Paraguay's Growth Masks Fiscal Fractures, Threatening Market Confidence

Paraguay is grappling today with a structural tension between the robust macroeconomic fundamentals that Santiago Peña's government showcases to the world and the fiscal, labor, and institutional fractures that threaten to undermine that narrative of success.

The Banco Central del Paraguay confirmed that the economy grew 6.6% in 2025, the best performance in the region, driven by agriculture, industry, and the energy sector. For the first quarter of the year, La Nación reported an expansion of 5.8%, underpinned by consumption that grew 4.8% according to BCP data. Those numbers allowed President Peña to proclaim Paraguay as "the most dynamic economy in the region," a claim that finds echo at the International Monetary Fund, which highlighted the country's resilience, and at the World Bank, which projects Paraguay as the second fastest-growing economy in the region in 2025. Country risk stands at just 104 basis points, a level that reflects market confidence in macroeconomic stability, and Treasury bonds in the local market total roughly $1.2 billion, with the government seeking to place new debt to finance its commitments.

Beneath those figures, however, pressures are accumulating that analysts are no longer hiding. According to ABC Color, the fiscal deficit stands at 0.9% of GDP through May, and economists warn that the government will struggle to meet its fiscal target without adjusting the budget. Public debt rose by $1.333 billion in just four months, and the construction sector is claiming unpaid invoices exceeding $300 million plus pending interest, while MSMEs openly question: "If the State collects more and more, why doesn't it pay its bills?" The Ministry of Economy and Finance disbursed some $10 million to suppliers and announced additional payments of 184.194 billion guaraníes, but the pace falls far short of clearing the accumulated backlog. Against that backdrop, lawmaker Barreto proposed drafting a new fiscal convergence plan in light of the difficulty of meeting the ceiling set by law.

The institutional reform that the Peña era pushed forward from its earliest days continues to generate debate. The creation of the Ministry of Economy and Finance, which absorbed the Ministry of Finance and the Technical Planning Secretariat, and the merger of the Tax Undersecretariat with the Customs Directorate into the new National Directorate of Tax Revenue, were the government's first moves in fiscal architecture. The DNIT reports concrete progress: IDU collections grew nearly 30% following controls on discretionary reserves, and director Óscar Orué pledged to raise the tax burden from 10% to 12% of GDP with additional collections of $400 million annually. In parallel, the SIARA system for transaction registration is generating friction with accountants, who are asking for deadline extensions amid the threat of multimillion-dollar fines, and the Repse forces informal sectors, such as independent hairdressers, to formalize under schemes many do not understand.

The minimum wage debate dominates the labor agenda. The Minister of Labor argues that the adjustment will generate a virtuous cycle of consumption and formalization, but the business association Asimcopar warns that an increase without a technical basis will deter investment. Economists consulted by ABC Color note that the impact on prices will be real though moderate, and warn of greater pressure on informal employment, which according to Última Hora already accounts for roughly 46% of GDP. The geographic concentration of economic activity aggravates the diagnosis: three departments concentrate nearly 90% of international revenues, while the country's interior waits for industries to be installed that could diversify the productive base.

On the energy front, Itaipú opened its spillway gates in a context in which both binational entities, Itaipú and Yacyretá, remain pillars of what the government calls the "war economy." Family remittances, which total $732 million annually, complement that foreign currency flow and sustain real estate development. In the FX market, the Banco Central del Paraguay is weighing a possible intervention to contain dollar volatility, whose trajectory remains the subject of political and economic analysis. Private fuel retailers matched their prices with those of Petropar, adding inflationary pressure on households.

What investors should monitor in the coming weeks is the reform of the Caja Fiscal, whose deficit reached $182 million in five months and which Congress is expected to enact with modifications this week, according to lawmaker Alliana; the Economy Minister's meeting with international organizations in Paris, where signals on access to external financing will be defined; and the evolution of social spending, which the MEF reports at $2.590 billion through May, a figure that reflects both the government's redistributive ambition and the pressure on public accounts that markets have already begun to price in.