Customs revenue plummets 10% as Paraguay's growth story frays

Paraguay's customs revenue has accumulated a 10.4% decline year-to-date, a figure that openly contradicts the official narrative of fiscal soundness and exposes an underlying tension in the public accounts: the economy is growing at a pace that will double the global average according to the IMF, yet fiscal revenues are barely advancing, with the customs component retreating sharply. That paradox is the connecting thread of the day.

According to ABC Color, the customs shortfall has slowed overall revenue growth at the Dirección Nacional de Ingresos Tributarios (DNIT), the very institution created to collect more efficiently through the merger of the Tax Undersecretariat and the Customs Directorate — one of the flagship reforms of Santiago Peña's administration. Director Óscar Orué himself had pledged to lift the tax-to-GDP ratio from 10% to 12% and add some USD 400 million annually to state coffers. The customs drop casts doubt on that goal, at least in the short term, and lends some retrospective vindication to those who — like then-customs director Julio Fernández — warned that the merger could complicate the operations of an institution that handles 5,000 transactions daily. As a palliative response, DNIT announced a reduction in the interest rate for tax payments in installments starting in September, a signal that the agency is looking to improve voluntary compliance rather than relying solely on enforcement. Both DNIT and leading voices in the accounting sector further agree that there is room to raise more revenue without hiking rates, by reducing evasion and informality, which according to Última Hora is already equivalent to between 40% and 46% of GDP.

That structural informality was also laid bare in second-quarter labor market data. The Instituto Nacional de Estadística (INE) recorded a drop in unemployment and a rise in employment, but the increase was concentrated in informal work, which surpassed 1,753,000 people. Underemployment also rose. Micro, small and medium-sized enterprises, which employ close to 80% of Paraguayan workers, largely operate outside the formal system, directly feeding the revenue gap and explaining why Paraguay remains among the countries with the highest labor informality in Latin America and the Caribbean, according to the same source. IPS, the country's social security system, registered just 24,618 partial contributors in June, with growth slowing to 1.9% — a further sign that formalization is advancing at an insufficient pace.

Against that backdrop, the Ministry of Economy and Finance (MEF) faces mounting pressure. President Peña convened former finance ministers to analyze the fiscal deficit and state debts, including a USD 280 million obligation that, according to current minister César Barreto, was not on MEF's books when he took office. The government is targeting 2028 to return to a fiscal deficit of 1.5% of GDP, a goal that looks demanding if revenues continue to lag economic growth. Interest payments on public debt rose 12.9% in the period under review, and royalties transferred to departmental and municipal governments fell by USD 1.6 million. CAF, the Latin American development bank, announced it will expand its private-sector financing arm in Paraguay, which could partially ease investment pressure on the public sector.

In capital markets, the day's debate revolved around the potential return of Treasury Bonds to the Stock Exchange, with a local market stock of approximately USD 1.2 billion. Analysts consulted by ABC Color argue that such a move could transform the local capital market, currently dominated by corporate bond issuance — a phenomenon reflecting Paraguayan companies' preference for debt over equity capitalization. Market modernization, if realized, could double the market's weight in the economy by 2030, according to projections cited by the same outlet. At the same time, the government is seeking to close a new sovereign debt issuance abroad.

On the energy and price front, private fuel brands enacted their fourth increase of the year, with cumulative hikes of up to 39%, while Petropar, the state-owned company, has kept its prices unchanged and faces a discount war from private operators. One expert warned that Paraguay is racing against the clock in the face of a possible energy crisis by 2030, while Itaipú's spillway closed its gates after a week open. In air transport, the Dirección Nacional de Aeronáutica Civil (Dinac) warned of a possible financial and technical audit of Paranair, the locally-owned airline. Family remittances, which reached nearly USD 500 million through May and are projected at USD 732 million annually, remain a significant cushion for the domestic economy and are fueling real estate development.

For next week, markets and analysts will closely track the evolution of customs revenue, the vote on the pension fund reform — which according to Chamber of Deputies President Alliana will be enacted this week with modifications — and the outcome of the Economy Minister's meetings with international bodies in France. It will also be worth monitoring whether fuel-driven inflationary pressure — in a context of general deflation recorded in July according to the Banco Central del Paraguay — begins to filter into the price index, and whether fishermen in Ayolas follow through on their threat to protest over the lack of responses from the binational Yacyretá entity.

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**Catedral and Farmacenter (not listed on international exchanges)** — The two Paraguayan pharmacy chains announced their merger, in what constitutes the most significant consolidation deal in Paraguay's health retail sector in recent years. The transaction combines two distribution networks with nationwide coverage in a market where the government has accumulated significant debts to pharmaceutical suppliers, including Cifarma, which accepted a debt assignment on the premise that "something is better than nothing."

**Paranair (not listed on international exchanges)** — The Dirección Nacional de Aeronáutica Civil warned that it could subject the Paraguayan airline to a financial and technical audit, a regulatory alert signal about the operational sustainability of the only significant local competitor in the domestic aviation market.