Fiscal deficit doubles legal limit as Paraguay's economy surges ahead

The Ministry of Economy and Finance acknowledged this week that the fiscal deficit will close 2025 at around 3.2% of GDP — more than double the 1.5% ceiling set by the fiscal responsibility law — a confession that reframes the entire narrative of macroeconomic solidity that Santiago Peña's government has cultivated since taking office in August 2023. The disclosure does not arrive in a vacuum: it coincides with private credit data showing an economy with notable momentum, with signs of diversifying foreign investment, and with growth that the Central Bank projects at around 5% for the year. The tension between these two realities — a genuine expansionary cycle and public finances accumulating pressure — is the dominant story of the moment.

The MEF, as reported by ABC Color, acknowledged that public debt grew by USD 1.498 billion in the first half of the year alone, though the ministry insisted that the debt-to-GDP ratio will remain below 40%. Accumulated external loans total USD 5.623 billion, with half of the resources still undisbursed. The debt service is already being felt: interest payments rose between 12.9% and 16.8% depending on the different measurements of the period. To settle accumulated debts with suppliers — including a multi-million-dollar arrears position with pharmaceutical companies in the Health sector, whose origin Minister Óscar Lovera had to explain publicly — the government announced it will resort to new debt. Lovera set 2028 as the horizon for returning to the 1.5% deficit contemplated in the current law.

Former minister Dionisio Borda, summoned along with other former finance ministers in an unusual meeting with President Peña to analyze the fiscal picture, recommended a new convergence plan and warned that containing current spending is an indispensable condition. Other analysts cited by La Nación were more direct: the accumulated debts could reveal a structural problem, not merely a cyclical one, and the president should abandon electoral calculations to focus on fiscal management. The reform of the *caja fiscal* — the public sector pension system, which according to Última Hora reflects a deeper systemic crisis — is advancing in Congress with modifications and could be enacted this week, according to Chamber of Deputies president Raquel Llanes.

While the government manages that front, real activity data offer a more encouraging picture. The Central Bank reported that the economy grew 5.8% in the first quarter and maintains cumulative expansion close to 5% in the first months of the year. Credit to the private sector grew 14.4% in June, and bank deposits rose 19.4%, according to BCP figures cited by ABC Color, signals of an expanding financial intermediation. The Agencia Financiera de Desarrollo is preparing new credit lines and guarantees to boost industry, in line with the official goal of generating more than 500,000 new jobs by 2028.

Energy policy is also drawing attention. Peña replaced the head of the Administración Nacional de Electricidad and gave the Mesa Energética 30 days to establish clear rules for investors, a sign of urgency in a sector that carries unfulfilled promises: the bond issuance by ANDE and the sale of surplus energy from the Acaray dam to Brazil remain pending. Delinquency at ANDE, however, fell to 15.6% after more than 25,000 delinquent customers were sent to the Informconf credit bureau, a management measure that combines financial discipline with reputational costs. Itaipú, for its part, increased its energy supply to ANDE by 19.4% between January and July.

On the commercial front, Paraguayan chia regained full access to the Japanese market after passing sanitary controls, while Taiwan's foreign minister reaffirmed efforts to import Paraguayan soy, a reminder of the geopolitical weight of the country's agricultural ties. Pig smuggling from Brazil, which has pushed the local price below 8,000 guaraníes per kilo, is hurting local producers and exposing the vulnerability of border-region production chains. As for remittances, annual flows of USD 732 million continue to be a relevant support for consumption and the real estate market.

The Dirección Nacional de Ingresos Tributarios, the entity that merges the former Subsecretaría de Tributación with the Dirección de Aduanas, is advancing in its institutional consolidation: it signed a data exchange agreement with the banking association ASOBAN to streamline controls and credit analysis, and is working on the review of special regimes ahead of the 2027 General Budget. Director Óscar Orué pledged to raise the tax burden from 10% to 12% and increase revenue by some USD 400 million annually. As of September, the DNIT will also reduce the interest rate applied to tax payments in installments, a measure aimed at facilitating voluntary compliance. In parallel, the government is analyzing presenting in September the de-indexation of the minimum wage from the price index, a labor reform with potential impact on competitiveness and domestic consumption.

What warrants close monitoring in the coming weeks is the enactment of the *caja fiscal* reform and its final version, the process of issuing new debt to cover suppliers, the drafting of the 2027 General Budget — which the MEF has anticipated will involve a comprehensive review of all State programs, with priority for Health — and any concrete signal from the Mesa Energética on investment rules in the electricity sector. The credibility of the fiscal path traced out to 2028 will depend largely on whether the government can demonstrate that current spending is effectively contained, or whether the upcoming electoral cycle ends up once again subordinating budgetary discipline to political arithmetic.

**Catedral and Farmacenter (not listed on international markets)** — Paraguay's two main pharmacy chains announced their merger, a transaction that would consolidate retail drug distribution in a market where the State is the largest buyer and carries multi-million-dollar debts to the sector. The deal comes amid government payments of USD 80 million to pharmaceutical companies as part of the Health Ministry's debt clean-up.

**CIRSA (Codere-CIRSA, listed on the Madrid Stock Exchange: CDRE)** — The Spanish gaming and entertainment group arrived in Paraguay with an investment that local authorities presented as a signal of confidence in the country's legal certainty. CIRSA's entry expands its exposure to Latin American markets undergoing rapid regulatory expansion, a pattern the group is replicating in other countries in the region.

**Grupo Vázquez (not listed on international markets)** — ABC Color reported that the conglomerate acquired a plot from the Instituto de Previsión Social through a triangulated transaction, an operation that raises scrutiny over the asset management of the country's main social security fund and could lead to parliamentary or administrative investigations.