficit in the first five months of the year, and reform of the pension system — one of the most pressing items on the economic agenda — will be enacted this week with modifications, according to Senate President Gladys Núñez. In parallel, Paraguay executed just 34.3% of its available bilateral loans, leaving USD 396 million unused, a signal of weakness in the country's capacity to implement public investment. The Cámara Paraguaya de la Construcción (Capaco) estimates the country needs to triple its infrastructure investment, while the sector is dragging state arrears exceeding USD 300 million, including outstanding interest. Peña touts the works delivered but omits that financial squeeze on contractors.

On the tax front, the Dirección Nacional de Ingresos Tributarios — the product of merging the SET and Customs, one of the first institutional reforms of the Peña administration — is sending mixed signals. Óscar Orué pledged to raise the tax take from 10% to 12% of GDP and to collect an additional USD 400 million annually. Yet customs revenue fell over the period analyzed, according to DNIT data, and taxpayers reported technical failures in the SIARA system on the filing deadline. MSMEs, for their part, are publicly challenging the paradox: the state is collecting more and more but failing to pay its suppliers. The MEF disbursed roughly USD 10 million and USD 5 million in partial payments to suppliers at different points in recent weeks — figures that look meager against the scale of accumulated arrears.

The minimum wage adjustment, which took effect today amid a contentious Executive decision, adds another layer of complexity. The Asociación de Industriales del Paraguay (Asimcopar) warned that the increase, set without technical criteria, is stalling investment, while economists consulted note that the impact on prices will be limited but could deepen labor informality. The Banco Central again cut fees on credit and debit card payments, a measure aimed at fostering banking penetration, and consumer credit continues to grow, buoyed by the broader expansion. Family remittances, which have contributed a cumulative USD 11.907 billion since 2008 and currently amount to roughly USD 732 million annually, provide a stabilizing FX flow that is also feeding the real estate market.

The most disruptive episode of the week emerged in the energy sector. The London Stock Exchange suspended Atome Energy's shares after news leaked of the Administración Nacional de Electricidad (ANDE)'s internal rejection of the company in the middle of tariff negotiations. ANDE, which has yet to define its tariff adjustment, has generated sharp friction with the government at a moment when the country is trying to position itself as a green energy investment destination. The head of Petropar, meanwhile, did not commit to a date for a potential cut in gasoline prices, though he did lower the price of regular diesel, citing the divergent evolution of import costs.

Looking to the weeks ahead, markets will be watching three simultaneous fronts: final Senate approval of the Caja Fiscal reform and its specific modifications; resolution of the Atome-ANDE dispute and its impact on future investment in the electricity sector; and the Peña government's ability to accelerate budget execution and honor debts to construction firms and suppliers without breaching the fiscal deficit limits set by law. New Economy Minister Óscar Lovera's visit to international organizations in France could also offer signals on the terms of the new external loans currently being processed.

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**Atome Energy (LSE: ATOM)** — The London Stock Exchange suspended Atome Energy's shares after news broke of ANDE's rejection of the company amid tariff negotiations in Paraguay, a market that sits at the center of the company's green hydrogen strategy. The suspension heightens uncertainty over the project's development timeline and exposes international shareholders to local regulatory risks that are hard to quantify.