Growth amid fiscal decay: Paraguay's wartime economy faces 2028 reckoning
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As Santiago Peña marks three years in the presidency, Paraguay's economic narrative splits in two with unusual clarity: the Central Bank reports GDP growth of 6.6% in 2025 — a figure the BCP itself describes with the metaphor of a "war economy" — while the Ministry of Economy and Finance simultaneously acknowledges that the fiscal deficit will not return to the legal ceiling of 1.5% of GDP until 2028, and that public debt has increased by USD 1.498 billion in just six months. The vigor of real activity and the deterioration of public accounts coexist today as two parallel realities that the Peña government has yet to reconcile.
The growth is genuine. The BCP confirmed a 5.8% expansion in the first quarter, which accelerated over the course of the year to close at 6.6%, well above IMF projections for the region. The economic agents surveyed by the central bank are raising their year-end estimates to around 5%, and ECLAC affirms 4% as the floor. The first quarter was driven by agriculture — soy is once again the engine, according to reports from La Nación — and by dynamism in consumption partly sustained by remittances that already exceed USD 732 million annually. The World Bank has just committed USD 300 million in budget support, and Moody's maintained the investment grade that Paraguay achieved under this administration, a signal that analysts read as confirmation of the model's structural soundness.
The fiscal picture, however, is uncomfortable. According to the MEF, interest payments on public debt grew between 12.9% and 16.8% year-on-year — depending on the measurement period — and the projected deficit for 2027 will reach 3.9% of GDP, well above the legal ceiling of 1.5%. The new Economy Minister, Óscar Lovera, has indicated that the budget will only be brought back on track in 2028 "after debt payments," a formulation that former minister Dionisio Borda considers insufficient: in remarks reported by ABC Color, Borda demands a credible new fiscal convergence plan and warns that current spending must be contained immediately. Another former minister goes further, diagnosing that the debts accumulated with suppliers and the Ministry of Health reveal a structural rather than merely cyclical problem, one the government has tended to underestimate.
The energy sector currently concentrates the greatest number of signals of political change. Peña replaced the head of ANDE and gave the Energy Roundtable thirty days to set clear rules for private investors. At the same time, he floated the creation of a Ministry of Mines and Energy and a sectoral regulator — reforms that, if implemented, would represent the most significant institutional transformation of the sector since the signing of the Itaipú and Yacyretá treaties. In parallel, ABC Color revealed that the government concealed an offer of USD 70 per megawatt — higher than the one ultimately negotiated — in order to favor the company Atome, an accusation that adds political pressure just as the Energy Roundtable must produce results within a month. Experts, meanwhile, are warning of a potential "financial blackout" starting in 2027, when the terms of the Itaipú treaty — whose renegotiation has yet to be concluded — change drastically.
On the tax front, the National Directorate of Tax Revenue — the DNIT born of the merger between SET and Customs — is advancing in its consolidation. Its director, Óscar Orué, is working on the 2027 budget and reviewing special regimes with the goal of raising the tax burden from 10% to 12% of GDP and adding USD 400 million a year in revenue. This week the DNIT formalized a data-sharing agreement with the Banking Association (Asoban) to streamline controls and credit analysis, while lowering the interest rate for installment payments starting in September — a signal of openness toward formal taxpayers. ANDE, for its part, reduced its delinquency rate to 15.6% after reporting more than 25,000 customers to credit bureau Equifax — formerly known as Informconf — an aggressive tactic that generated controversy but delivered concrete results.
On the external trade front, Paraguay is advancing in the diversification of foreign direct investment, and Taiwan's foreign minister explicitly mentioned efforts to increase imports of Paraguayan soy, a strategic link that gains relevance against the backdrop of global tariff tensions. Paraguayan chia regained normal access to the Japanese market following sanitary controls, a small but symbolic sign of export normalization. Moving in the opposite direction, pig smuggling from Brazil has driven local prices below 8,000 guaraníes per kilogram, hitting pork producers and serving as a reminder that the informal economy — estimated at between 35% and 47% of GDP depending on the methodology — remains the Achilles' heel of the Paraguayan model.
What to watch in the coming weeks is precise: whether the Energy Roundtable meets its thirty-day deadline and whether its rules for investors succeed in attracting capital without reproducing the opacity denounced by critics of the Atome case; the approval of the pension reform, which the ruling party promises to enact this week with amendments; the progress of negotiations with construction firms such as Cavialpa, whose unresolved debt is straining the public balance sheet; and any signal from the MEF regarding the new international bond issuance the government is exploring to refinance maturities. With the IMF highlighting strength but warning of risks, and with general elections looming on the 2028 horizon, the central question is no longer whether Paraguay is growing, but whether it can do so without mortgaging the fiscal discipline that earned it its investment grade.
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**Catedral and Farmacenter (not listed on international markets)** — The two Paraguayan pharmaceutical retail chains announced their merger, in a deal that would consolidate the domestic drug distribution market in a country where the health sector has accumulated massive debts owed by the State to suppliers. The transaction has no direct international market exposure but is relevant for regional private equity funds with positions in the healthcare sector of frontier markets.
**CIRSA (Paraguay subsidiary; Spanish parent not listed on a main exchange)** — The Spanish entertainment and gaming group confirmed its landing in Paraguay with an investment that local press describes as consolidating for the sector. CIRSA's entry diversifies the profile of foreign direct investment beyond agribusiness and energy, in line with the official FDI diversification strategy that the MEF has been promoting.