- The Paraguayan economy continues its robust growth with inflation under control and fiscal targets in line with the convergence plan
- Structural reforms included under the Policy Coordination Instrument are progressing to ensure inclusive and sustainable growth over the medium term
- Reforms supported by the IMF's Resilience and Sustainability Facility are being implemented focused on reducing vulnerabilities to climate change and achieving more sustainable growth
Washington, DC: A team of International Monetary Fund (IMF) staff, led by Mauricio Villafuerte, Mission Chief for Paraguay, visited Asunción, Paraguay from November 5 to 11, 2024, to discuss recent economic developments and policies in preparation for the Fourth Review of the Policy Coordination Instrument and Second Review under the Resilience and Sustainability Facility, which are expected to be considered by the Executive Board of the IMF by end of year. At the end of the visit, Mr. Villafuerte issued the following statement:
"Paraguay's economic activity continues to be dynamic in 2024 and GDP growth is projected to be around 4 percent thanks to strong performance in domestic trade, financial services, household and business services, as well as manufacturing. The agricultural sector's performance was in line with projections as activity stabilized after a post-drought surge in 2022. This positive performance was partially offset in recent months by lower electricity generation due to low water levels in the Paraná River. Domestic demand remained strong, driven mainly by robust private consumption and an increase in gross fixed capital formation.
"Inflation has remained around the Central Bank of Paraguay's target of 4 percent. This is the result of the conduct of monetary policy, as well as other economic developments. Headline 12-month inflation stood at 3.6 percent in October and is expected to remain around the target by the end of 2024 and the medium term.
"After improving markedly in 2023, the current account of the balance of payments is expected to move into a deficit of about 3 percent of GDP in 2024. Although export volumes continue to expand, a drop in soybean prices has led to a reduction in export revenue. Hydropower exports have declined due to low river levels. Imports have also been growing due to fuel and capital goods. The guaraní depreciated by about 6.5 percent year-on-year in October, and international reserves coverage remains adequate.
"The fiscal convergence plan continues to be implemented, reaffirming the sustainability of public debt. Tax revenues grew significantly so far this year thanks to robust economic activity and administrative efforts by the National Directorate of Tax Revenue. With current primary expenditures growing in line with the 2024 budget plans, the authorities are expected to meet the deficit target of 2.6 percent of GDP for the year. The draft budget law for 2025 projects a deficit of 1.9 percent of GDP and is aligned with the convergence plan that aims to return to the ceiling set by the fiscal responsibility law of 1.5 percent of GDP in 2026. This level of deficit is consistent with the stabilization of public debt to GDP levels in the short term and their marked decline in the medium and long terms.
"The government's reform agenda supported by the Policy Coordination Instrument continues to advance to cement inclusive and sustainable growth. In particular, amendments to the PPP Law to make it more attractive to the private sector with adequate management of potential fiscal risks have been submitted to Congress. Improvements have been made in the execution and monitoring of public expenditure (integrated SIGEBYS system) to increase the confidence of government suppliers. Approval of the updated version of the National Risk Assessment is also expected before the end of the year, in line with the government's action plan to implement GAFILAT's recommendations. The draft law on public employment and civil service law will promote the professionalization of public servants and modernize the management of Paraguay's public institutions, is being considered by Congress. The project had been shared with the public for consideration through a process of participatory dialogue.
"Paraguay also continues to implement reforms under the Resilience and Sustainability Facility to advance their sustainable development goals. The government will review regulations to increase the resilience of public investments. Following extensive consultations, the publication of a green taxonomy, a classification system that helps identify and categorize investments as "green" or "sustainable", will seek to boost mobilization of financial resources to support initiatives that strengthen the resilience of the economy to climate challenges. The government also continues to work very actively to preserve and expand the country's clean electricity matrix and support the recycling of plastic containers.
"The IMF team thanks the Paraguayan authorities and other counterparts for the productive discussions."
