Paraguay shifts bond sales home as tax revenue stumbles against spending surge

The return of the Ministry of Economy and Finance to the Asunción Stock Exchange —with a Treasury bond placement of G. 360.548 billion— marks a shift in the financing strategy of Santiago Peña's government at a time when public debt has accumulated an increase of US$ 1.343 billion in the first five months of the year and interest payments have grown between 12.9% and 16.8% year-on-year. This is no minor development: the Paraguayan State is turning more frequently to the domestic capital market rather than to international issuances, a signal that coincides with the exchange modernization process that the financial sector projects could double the weight of the bourse in GDP by 2030. The stock of Treasury bonds outstanding in the local market already hovers around US$ 1.2 billion, a figure that gains relevance ahead of a 2027 General Budget which, according to the MEF, begins with narrower fiscal room and requires justification of every spending line.

The budgetary backdrop is equally telling. Central Administration spending grew 8.7% in the first six months of the year, exceeding G. 34 trillion, while tax revenues are advancing at a pace noticeably below economic growth. The MEF itself acknowledged that despite GDP expansion of 4.5%, tax revenues "are barely advancing," a gap that strains the fiscal rule and forces the ministry to seek new funding sources. The DNIT, the agency resulting from the merger between the SET and Customs —one of the most significant institutional reforms of the Peña government— regularized more than G. 13 billion in tax debts through payment facilities in June, pointing to collection still far from its potential. Oscar Orué pledged to raise the tax burden from 10% to 12% of GDP and to add some US$ 400 million in additional annual revenue; the half-year closing numbers suggest that goal is yet to be achieved.

Economic activity, however, is holding a solid pulse. The monthly indicator posted an expansion of 5.6% through May, driven by services and agriculture. Soy was once again the engine: a good harvest repositioned the sector as a pillar of the economy, and Taiwan's foreign minister —Asunción's main diplomatic partner— spoke publicly about efforts to increase imports of Paraguayan soy, in a context where Taipei also announced a US$ 200 million expansion in financing for the Che Róga Porã housing program, whose Urban Planning Ministry reports 6,100 pre-approved loans. The dynamism of the real economy has not gone unnoticed by multilateral organizations: the IMF revised its projection upward and places Paraguay's growth at 4.4%, highlighting macroeconomic strength while warning of risks, while S&P Ratings had already upgraded the country's sovereign rating at the beginning of the year and the World Bank committed US$ 300 million to strengthen economic resilience.

The tension between growth and informality nonetheless persists as the greatest structural risk. The underground economy accounts for between 40% and 47% of GDP according to various estimates, fueled by smuggling and informality in border areas. A US government report argued that "rampant corruption" hampers the country's growth potential, and Última Hora reported that organized crime is advancing in the institutional hollowing-out through the informal economy. The 5% minimum wage adjustment, which takes effect at the end of the month, introduces additional pressure on private payrolls in a context of uncertainty for MSMEs, whose access to credit is a matter of explicit attention for the new Minister of Economy, Óscar Lovera.

The energy sector concentrates another underlying threat. Experts warn that Paraguay is "racing against the clock" in the face of an energy crisis projected for 2030, while the business sector is demanding an acceleration of the ANDE reform and a halt to losses that compromise industrial competitiveness. The binational Itaipú cut US$ 38.7 million earmarked for school meals and municipalities, generating political tensions that overlap with the tariff debate: ANDE engineers warned of legal action if the tariff requested by Atome is approved, and the entity itself has yet to set the schedule for its tariff adjustment. On the external front, remittances from Paraguayans abroad are approaching US$ 500 million accumulated through May —with an annual projection of US$ 732 million— and are consolidating as a stabilizer of consumption and the real estate market.

In the coming weeks, markets and analysts will need to watch three simultaneous fronts: the outcome of the new bond debt operation the government is seeking to close, the congressional vote on the Fiscal Caja reform —which the President of the Chamber of Deputies, Alliana, estimates will be enacted with modifications this week— and the effective impact of the wage adjustment on inflation and private consumption. The international escalation of fuel prices adds an additional risk factor for Petropar, which confirmed that it will not lower prices in July, potentially passing through to costs across the productive chain at a moment when the country needs to sustain the first-half economic momentum to reach the growth projection near 5% that private agents are already beginning to incorporate into their expectations.

**Itaipú Binacional** — The Paraguayan-Brazilian binational hydroelectric entity cut US$ 38.7 million in transfers destined for school meals and municipalities, a decision that puts pressure on subnational finances and rekindles the debate over the renegotiation of Annex C of the Itaipú Treaty, whose review has direct implications for Paraguayan fiscal revenues and energy prices in Brazil.

**Petropar** — The state-owned oil company confirmed that it will not reduce fuel prices in July despite fluctuations in the international market, maintaining margins that partially cushion crude oil volatility but generating political tension over the impact of energy costs on private sector competitiveness and household purchasing power.