Paraguay's investment grade masks structural fiscal deficits that grow faster than revenues.

Moody's reaffirmation of Paraguay's investment grade rating arrives at a moment when the country is exhibiting one of the sharpest fiscal tensions of the Peña era: the economy is growing at rates that double the regional average, yet public finances are accumulating pressures that even the government's own economists concede are structural in nature.

The Banco Central del Paraguay recently raised its GDP growth forecast to 4.5% for the current year, a figure the IMF trimmed slightly to 4.4% while flagging risks tied to the external environment. Some private analysts are more bullish, projecting the economy could top 5%, buoyed by activity data showing 5.6% cumulative expansion through May, driven by services and agriculture. The soy complex — the historic engine of Paraguay's export model — has already generated USD 2.492 billion through May of this year. With "war economy" serving as the government's rhetorical backdrop — a phrase President Santiago Peña has popularized but, according to ABC Color, declined to unpack in his report to Congress — the BCP confirmed that GDP grew 6.6% in 2025 and 4.7% in the last closed year, figures any emerging economy would flaunt. Paraguay has also strung together twelve consecutive years as an upper-middle-income country under the World Bank's classification, a distinction that sits uneasily alongside the persistent structural deficits in its pension system and tax revenues.

Therein lies the day's central contradiction. The MEF touted the 4.5% growth print, but fiscal revenues are barely inching forward. Public debt rose by USD 1.343 billion in the first five months of the year, interest servicing climbed 12.9%, and the government is simultaneously arranging additional external credits worth more than USD 1.6 billion. The Dirección Nacional de Ingresos Tributarios — the agency created under Peña by merging SET and Aduanas, one of his administration's most consequential institutional reforms — plans to revise its revenue estimates for the 2027 Budget precisely to reflect the exchange-rate effect. Its director, Óscar Orué, pledged to lift the tax burden from 10% to 12% of GDP and to raise an additional USD 400 million annually, though analysts note that results remain modest. The Caja Fiscal, meanwhile, has accumulated a deficit of Gs. 1.31 trillion following the pension reform, with economists warning of problems that reach well beyond the electoral cycle. According to Chamber of Deputies President Raquel Llano, the reform of that fund will be enacted with modifications this week.

Moody's, which reaffirmed the investment grade rating with a stable outlook, and the IMF, which highlights macroeconomic strength while flagging risks, together represent the external view of a country that has issued more than USD 9 billion in sovereign bonds between 2013 and 2026 and keeps roughly USD 1.2 billion in Treasury Bonds outstanding in the local market, equivalent to 2.36% of GDP. The government has formally opened the window for creditor offers on a new debt issuance, marking another foray into international capital markets. Paraguay — whose economic openness index sits 27 points above the Latin American and Caribbean average, according to data cited by ABC Color — is positioning itself as an attractive destination for foreign capital, an argument reinforced by the arrival of CIRSA, the Spanish entertainment and gaming group, which landed in the country explicitly citing legal certainty as the decisive factor behind its investment.

The energy front adds another variable. As of Sunday, the mandatory increase in the biodiesel blend took effect, a measure the Ministry of Industry and Commerce imposed in defiance of the sector's request for a delay. The debate between those who view the move as the start of genuine energy sovereignty and those who read it as another cost passed through to consumers reflects the same underlying tension: a state seeking to widen its fiscal and energy room for maneuver while Petropar holds fuel prices unchanged in July. ANDE, the state electricity distributor, announced it will define its tariff adjustment in the coming months, layering a latent pressure onto corporate cost structures. Rounding out the picture is the depreciation of the Argentine peso, which continues to weigh on cross-border commerce in cities such as Alberdi, and the remittance flow — USD 732 million annually that sustains domestic consumption and energizes the real estate market, arriving mainly from Spain, Argentina, and the United States — which acts as a buffer against regional turbulence.

What to watch in the days ahead: the approval of the seven-law economic package announced by the ruling party, the dynamics of consumer credit — whose accelerated growth has already prompted at least one economist cited by ABC Color to flag it as a potential systemic risk — and the FX market's reception of the debt issuances in the pipeline. The new Economy Minister, Óscar Lovera, inherits a loaded agenda: consolidating the growth cycle, containing the real fiscal deficit beyond the accounting adjustments tied to the budgeted exchange rate, and demonstrating that the "war economy" rhetoric translates into effective spending discipline and not merely political messaging.

**CIRSA (not listed on public international markets)** — The Spanish entertainment group, with operations in more than ten countries across Latin America and Europe, confirmed its entry into the Paraguayan market, citing the country's legal stability as the decisive factor. The investment consolidates Paraguay's positioning as a destination for foreign capital in regulated sectors, with implications for tax collection from the gaming industry.

**Petropar (state-owned company, unlisted)** — Paraguay's state oil company ruled out a fuel price cut for July despite the drop in international crude prices, preserving margins that partially underpin the public energy sector's accounts. The decision coincides with the entry into force of the new mandatory biodiesel blend, creating a scenario of stable or rising costs for transport and agribusiness.