Paraguay's growth masks structural fiscal crisis heading toward 2028 cliff.

As Santiago Peña's government marks its third anniversary, Paraguay's economic narrative presents one of its sharpest contradictions yet: the Central Bank reports that GDP grew 6.6% in 2025 — in what some are calling a "war economy" — the IMF projects the country will grow at nearly twice the regional average in 2026, and surveyed economic agents put expected growth at around 5% by year-end; and yet, a former Deputy Minister of Economy describes current fiscal management as "the worst since 2003," while independent economists warn that "yellow lights are flashing" ahead of a crisis that can still be averted. The growth is real. So is the fiscal problem.

The annualized fiscal deficit stands at 2.6% of GDP, equivalent to roughly USD 1.7 billion, according to ABC Color. Public debt grew by USD 1.498 billion in just six months, interest payments rose 12.9%, and the central government's wage bill expanded between 7.7% and 9.9% depending on the measure, absorbing 53% of tax revenues. Wages, pensions, retirements, and debt service together account for nearly 70% of budget rigidity. In this context, Economy Minister Óscar Lovera confirmed that the goal is to return to the legal ceiling of 1.5% of GDP only by 2028, a promise that has already drawn skepticism: former Deputy Minister César Barreto revealed that USD 280 million in debt was simply absent from MEF records, a figure that contributes to what several analysts describe as a structural — not merely cyclical — fiscal problem.

The government's response so far has been cautious but not passive. Peña convened former Finance Ministers to discuss the situation — a gesture that signals the seriousness of the internal reading — while the MEF ruled out new taxes and instead announced a review of tax exemptions. The Fiscal Responsibility Law is also under review for possible amendments. In parallel, the 2027 budget is being prepared with instructions to review every state program and prioritize resources for Health, at a moment when the Senate had to summon the Economy and Health ministers to break a doctors' strike. The Dirección Nacional de Ingresos Tributarios, created through the merger of SET and Customs in the final days of the previous administration but pushed forward by Peña's team, promised to lift the tax burden from 10% to 12% of GDP and raise an additional USD 400 million annually; that promise has yet to fully materialize, and the DNIT is tracking 4,669 delinquent taxpayers, although 96% are small contributors.

On the real side of the economy, the signals are more robust. The soybean complex injected USD 3.513 billion between January and July, exports of industrialized goods grew 35% year-to-date, and remittances contributed USD 732 million annually with a growing effect on the real estate market. The World Bank approved a USD 300 million loan to strengthen economic resilience, and Taiwan's foreign minister mentioned concrete efforts to expand Paraguayan soybean imports, opening a geopolitical flank with direct trade implications. Foreign direct investment, meanwhile, continues to diversify, though without reaching the scale needed to accelerate productive transformation.

The energy front is particularly turbulent. A legislative proposal would split ANDE into six independent companies, a plan that the unions — especially Sitrande — openly reject and that will trigger a mobilization outside the state utility. Former officials of the institution warn that creating new institutional structures will not resolve the underlying infrastructure and capacity crisis. In parallel, Petropar announced its entry into the aviation fuel market with plans for five plants, while Atome is defending its 2022 contract with ANDE and has announced a feasibility study for a 300 megawatt-peak solar plant. The energy matrix and the management model for state assets are, in the end, the other major unfinished chapter of Peña's government.

In the financial sector, consumer credit leads the banking portfolio with a balance of USD 6.020 billion, a sign of dynamism but also of growing household exposure to debt, which the government itself acknowledged in announcing a financial literacy program. The local stock market aims to double its weight in the economy by 2030, according to its own modernization projections, and Treasury bonds in the domestic market have already reached roughly USD 1.2 billion. The Central Bank, for its part, ratified Liana Caballero's reappointment for an additional term on its board, a signal of institutional continuity in monetary policy.

What will set the tone in the coming weeks is the presentation of the 2027 general budget and the political negotiation over possible amendments to the Fiscal Responsibility Law. International markets will remain attentive to any signal on the fiscal path: Paraguay retains its investment grade, but the credibility of budget consolidation by 2028 is precisely the asset the government cannot afford to squander. Added to that is the definition of the energy restructuring model, the evolution of diesel prices — whose increase of up to 39% is already feeding into production costs — and climate pressure on the Mercosur agricultural season, which could temper the momentum of the sector that most sustains the growth numbers.

**Petropar (state-owned, Paraguay)** — The state oil company announced its entry into the aviation fuel segment and plans to build five distribution plants, significantly expanding its exposure in a market with strong regional demand. The initiative will require infrastructure investment at a time when the state's fiscal balance faces mounting pressures.

**Ueno (not listed on international exchanges, Paraguay)** — The digital bank books 64% of its annual profit under the "projects" category, a proportion that raises questions about the nature of its business model and its alignment with Banco Central del Paraguay guidelines on software investments. The BCP reportedly issued specific rules that the institution may be in breach of, according to ABC Color.

**Atome Energy (AIM: ATOM, London)** — The renewable energy firm publicly defended the validity of its 2022 contract with ANDE and announced the start of a feasibility study for a 300 megawatt-peak solar plant in Paraguay, amid the institutional turbulence surrounding the state utility and the debate over its possible fragmentation into six separate units.