Paraguay's fiscal crisis shadows six-year economic boom

Three years into Santiago Peña's government, Paraguay's economy presents a contradiction that no single data point can resolve: the country is growing at a pace few of its neighbors can match, yet the treasury is bleeding from wounds the government itself was slow to acknowledge and which now force a rethinking of the fiscal rules that for two decades served as the pillar of the country's credit credibility.

The Banco Central del Paraguay confirmed that GDP grew 6.6% in 2025 — the highest rate in the region according to the World Bank — and economic agents surveyed project an expansion of around 5% for the current year. Activity had accumulated growth of 5.6% through August, driven by a soy complex that injected USD 3.513 billion into the economy through July, by the momentum of consumer credit, and by a maquila regime that contributed USD 396 million in local labor. Remittances, which total USD 732 million annually, complement that flow and support the real estate market. The IMF has highlighted the soundness of the model, Paraguay obtained investment grade during this administration, and the International Monetary Fund acknowledged that the country is successfully positioning itself as a green and diversified economy. It is a picture that, viewed from outside, looks enviable.

But the flip side is equally real. Public debt increased by USD 1.498 billion in just six months, interest payments grew 12.9%, and the government now faces the need to comprehensively review the Fiscal Responsibility Law, the regulatory anchor that had kept the deficit contained since 2004. The Economy Minister publicly confirmed that a complete overhaul of the legal framework is on the table and that the goal is to bring the deficit down to 1.5% of GDP only by 2028, passing through a projected peak of 3.9% in 2027. For one former Vice Minister of Economy, this constitutes "the worst fiscal management since 2003," a characterization that carries additional weight given that a USD 280 million debt at the Ministry of Health did not appear in the MEF's official records until Minister César Barreto himself admitted it. The government paid USD 320 million to pharmaceutical suppliers as part of that cleanup, an unbudgeted expense that reveals the magnitude of the hidden liability the current team inherited — or built — without properly recording it.

Against this backdrop, the government launched a major institutional bet whose consequences remain to be seen. Peña formally presented the bill to create the Ministry of Mines, Energy and Hydrocarbons, alongside a regulatory body for the electricity sector, and opened the text to public comment. The initiative arrives tainted by scandal: according to the Sitrande union and at least one company in the sector, the government concealed a USD 70 per megawatt bid to favor British firm Atome in the green energy tender, turning the announcement of greater institutional structure into politically mined terrain before the law has even been debated. In parallel, ANDE has new leadership, Yacyretá faces pressure from fishermen threatening protests in the face of the binational entity's silence, and the Japan International Cooperation Agency (JICA) will finance the Southwest Integration Corridor, an infrastructure project that runs through Pedro Alliana's political stronghold.

The tax front offers mixed signals. The Dirección Nacional de Ingresos Tributarios — the merger of SET and Customs that took effect under Peña — will lower interest rates on installment tax payments starting in September and is advancing digital services. Óscar Orué pledged to raise the tax burden from 10% to 12% and add USD 400 million annually in revenue. However, that promise clashes with a 10.4% drop in customs revenue reported by ABC Color, precisely when the guaraní has strengthened against the dollar — an appreciation that cheapens imports but shrinks the local-currency value of tariffs collected. The informal economy, estimated at between 40% and 47% of GDP depending on the measurement, and smuggling, which saturates markets such as cucumbers according to producers in the interior, feed that fiscal gap structurally.

IPS adds another risk factor: the pension institution concentrates more than 70% of its savings certificates of deposit in a handful of banks, an exposure that alarms analysts and which the banking regulator — the BCP — will have to address. In financial markets, Treasury bonds in the local market exceed USD 1.2 billion and the government is seeking to place new debt in international markets, while Paraguay negotiates equitable quotas in the EU-Mercosur agreement and the Taiwanese foreign ministry works on expanding Paraguayan soy imports, reinforcing trade ties that go beyond mere diplomacy.

What will bear close watching in the coming weeks is the evolution of the legislative debate over the Fiscal Responsibility Law — whose amendment will determine whether markets interpret the new fiscal path as an orderly adjustment or as the start of a debt cycle without credible anchor —, the progress of the Energy Ministry bill under the shadow of the Atome case, the advance of the fiscal pension reform that Chamber of Deputies President Rocío Vallejo pledged to enact this week with modifications, and the BCP's reaction to the concentration of risks at IPS. Growth is real, but fiscal sustainability is today the question Paraguay has yet to fully answer.

**Ueno (privately held)** — The Paraguayan fintech faces questioning from the BCP over a software investment that triples the total sum invested by nine local banks in the same category, according to ABC Color, raising concerns about its regulatory compliance in a financial market that the central bank supervises with growing scrutiny. The situation could foreshadow operational restrictions with implications for the country's digital payments ecosystem.

**Atome Energy (LON: ATME)** — The British green hydrogen company, listed on the London Stock Exchange, is accused by Sitrande and a competing firm of having been favored in a Paraguayan energy tender following the alleged concealment of a rival bid of USD 70 per megawatt, an accusation that coincides with the government's announcement of creating a regulatory body for the electricity sector and could lead to contract reviews or parliamentary investigations.