Paraguay's 6.6% growth masks a fiscal crisis that former officials call the worst since 2003.

On the third anniversary of Santiago Peña's government, the Paraguayan economy exhibits a contradiction few countries in the region can match for sheer clarity: GDP grew 6.6% in 2025 according to the Banco Central del Paraguay, the IMF praises its resilience, market participants are raising their 2026 projections toward 5%, and yet the annualized fiscal deficit has already reached 2.6% of GDP —roughly USD 1.7 billion—, public debt increased by USD 1.498 billion in just six months, wage spending in the central government grew 9.9% and now absorbs 53% of tax revenues, and a former deputy Economy minister has described the situation as "the worst fiscal management since 2003." The gap between the dynamism of the real economy and the deterioration of the public accounts defines the current moment and foreshadows the tensions that will shape the years ahead.

Growth rests on real and diversified foundations. The soy complex injected USD 3.513 billion into the economy through July, the beef sector contributed USD 1.078 billion, and remittances from abroad add up to USD 732 million annually, also fueling the real estate market. Economic activity expanded across every sector according to the BCP, and Paraguay is consolidating its position as one of the most economically free countries on the continent, with foreign direct investment advancing toward greater diversification. CAF also announced the expansion of its private-sector financing arm in the country, an institutional vote of confidence arriving at an opportune moment.

But the fiscal numbers tell a more uncomfortable story. Wages, retirement benefits, pensions and debt already account for nearly 70% of budget rigidity, leaving thin margins for productive investment. Interest payments on public debt rose 12.9%, and transfers for wages and the Caja Fiscal climbed as much as 11.5%. Against this backdrop, the Economy minister publicly confirmed that a comprehensive review of the Fiscal Responsibility Law is under consideration, with the target of returning to the 1.5%-of-GDP deficit ceiling pushed back to 2028. A former minister warns that previously unrecorded state debts —including a USD 280 million liability that, according to César Barreto, was not on the MEF's books— could point to a deeper structural problem. The guaraní has remained relatively strong, but that currency strength has paradoxically contributed to a 10.4% drop in customs revenue, further weakening the fiscal take.

The government's response is institutional rather than immediate. Peña convened former Finance ministers to review the deficit, and the MEF has ruled out new taxes while announcing a review of tax exemptions. The Dirección Nacional de Ingresos Tributarios, created by the merger of SET and Customs, promises to raise the tax burden from 10% to 12% and add USD 400 million a year in collections, though the agency lists 4,669 delinquent taxpayers, 96% of them small. Modernization is under way, but its effects are gradual against the urgency of the payment calendar.

The energy sector adds another critical dimension. Paraguay is entering, analysts say, its "most critical energy decade," with electricity consumption up 18.2% and an ANDE whose new leadership inherits insufficient infrastructure. The government has put forward two transformative proposals: the creation of a Ministry of Energy, Mining and Hydrocarbons, and an electricity-sector regulator that would formally open the market, although former ANDE officials warn that the proliferation of new institutions will not, on its own, resolve the supply crisis. Australian firm Atome, which is defending its contract with ANDE in place since 2022, announced a feasibility study for a 300 megawatt-peak solar plant, illustrating the investor appetite that exists if the regulatory framework becomes clearer.

On the trade front, the Unión de Gremios de la Producción warned that new European regulations —particularly those tied to deforestation— could become effective barriers for Paraguayan exports to the EU, just as the Mercosur-EU agreement advances and Paraguay negotiates parity in access quotas. Regional development bank CAF is providing financing support, and the local stock exchange is projecting a doubling of its weight in the economy by 2030 through a modernization drive.

What will define the second half of the year is the confluence of three variables: the MEF's ability to keep up its payment calendar to suppliers, retirees and civil servants without accelerating debt issuance; the speed at which the DNIT translates its digitalization into effective collections; and the political decision on how far to modify the Fiscal Responsibility Law without eroding the confidence of investors who today value Paraguay precisely for its track record of fiscal discipline. The Inter-American Development Bank will soon hold its assemblies recognizing the country's economic stability, but the irony is that this reputation is being built on a fiscal management that its own former officials are questioning in sharp terms.

**Ueno (not publicly listed)** — The Paraguayan digital bank posted software investment three times greater than the combined total of nine banks in the local financial system, a stake in "other companies" that surged 8,000%, and USD 353 million in a trust equivalent to nearly 100% of its equity, raising regulatory questions about compliance with BCP rules on intangibles investment. Some 64% of its annual profit comes from the "projects" line, a category that blurs the line between commercial banking and investment banking.

**Atome Energy (LSE: ATOM)** — The Australian company listed on the London Stock Exchange defended its contract with ANDE in place since 2022 and announced the start of a feasibility study for a 300 MWp solar plant in Paraguay, a bet that takes on systemic relevance in a country where electricity consumption grew 18.2% and where the sector's regulatory framework is being redesigned.

**CAF – Banco de Desarrollo de América Latina (unlisted)** — The Caracas-based multilateral institution announced the expansion of its private-sector financing arm in Paraguay, an institutional signal that reinforces the country's appeal to international capital at a time when the government is seeking to diversify its sources of foreign direct investment beyond traditional agribusiness.