Paraguay's infinite energy advantage expires in three years without urgent reform.

The warning issued this week about Paraguay's energy horizon is perhaps the most unsettling takeaway from today's news flow: according to private-sector voices cited by ABC Color, the "infinite" energy that has seduced investors for decades will run out in just three years unless the sector is urgently opened up and reformed. For an economy growing at 5.6% year-on-year through May —according to the Central Bank of Paraguay's monthly activity indicator— and which the IMF projects will expand by 4.4% in 2025, nearly double the regional average, such a warning represents a first-order structural contradiction.

The business sector has long been demanding that the Administración Nacional de Electricidad accelerate its own reform. With the change of leadership at ANDE, that demand has taken on renewed urgency: the utility's substantial losses, the absence of a defined tariff adjustment, and the prospect of electricity demand outstripping available capacity in the short term all threaten to erode precisely the competitive advantage that has allowed the country to attract industrial and data-center investment in recent years. Paraguay has showcased its energy potential in international forums, but the narrative of infinite abundance is colliding increasingly with the operational reality of its state-owned enterprises.

That international optimism, however, remains robust. The IMF highlighted the country's economic strength while local market agents are raising their growth expectations toward 5%. Economic activity rests on two pillars that performed well in the first half: agriculture, buoyed by a successful soy harvest that once again positions the sector as the undisputed engine of GDP, and services. Remittances —USD 732 million on an annual basis, according to recent figures— continue to feed the real estate market and domestic consumption. Paraguay, recently upgraded to "upper-middle-income country" status by the World Bank, and with an economic openness ratio 27 percentage points above the Latin American and Caribbean average, is trading well in international debt markets.

That standing was on display this week in the local capital market. The Ministry of Economy and Finance placed Treasury Bonds for 360,548 million guaraníes on its return to the Bolsa de Valores de Asunción, consolidating an outstanding stock of domestic-market securities of around USD 1.2 billion. At the same time, the government opened a bid-reception window for creditors ahead of a new external debt issuance. This dual operation comes as public debt grew by USD 1.343 billion in five months, and interest servicing costs rose between 12.9% and 16.8% depending on the measurement cutoff — a figure that analysts flag as growing pressure on the fiscal accounts, whose quality the MEF defends but which independent observers characterize as deficient and inefficient.

Central Administration spending grew 8.7% to exceed 34 trillion guaraníes in June, with social spending accounting for 56 of every 100 guaraníes executed in the 2026 budget. The General Budget of the Nation for that fiscal year has already accumulated increases of some USD 685 million over the initial version. Meanwhile, the reform of the Caja Fiscal —the public employees' pension system, whose actuarial imbalance represents one of the State's most serious contingent liabilities— is advancing in Congress with modifications that the president of the Chamber of Deputies, Raquel Alliana, confirmed will be enacted this week.

On the tax front, the data point in the right direction but leave room for caution. The Dirección Nacional de Ingresos Tributarios —created precisely through the merger of SET and Customs, one of the first legislative acts of Santiago Peña's government— regularized tax debts of more than 13 billion guaraníes in June through payment facilities. The VAT base reached 1,079,828 taxpayers, an expansion the new agency attributes to deepening formalization. The goal of raising the tax burden from 10% to 12% of GDP and adding USD 400 million in annual revenue remains the stated target of its director, Óscar Orué, though the timeline to achieve it is not precisely defined.

The other major tension of the day involves fuels and biofuels policy. The government reduced the biodiesel blend in diesel fuel, a decision generating uncertainty at service stations and among sector producers, while Petropar ruled out price cuts in July but did not rule out future increases in the face of rising international crude prices. The biodiesel measure contrasts with the official discourse on energy diversification and may have implications for the agro-industrial sector, which sees biofuels as a value-added outlet for its production.

On the multilateral financing side, CAF announced the expansion of its private financing arm in Paraguay and launched the Vela Fund, aimed at ventures that will be able to apply for investment. The World Bank, for its part, is backing the country with USD 300 million geared toward strengthening economic resilience. Taiwan's foreign ministry, Asunción's only formal diplomatic ally in Asia, held talks on efforts to increase imports of Paraguayan soy, a trade axis gaining relevance in the context of the Mercosur-European Union agreement, in which Paraguay is demanding equal treatment on access quotas.

Itaipú concentrated two simultaneous negative signals: it cut USD 38.7 million earmarked for school meals and municipalities, and the Bioceanic Route bridge financed by the hydroelectric plant is accumulating significant cost overruns. Both stories feed the debate over the governance of the binational entities and their role as instruments of social and infrastructure policy.

In the coming weeks, investors should closely track three fronts: the definition of ANDE's tariff adjustment and concrete progress on energy reform, whose delay could become the main bottleneck for investment; the external debt operation the government is seeking to close in international markets, in a context of elevated rates and a growing interest burden; and the final approval of the Caja Fiscal reform, whose delay or substantial modification could weigh on the perception of fiscal discipline that agencies like S&P —which upgraded Paraguay's rating in early 2025— have begun to reward with improvements to the sovereign rating.

**CAF – Banco de Desarrollo de América Latina (not publicly listed)** — The multilateral institution announced the expansion of its private-sector financing arm in Paraguay and launched the Vela Fund, an equity vehicle aimed at local ventures with regional scaling potential. The initiative