Growth that doesn't pay taxes: Paraguay's fiscal trap widens.

The most revealing tension in Paraguay's economy today lies not in its growth figures, which remain the envy of the region, but in the widening gap between GDP dynamism and the state's inability to convert that momentum into sufficient fiscal revenue — a contradiction that grows more urgent as debt accumulates and as the energy services underpinning that very growth continue to deteriorate.

Economic activity expanded 5.6% through May, and the third quarter showed growth across every sector, with services and agriculture leading the charge. Market participants project a year-end print near 5%, nearly double what the IMF anticipates for the world economy as a whole. Moody's ratings ratification and the IMF's explicit endorsement of the country's macroeconomic soundness reinforce that narrative. Paraguay also climbed in the Index of Economic Freedom to 84th out of 180 countries, and the World Bank committed $300 million to strengthen economic resilience. On paper, the country has every credential of a rising emerging market.

But the Ministry of Economy and Finance — whose creation, under new minister Óscar Lovera, is one of the most ambitious institutional reforms of the Santiago Peña administration — acknowledges that fiscal revenue is barely advancing despite the 4.5% growth on the books. The MEF highlighted the expansion figure but could not disguise the fact that the tax burden remains structurally low: the Dirección Nacional de Ingresos Tributarios, created through the merger of the SET and Customs, has set itself the task of raising that burden from 10% to 12% of GDP and collecting an additional $400 million a year — an ambitious pledge in a context where labor informality affected 1.753 million people in the second quarter, according to the Instituto Nacional de Estadística. Employment grew, but overwhelmingly in the informal sector, meaning the contributory base is expanding well below the pace of the formal economy. The slowdown in IPS contributor growth — just 1.9% in June, with 24,618 partial contributors — illustrates the problem with actuarial precision.

Meanwhile, public debt rose by $1.343 billion in just five months, and interest payments increased between 12.9% and 16.8% depending on the measurement period. The budgeted exchange rate allowed the deficit to be artificially adjusted to 1.5%, but analysts warn that this accounting mechanism raises red flags heading into 2025, when the room for maneuver will be narrower. The government is looking to place new bonds in the local market — where roughly $1.2 billion in Treasury securities already circulate — and the eventual return of those instruments to the Bolsa de Valores de Asunción could reshape the local capital market, which remains dominated by corporate fixed-income issuance and where an equity culture is virtually nonexistent.

Layered on top of this fiscal picture is an energy strain that experts describe as urgent. A specialist quoted by ABC Color warned that Paraguay is racing against the clock in the face of an energy crisis that could materialize before 2030, just as the Unión Industrial Paraguaya demands a state-level policy following the leadership change at ANDE. The state-owned utility has yet to decide when to apply its tariff adjustment, a decision that bears directly on industrial competitiveness. The situation is complicated by a $38.7 million reduction in Itaipú transfers earmarked for school meals and municipalities, and by the ongoing complaints from fishermen in Ayolas over Yacyretá's silence. The two great binational entities, which have historically served as a fiscal cushion for the Paraguayan state, are under pressure on multiple fronts.

On the external front, the picture is mixed. Taiwan's foreign ministry is actively working to open its market to Paraguayan soy, an effort that takes on strategic weight given that Paraguay is one of the few countries that still maintains formal diplomatic recognition of Taipei. In addition, Taiwan would expand financing for the Che Róga Porã housing program by $200 million, deepening the bilateral relationship beyond agricultural trade. In parallel, the Development Bank of Latin America (CAF) will expand its private-sector financing arm in the country, a signal that institutional capital supply for the productive sector is gaining depth. Family remittances, which accumulated nearly $500 million through May and exceed $732 million on an annualized basis, remain a buffer for private consumption and a quiet driver of the real estate market. On the Mercosur–EU front, Paraguay is pressing for parity in the bi-regional agreement's quotas, a point that could prove decisive for agricultural exports if the treaty finally enters into force.

In the fuels market, private brands pushed through their fourth price hike of the year, while Petropar opted not to lower prices in July despite the international rally. The impact on merchants is already visible: logistics costs are rising and sales are falling, according to testimony gathered by local media. The El Niño phenomenon adds further uncertainty to the agricultural sector, with the Ministry of Agriculture analyzing potential effects on output.

What warrants watching in the coming weeks is threefold: the approval of the pension reform in the Senate, which Upper House president Blanca Alliana promised for this week with modifications; ANDE's decision on electricity tariffs, which could ignite a high-voltage political debate before year-end; and the reception of the new Treasury bonds among local institutional investors, whose appetite will determine whether the government can finance its deficit without relying exclusively on international markets. In that triangle — pension reform, energy, and domestic debt — much of the fiscal credibility of the Peña administration will be decided in its second year in office.

**Banco de Desarrollo de América Latina - CAF (no public listing)** — The Caracas-based multilateral institution announced the expansion of its private-sector financing arm in Paraguay, deepening its footprint in one of South America's fastest-growing markets. The move steps up competition with IDB Invest and the World Bank Group's IFC in the local corporate financing segment.

**Petropar (state-owned company, no listing)** — Paraguay's state oil company ruled out a price reduction in July despite the fourth consecutive hike applied by private brands, intensifying margin pressure across the distribution chain and exposing the government to criticism over the company's management amid a discount war among private stations.