Paraguay's fiscal crisis deepens despite envious growth rates and strong currency.

The guaraní has strengthened sharply in recent months, and that currency tension now dominates much of Paraguay's economic debate: a country growing at rates that are the envy of the region but simultaneously facing the most serious deterioration of its fiscal accounts in more than two decades.

The Paraguayan economy expanded 5.9% in the first half of the year, positioning itself as the second-fastest growing in South America according to data from the Banco Central del Paraguay, with agriculture, services and construction as the main drivers. The soy complex injected USD 3.513 billion into the economy through July, and total exports grew 26% year-on-year, with manufacturing as the leading engine, as President Santiago Peña highlighted. The IMF and the Inter-American Development Bank have acknowledged the strength of macroeconomic fundamentals, and Paraguay has improved its position in the Index of Economic Freedom. The country was reclassified by the World Bank as an upper-middle-income economy, a symbolic milestone that reflects the transformation of the last two decades.

Yet behind these positive figures lies a mounting fiscal strain that even economists close to the ruling party can no longer downplay. Public debt increased by USD 1.498 billion in just six months, interest payments rose 12.9%, and central government wage spending expanded 9.9%. Salaries, retirement benefits, pensions and debt service account for nearly 70% of budget rigidity, leaving extraordinarily narrow room for maneuver. A former Deputy Minister of Economy described the situation as "the worst fiscal management since 2003," while another independent analyst warned that "the yellow lights are on and the government must act before a crisis hits." The Ministry of Economy and Finance itself has acknowledged that the goal of returning to a deficit of 1.5% of GDP —the ceiling set by the Fiscal Responsibility Law— by 2028 is, in the words of one economist consulted, a "dream." For the drafting of the 2027 General Budget, the MEF is proposing a deficit of 6%, well above the current legal limit, and is weighing amendments to the Fiscal Responsibility Law itself to loosen its indicators.

The revelation now stirring the debate is that USD 280 million in debt was not recorded in the MEF's books, according to statements by former minister César Barreto, feeding doubts about the transparency and completeness of the public accounts. In parallel, the government has issued close to USD 5.4 billion in bonds during the Peña administration, and the stock of Treasury bonds in the local market stands at roughly USD 1.2 billion — figures that raise concerns about the low yields on offer and the pace of borrowing. President Peña convened former Finance ministers to analyze the situation, a gesture that on its own confirms the seriousness of the problem.

The dispute over how to finance the budget is deeply divisive. The Unión Industrial Paraguaya emphatically rejected any tax increases, arguing that the central problem is inefficient spending, not the tax burden. The MEF, for its part, ruled out new taxes and instead announced a review of tax exemptions and a spending reorganization, with priority for the health sector. The IMF insists on returning to the fiscal cap and protecting essential outlays — a stance that collides with the political dynamics of a budget in which wage and pension commitments are politically untouchable.

A strong guaraní —underpinned by agricultural export flows and remittances, which exceed USD 732 million a year— complicates the picture for industrial exporters and the maquila sector, though it cheapens imports and helps contain inflation. The MEF's budget plan is based on an exchange rate of G. 6,458 per dollar and projected inflation of 3.5%, parameters some analysts consider overly optimistic should the agricultural cycle deteriorate. The climate threat is not abstract: the El Niño phenomenon and the global fertilizer crunch raise the risk of food inflation, and Paraguay has already experienced episodes in which low water levels on the Paraguay River drove up freight costs and disrupted the export logistics chain.

On the energy front, the country faces an equally urgent structural contradiction. Large industrial consumers are demanding clear rules through 2037 to plan investments, but Paraguay has secured energy supply only until 2030, and new generation plants would take up to 14 years to come on stream. The State alone will not be able to finance the necessary infrastructure, according to the engineers' association, opening the door to private-participation schemes. In the Chaco, recent estimates point to sizeable natural gas reserves in the Carandayty area, a finding that could transform the country's energy matrix in the long run but that requires investment and regulatory frameworks that do not yet exist. Fishermen affected by the operations of the binational Yacyretá announced protests over the lack of response to their claims, a sign that social tensions surrounding the energy model remain latent.

On the trade front, Europe's halt to Brazilian beef imports on sanitary grounds opens a window of opportunity for Paraguay in markets that Brasília will partially leave unattended, though it also exposes the sector to the same regulatory pressures if it does not raise its standards. Within the framework of the EU-Mercosur agreement, Asunción is demanding parity in access quotas — a negotiation that will shape much of the country's export profile over the coming decade.

What warrants close monitoring in the coming weeks is the negotiation of the 2027 General Budget, where the definition of the deficit ceiling and the review of tax exemptions will be the real thermometer of political will for consolidation. Reform of the *caja fiscal* —the public employees' pension system, whose deficit through July already approaches USD 250 million— is set to be enacted this week with amendments. And the MEF has opened the bid reception period for a new bond operation in international markets, which will test investor appetite for Paraguayan debt at a moment when the country's fiscal profile is raising more questions than it did twelve months ago.