Paraguay's 6.6% growth masks a fiscal hemorrhage: imports up 7%, tax revenue down 17%.

The fiscal paradox defining Paraguay's economy today could hardly be more revealing: the Central Bank reports GDP grew 6.6% in 2025 under the so-called "war economy," activity accumulated 5.6% expansion through May driven by services and agriculture, and the country has spent 12 consecutive years as an upper-middle-income economy under the World Bank's classification. Yet imports rose 7% while tax collection fell 17%, public debt interest payments climbed between 12.9% and 16.8%, and the Caja Fiscal accumulated a $182 million deficit in just five months. Paraguay is growing forcefully and simultaneously bleeding through its public accounts. That tension is the thread running through today's session.

The IMF, which in its most recent assessment highlighted the country's macroeconomic solidity but adjusted its growth projection to 4.4% while warning of latent risks, perfectly captures that ambivalence. Local economic agents are more optimistic: recent surveys show market consensus pointing to growth near 5% for the year, and some economists even believe that figure could be exceeded. The World Bank, for its part, expects Paraguay to be the second-fastest-expanding economy in the region in 2025. But enthusiasm coexists with a warning that analysts are repeating with growing insistence: the constraint isn't growth, it's the capacity to collect revenue. With a tax burden hovering around just 10% of GDP, the Dirección Nacional de Ingresos Tributarios — created by merging the Subsecretariat of Taxation and Customs, one of the reformist pillars of Santiago Peña's government — promised to raise that ratio to 12% and capture roughly $400 million in additional annual revenue. Both the DNIT and representatives of the accounting sector agree there is room to collect more without raising tax rates, simply by improving controls. That imports are growing while collection falls 17% suggests that room is not being tapped.

The debt front adds pressure. The government is processing external loans worth more than $1.6 billion and exploring new bond issuances in local markets, where the stock of Treasury securities already reaches some $1.2 billion. Economy Minister Óscar Lovera, who recently took office pledging to continue the fiscal consolidation agenda, faces a context where interest payments are climbing sharply — between 13% and 17% by various measures — while the Caja Fiscal deficit mounts. The reform of the pension fund, which according to Senate President Cecilia Pérez de Zuccolillo will be enacted this week with modifications, adds political urgency to the equation. Lovera will also meet with international organizations in France, a signal that the government is seeking to consolidate its solvency narrative before creditors.

In the energy sector, ANDE is reactivating leasing tenders with a global cost overrun of $61 million versus prior contracts, while four consortia bid for the Zárate Isla substation with offers of up to $110 million. Itaipú, for its part, admitted that its transmission system to Brazil is operating at "null values" due to ongoing works — a short-term technical complication but with potential impact on the binational's revenues, which Paraguay uses as fiscal leverage. The so-called "war economy" depends in part on extraordinary resources from Itaipú and Yacyretá. The company also closed the gates of its spillway after a week of operation. In parallel, ANDE suspended a $6.4 million tender for its solar plant, complicating the energy diversification agenda.

On the foreign trade front, the day brings genuinely positive news. Paraguay completed its first shipment of pork to the Philippines and its first dispatch of poultry to Taiwan, consolidating a market diversification that the industry has pursued for years. An industrial poultry plant that will operate with 6 MVA of capacity reflects the depth of that bet. Nevertheless, an executive from the Asociación Paraguaya de Productores y Exportadores de Carne warns that the meat sector lacks a shared strategic vision, without which the country's competitive potential will remain underused. The Paraguay-Paraná waterway, an indispensable artery for all those exports, is another flashpoint: the productive sector represented by Cappro is demanding clarity on tariffs and services under the new concession scheme, while trade associations from other sectors warn that an excessive toll would erode export competitiveness.

Within the financial system, consumer credit is leading bank portfolios and already represents 20% of total financing, a reflection of an expanding middle class that the Central Bank attributes to the combination of financial inclusion and economic growth. Credit card evolution confirms that trend. The flip side is labor informality: although the legal coverage of the minimum wage reaches 1.9 million workers, effective coverage is only 17.7% of the labor force, and economists warn that recent wage adjustments will have limited impact while pressuring prices and reinforcing informality. The underground economy, estimated at around 46-47% of GDP, is the variable that most distorts any reading of the true size of the domestic market.

In the coming weeks, investors will need to closely track three variables: progress on the pension fund reform and its impact on deficit projections, the evolution of DNIT revenue collection in the months following its full operation, and the conditions emerging under the new waterway concession. If the government succeeds in translating growth dynamism into greater collection capacity without resorting to massive new borrowing, the risk differential Paraguay has patiently built over a decade will be reinforced. If not, today's fiscal paradox will be tomorrow's headline.

**ANDE (state-owned enterprise, Paraguay)** — The power distributor reactivated leasing tenders with a global increase of US$61 million versus previous contracts, while simultaneously suspending its US$6.4 million solar tender; the contradictory procurement decisions raise system costs and delay energy diversification in a market anticipating a tariff readjustment before year-end. The company manages the distribution of energy generated by Itaipú, whose output has direct exposure to the Brazilian market.

**Itaipú Binacional (Paraguay–Brazil)** — The hydroelectric plant admitted that its transmission system to Brazil is operating at "null values" due to ongoing works, temporarily interrupting energy assignment revenues that the Paraguayan government counts as part of its fiscal strategy dubbed the "war economy." The subsequent closure of the spillway, which had been open for a week, adds operational pressure at a moment when dividends from the