Paraguay's growth masks accelerating fiscal collapse that threatens sustainability

As Santiago Peña's government marks three years in office, Paraguay's economic narrative splits in two with unusual clarity: the country is growing at a pace that would be the envy of much of Latin America, yet public accounts are deteriorating at a speed that raises doubts about whether that growth is sustainable. It is this contradiction — robust growth accompanied by rapid fiscal deterioration — that dominates Paraguay's economic debate today.

The Banco Central del Paraguay reported that GDP grew 6.6% in 2025 under what the government itself dubbed a "war economy," and the first quarter of this year posted an expansion of 5.8%. Economic agents polled by various media outlets anticipate growth of around 5% at the close of 2026, a figure the IMF endorses even as it warns of latent risks. The soy complex, the country's historical engine, injected USD 3.513 billion into the economy through July, and the maquila regime contributed USD 396 million in local labor alone. Remittances total USD 732 million annually and are fueling an expanding real estate market. Taiwan's foreign minister explicitly cited her government's efforts to boost imports of Paraguayan soy, underscoring the geopolitical dimension of this agricultural dependence.

The other side of the balance sheet, however, is alarming. The annualized fiscal deficit stands at 2.6% of GDP, equivalent to roughly USD 1.7 billion, and public debt rose by USD 1.498 billion in just six months. Interest payments on that debt grew 12.9%. A former deputy minister of Economy described the situation as "the worst fiscal management since 2003" and questioned the official target of reducing the deficit to 1.5% of GDP by 2028. Another former minister warned that state debts — including a USD 280 million obligation that, according to Minister César Barreto, did not appear in MEF records — reveal a structural problem that goes beyond the short-term picture. The 10.4% drop in customs revenue is particularly puzzling given that the guaraní has remained strong and foreign trade active, a contradiction that ABC Color pinpointed accurately: a robust guaraní paired with a weakened treasury.

The government's response to this pressure is twofold and ambitious in scope. The Ministry of Economy and Finance — created three years ago as the first law signed by Peña — is preparing a comprehensive overhaul of the Fiscal Responsibility Law, the minister himself confirmed. The MEF is targeting 2028 to return to the 1.5% deficit ceiling, but Treasury bonds on the local market have already reached USD 1.2 billion, and the government is looking to place new debt on international markets. Modernization of the stock market, which aims to double its share of the economy by 2030, and the USD 300 million committed by the World Bank to foster a more resilient economy point to a diversification of funding sources.

In the energy sector, the government this week unveiled two far-reaching initiatives: the creation of a Ministry of Mines, Energy and Hydrocarbons, and an electricity sector regulator whose draft law has been opened for public consultation. Both proposals arrive at a moment of acute controversy: according to allegations from the Sitrande union and a competing firm, the government allegedly concealed an offer of USD 70 per megawatt in order to favor the company Atome in negotiations with ANDE. The company that submitted that offer promised "due diligence" to the media but did not dispel doubts about its operational capacity, nor did it present clients or radio base stations. It is a shadow of irregularity that falls precisely when the government is trying to project institutional credibility in energy matters.

The Unión de Gremios de la Producción warned that new EU environmental regulations, under the EU-Mercosur agreement, could become de facto trade barriers for Paraguayan exports, particularly soy. Paraguay, in turn, is demanding equal quotas in that agreement. European regulatory pressure on the agricultural supply chain is the most concrete external risk for an economy whose engine remains the countryside.

Financier Walter Ueno is drawing the banking sector's attention. ABC Color revealed that his holdings in "other companies" surged 8,000%, and that a software investment by his institution triples the combined total of nine local banks, in apparent violation of Banco Central del Paraguay rules. The DNIT, an entity merged three years ago, is tightening controls and digitizing services while a Spanish expert warns that Paraguay must regulate the crypto ecosystem without stifling it.

In the coming weeks, attention should focus on three simultaneous fronts: the fate of the Fiscal Responsibility Law overhaul in Congress, where reform of the public pension fund is also moving forward with amendments; developments in the energy tenders, whose opacity is already generating scandal; and the response of international markets to a new sovereign bond issuance in a context where Fitch maintains a BB+ rating and the AFD preserves its investment grade, but fiscal numbers point in the opposite direction of the promised consolidation.

**Ueno (financial institution not listed on international exchanges)** — ABC Color reported that Ueno bank's holdings in "other companies" grew 8,000%, and that its software investment triples the combined total of nine banks in Paraguay's financial system, raising questions about compliance with Banco Central regulations. The BCP has reportedly issued rules the institution is ignoring, according to the report.

**ANDE / Atome (unlisted)** — The Sitrande union and a competing company alleged that the Paraguayan government concealed an offer of USD 70 per megawatt submitted to state-owned ANDE in order to favor Atome in the awarding of an energy contract of unspecified size. The controversy comes the same week the executive branch is proposing to create a sector-specific ministry and an independent regulator.