Moody's rewards growth while warning Paraguay's real crisis is fiscal management, not debt.

Moody's Ratings' reaffirmation of Paraguay's investment grade this week comes with a warning that markets would do well not to ignore: sovereign risk in Paraguay no longer lies in the level of its debt, but in the quality of its fiscal management—a diagnosis that collides head-on with the most recent data from the Ministry of Economy and Finance.

The contrast is striking. The Banco Central del Paraguay reports economic activity growth of 5.6% year-to-date through May, driven by services and agriculture, while first-quarter GDP expanded 5.8%, according to La Nación. The IMF, for its part, trimmed its full-year projection to 4.4%, though it acknowledged the country's structural strength while flagging external risks. Surveyed economic agents are even more optimistic, anticipating growth of around 5%. The BCP, in its latest official data, records that the Paraguayan economy closed 2025 with a 6.6% expansion—a figure President Santiago Peña attributes to the so-called "war economy" regime, a set of fiscal austerity measures that, paradoxically, the opposition and part of the industrial sector deem insufficient or poorly implemented.

That paradox—austerity announced alongside weak fiscal results—is precisely what Moody's puts on the table. While the MEF touts the 4.5% growth figure as a management achievement, tax revenues are barely advancing at the pace required to consolidate public finances. Tax collection has grown 4.6 times over fifteen years in nominal terms, a historical data point that provides context but fails to mask the current gap between GDP dynamism and fiscal resource generation. The Caja Fiscal accumulated a deficit of 1.31 trillion guaraníes in the first half—equivalent to some USD 216 million—and consulted economists warn of structural problems, aggravated precisely by the recent pension reform. Public debt, in turn, grew by USD 1.343 billion in five months, interest payments rose 12.9%, and the government is arranging additional external credits for more than USD 1.6 billion, while the Treasury maintains outstanding bonds in the local market for roughly USD 1.2 billion, equivalent to 2.36% of GDP. The new Economy Minister, Óscar Lovera—who replaces Carlos Fernández Valdovinos, whose departure was described as a foretold outcome marked by internal tensions—will travel to France to meet with international organizations, an agenda that takes on urgency in light of these figures.

On the external front, the trade relationship with Taiwan is generating activity in two key sectors. Taiwan's foreign ministry has made explicit its efforts to increase imports of Paraguayan soybeans, in a context where the soy complex has already generated USD 2.492 billion through May. In parallel, the price Taiwanese consumers pay for Paraguayan beef cuts suggests room to position the product in that high-purchasing-power market. Paraguay's economic openness, which sits 27 points above the Latin America and Caribbean average in specialized indices, facilitates this diversification of markets, although the devaluation of the Argentine peso continues to weigh on border-zone commerce in places like Alberdi—a reminder that proximity to Argentina entails vulnerabilities that aggregate indicators do not always capture.

On the energy and logistics front, two controversies warrant attention. Business chambers in the sector are warning of a possible "toll shock" on the Paraguay-Paraná Waterway and are demanding transparency in dredging projects, in a corridor that is a vital artery for agro-industrial exports. At the same time, the decision to increase the biodiesel percentage in the diesel blend has divided opinion: service stations fear operational and cost impacts, while Biocap defends the measure as planned policy, and the Ministry of Industry and Commerce insists it should not feed through to the final consumer price. Petropar, for its part, confirmed it will not lower fuel prices in July, adding pressure on the cost of living. State-owned utility ANDE has signaled it will define its tariff adjustment in the coming months—another element that could alter the low-inflation environment currently supporting domestic consumption, which the BCP has sustained by keeping its policy rate at 6.0%. The cost of that monetary policy during the first half is one of the open technical debates.

What to watch closely in the coming weeks is manifold: the congressional vote on the Caja Fiscal reform, which according to Senate President Alliana will be approved this week with modifications; approval of the seven-law economic package announced by the government; the trajectory of tax revenues in the second half, decisive if the optimism of economic agents is to translate into real fiscal consolidation; and the stance Lovera will bring to his conversations in Paris, where the narrative he presents on debt and deficit management will have direct implications for the cost at which Paraguay accesses international capital markets.

**CIRSA (private)** — The Spanish entertainment group CIRSA confirmed its arrival in Paraguay with an investment that its local promoters present as a signal of confidence in the country's legal certainty. The company, controlled by Blackstone and with operations in more than twenty countries, thereby broadens its presence in South America.

**Biocap (private)** — The chamber grouping Paraguay's biodiesel producers defended the new rule raising the blending percentage with diesel, dismissing the idea that it is an improvised measure and rejecting service-station sector fears of cost impacts; the decision directly affects the Paraguayan soy value chain, whose export complex generated USD 2.492 billion through May.