Moody's grades Paraguay investment-ready, but flags fiscal management as lurking crisis.

Moody's Ratings' reaffirmation of Paraguay's investment grade this week comes with a warning that Santiago Peña's government would rather not hear: the country's greatest risk is no longer its debt level, but the quality of its fiscal management. That distinction, flagged by economists at the rating agency itself, crystallizes the central tension shaping Paraguay's economic landscape at this juncture: a country growing robustly, yet accumulating fiscal pressures that the headline figures have yet to fully capture.

Economic activity expanded 5.6% through May, driven by services and agriculture, and the Banco Central del Paraguay confirmed a 6.6% expansion for 2025 as a whole. The IMF, for its part, adjusted its projection to 4.4% for the current year, though several local economists estimate the final outcome could exceed 5%. The soy complex contributed USD 2.492 billion in exports through May, and family remittances added USD 732 million on an annual basis — figures that underscore the resilience of external income sources. Paraguay has been classified as an upper-middle-income country by the World Bank for twelve consecutive years, and its economic openness index exceeds the Latin American and Caribbean average by 27 points — data the government showcases with justified satisfaction.

Beneath that narrative of prosperity, however, lie frictions that Moody's took care to spell out explicitly. Public debt rose by USD 1.343 billion in just five months, interest payments grew 12.9%, and the Ministry of Economy is processing external credits worth more than USD 1.6 billion. The Caja Fiscal has accumulated a deficit of PYG 1.31 trillion following the pension reform, with economists warning about its long-term structural problems. And while the fiscal deficit was trimmed to 1.5% of GDP, analysts point out that this outcome was achieved in part thanks to the budgeted exchange rate, raising doubts about the sustainability of the adjustment the government has branded a "war economy." President Peña, according to reports from ABC Color, omitted precisely these elements from his management report, opting instead for an exclusively upbeat narrative.

The MEF, now under new minister Óscar Lovera, acknowledges economic growth of 4.5% but admits that fiscal revenues are advancing at an insufficient pace. Tax collection has multiplied 4.6 times over fifteen years, yet the tax burden — hovering around 10% of GDP — remains one of the lowest in the region. The merger of the Subsecretaría de Estado de Tributación with the Dirección Nacional de Aduanas, the centerpiece of the Peña administration's institutional reform, promised to lift that burden to 12% and add USD 400 million in annual revenue — a target that has yet to be met.

On the energy front, the government pressed ahead this week with the mandatory implementation of the biodiesel blend, brushing aside a request from business associations to postpone. The Ministry of Industry and Commerce held to the original timetable, unleashing a debate between those who see the measure as the start of genuine energy sovereignty and those who read it as a cost passed on to the end consumer. Simultaneously, state-owned Petropar announced it would not lower fuel prices in July, while ANDE is weighing a tariff adjustment whose date has yet to be set. The prospect of higher energy tariffs galvanized a call for a national mobilization against electricity outages and subsidies to crypto miners, adding political pressure to an issue the government had managed with relative discretion.

On the Hidrovía, river transport associations warned of a possible tariff hike and demanded transparency in dredging projects — a sign that management of infrastructure critical to Paraguayan exports continues to breed sector-level distrust. From the construction sector, CAPACO reminded that the country needs to triple its investment in public works to sustain the pace of development, while private construction firms continue to wait for the new Economy minister to accelerate payments on state debt owed to suppliers.

Abroad, Spain highlighted Paraguay's potential to boost trade and investment under the Mercosur-European Union agreement, and Spanish entertainment company CIRSA announced its arrival in the Paraguayan market with an investment of global scale. Economic diplomacy is also advancing with Taiwan, which alongside ANDE is developing a cooperation scheme to attract technology investment, while the cattle sector awaits clearance to export beef to Mexico and Turkey — markets that could significantly broaden the customer base of the country's second-largest export category.

Three things bear watching in the coming weeks: the progress of congressional debate on the Caja Fiscal reform, which — according to Chamber of Deputies president Raquel Llanes de Alliana — is set to be enacted with modifications this very week; the trajectory of consumer credit, whose rapid expansion is prompting warnings of a potential financial overheating; and the response of the Treasury bond market, where PYG 9.47 trillion is currently outstanding — equivalent to 2.36% of GDP — with the government mulling a new issuance. Moody's rating opens the door to favorable financing conditions, but the cost of tapping them will depend entirely on whether fiscal management can accomplish what GDP growth alone has yet to deliver: convincing markets that Paraguay can grow and consolidate its public accounts at the same time.

**CIRSA (private company, headquartered in Spain)** — The Spanish gaming and entertainment multinational landed in Paraguay with an investment of global scale, in a move that local analysts read as a sign of confidence in the country's legal certainty. CIRSA operates in more than twenty markets across Europe and Latin America, making its entry into Paraguay part of a broader regional expansion strategy.

**Petropar (state-owned company, Paraguay)** — The state oil company ruled out a fuel price reduction for July, keeping pressure on operating costs for the transport sector and industry at large. The decision comes in parallel with the mandatory implementation of the biodiesel blend, amplifying the impact on energy costs across the real economy.