Paraguay's growth miracle meets a tax collection crisis

The fiscal paradox that defines Paraguay's economy today is this: the country is growing at a pace that doubles the regional average, capturing markets in Asia and leading business confidence in the Southern Cone, and yet its public accounts are accumulating tensions that economists themselves flag as the structural limit of the model. It is that contradiction — vigorous growth resting on a fragile tax base — that frames virtually the entire economic agenda of the day.

The Banco Central del Paraguay reported economic activity growth of 5.6% through May, driven by agriculture and services, while the Ministerio de Economía y Finanzas emphasizes that industry and the primary sector are sustaining the expansion in the first half of the year. Private-sector optimism tracks the data: according to a recent survey, market consensus points to growth of close to 5% for full-year 2025, above the IMF's projection, which was revised to 4.4% even as the Fund acknowledged the strength of local performance. In relative terms, that is nearly double the expansion forecast for Latin America as a whole, a differential Paraguay has sustained with notable consistency and which has earned it twelve consecutive years as an upper-middle-income country under the World Bank classification — a milestone the Santiago Peña administration deploys as the centerpiece of its management narrative.

But growth does not resolve the fiscal arithmetic. Imports rose 7% during the period, yet customs revenue fell 17%, a divergence that lays bare with surgical precision the gap between real economic activity and the state's capacity to capture it. The tax take hovers around 10% of GDP — one of the lowest in the region — and Óscar Orué, head of the new Dirección Nacional de Ingresos Tributarios, has committed to lifting it to 12% without new taxes, relying instead on greater collection efficiency. The DNIT itself and the accounting industry agree there is room to collect more within the existing system, though that optimistic diagnosis coexists with a more uncomfortable reality: the Caja Fiscal deficit reached USD 182 million in the first five months of the year, interest payments on public debt rose 12.9%, and the underground economy — by various estimates — accounts for between 40% and 46% of GDP, a magnitude that remains largely beyond the tax authority's reach.

The creation of the Ministerio de Economía y Finanzas — the first law Peña enacted upon taking office — and the merger of the Subsecretaría de Tributación with the Dirección de Aduanas into the DNIT are the two institutional reforms the government presents as a structural response to that weakness. The logic is sound: consolidate the fiscal architecture to improve performance without raising rates. The lingering question is whether the organizational overhaul will deliver the promised results on the timelines the public accounts require. An economist quoted by ABC Color put it succinctly: the debt is manageable, but the debt ceiling is set by low tax collection.

Against that backdrop, the government is processing external loans totaling more than USD 1.6 billion and weighing a new bond issue in the local market, where Treasury paper already amounts to some USD 1.2 billion outstanding. The World Bank, for its part, approved a USD 300 million loan aimed at strengthening economic resilience, and the MEF has held meetings with international agencies in the framework of its search for external financing. MSMEs, meanwhile, are voicing a complaint that jars with the official narrative: the state collects more and more, they say, but does not pay its bills. The ministry disbursed 184.194 billion guaraníes to suppliers over the past week, a gesture aimed at easing the pressure but one that does not clear an accumulated debt with the pharmaceutical sector — Cifarma put it without euphemism: it is accepting the debt assignment because "something is better than nothing" — or with other public-sector suppliers.

On the external front, the week brings two developments that warrant sustained attention. Paraguay made its first pork shipment to the Philippines and its first poultry shipment to Taiwan, openings that diversify the export base beyond soy and beef and that come at a moment when the country's economic openness index exceeds the regional average by 27 points. The Mercosur–European Union agreement negotiation remains the most relevant backdrop for foreign trade: Asunción is pressing for parity in access quotas, aware that the asymmetries of a bloc negotiated around the agricultural priorities of Brazil and Argentina could leave Paraguay in a suboptimal position. Agro-export associations highlight the agreement's potential; industrialists, more cautious, are waiting for the final details.

In energy, four consortia submitted bids of up to USD 110 million for the construction of ANDE's Zárate Isla substation, while experts warn that Paraguay is entering a critical stage in order to avoid a medium-term electricity crisis. The closure of the Itaipú spillway gates, after a week of operation, is a reminder that water management has direct consequences for generation and for the Paraguay-Paraná waterway, whose new concession is stirring debate: producers grouped under Cappro are demanding transparency on tariffs before backing the model the government is promoting.

In the weeks ahead, attention should focus on three fronts: approval of the Caja Fiscal reform, which the president of the Chamber of Deputies, Alliana, previewed for this week with modifications; progress on the seven-law economic agenda announced by the executive; and the behavior of the exchange rate, which several analysts flag as a latent risk variable — a significant depreciation of the guaraní would strain public accounts on the dollar-denominated portion of the debt just as the financial cost is already growing at a double-digit pace.

**CIRSA (private)** — The Spanish gaming and entertainment company confirmed its entry into Paraguay with an investment the government characterizes as a signal of confidence in the country's legal certainty. CIRSA, with operations in more than a dozen markets across Europe and Latin America, is thus expanding its Southern Cone footprint in a regulated segment that Paraguay has sought to formalize as a source of fiscal revenue.

**Ueno Bank / BNF (local entities)** — Non-performing loans at the Banco Nacional de Fomento stand at 3.16% of the portfolio, while Ueno Bank's are at 2.74%, levels the Superintendencia de Bancos is monitoring amid a sustained expansion of consumer credit driven by financial inclusion and economic growth. Both entities operate exclus