IMF Exposes 3.5% Fiscal Gap as Paraguay's 2027 Budget Crumbles Under Expert Scrutiny

The International Monetary Fund has laid bare a fiscal deficit equivalent to 3.5% of GDP in Paraguay precisely as Santiago Peña's government unveils a 2027 budget that several economists and former ministers dismiss as scarcely credible, and that coincidence sets the tone for the day: the gap between the official narrative of macroeconomic strength and the reality of the public accounts has never been harder to paper over.

The 2027 General Budget bill, presented by the Ministry of Economy and Finance, projects GDP growth of 4.2%, inflation of 3.5%, and an exchange rate of 6,458 guaraníes per dollar. The document also forecasts a tax burden of 11.2%, a figure the MEF itself considers attainable but which requires revenue performance well above historical trends. Technical opposition has been fierce. A former Economy Minister calls the budget "cooked" and warns it conceals a real deficit larger than the one declared. A former deputy minister goes further, describing it as the "worst fiscal management since 2003" and casting doubt on whether the deficit reduction target for 2028 is achievable. Economist Benigno, for his part, states flatly that the document "is neither sustainable nor realistic." Última Hora reminds readers that since the Fiscal Responsibility Law took effect, the country has met its own rules in only three years across the entire history of its application.

The IMF, which generally highlights the relative strength of the Paraguayan economy, puts its finger on the wound by exposing the 3.5% of GDP imbalance and urging the country to return to the fiscal ceiling before yellow lights turn red. The Fund insists on protecting essential spending and returning to the legally established cap, a stance that clashes directly with the most radical legislative proposal in circulation: one faction within Congress is pushing to raise the deficit limit to 6% of GDP and to change the reference monetary indicators — the equivalent of loosening fiscal discipline precisely when it most needs tightening.

The structural rigidity of spending partly explains the paralysis. Wages, retirement benefits, pensions, and debt service absorb close to 70% of the budget, according to data released today. The MEF's own union is demanding a 69% salary increase for 2026, while the ministry faces a new internal "salary recategorization." The contradiction is unmistakable: the state preaches austerity outward while feeding its own growth inward. The MEF transferred $334 million to departmental governments and municipalities through July, and between today and Wednesday the government is paying $13.7 million to suppliers in an effort to reduce floating debt.

Pressure on revenues is fueling the most explosive fiscal debate of the quarter: whether to raise taxes or rationalize spending. The Economy Minister has ruled out a rate hike but confirmed a review of exemptions, a signal that the tax route is not entirely closed. The Unión Industrial Paraguaya, Cerneco, and the Cámara de Anunciantes del Paraguay have jointly rejected any tax increase and are demanding that the state attack inefficient spending first. Economists consulted by ABC Color warn that raising rates is not the most efficient tool, though one supports raising selective taxes — such as tobacco — provided VAT and the Personal Income Tax are left untouched. Asimcopar, meanwhile, warns that a minimum wage adjustment without technical criteria will stall investment, adding another variable to the equation.

The Dirección Nacional de Ingresos Tributarios, created through the merger of SET and the Customs Directorate in one of the first laws of the Peña era, is the chosen instrument for improving revenue collection without raising rates. Its director, Óscar Orué, has promised to lift the tax burden from 10% to 12% and to collect an additional $400 million per year, but that promise coexists with a SIARA system that today reported technical failures in the middle of a filing deadline, illustrating the operational fragilities of the tax-collection apparatus.

On the energy front, another long-term warning signal is crystallizing forcefully today. Paraguay has assured energy supply only through 2030, and any new plant will take ten to fourteen years to come online. Itaipú has transferred $27 million less to the state so far this year, and cryptocurrency operators and AI data centers are lobbying to extend their privileged electricity tariffs for another ten years, threatening to compromise the availability of cheap energy for the rest of the economy. The engineers' guild acknowledges that the state cannot finance the necessary infrastructure on its own, opening the door to private participation — though without a clear regulatory framework, that process could take longer than the energy clock allows. On the flip side, ample natural gas reserves are estimated in the Carandayty area of the Chaco, which could diversify the energy mix, but that potential remains undeveloped.

On the positive side of the ledger, the economy grew 5.9% in the first half according to the Banco Central del Paraguay, which had already recorded 6.6% year-on-year at the close of the first half under what it dubbed a "war economy," driven by agriculture, services, and construction. The soybean complex injected $3.513 billion into the economy through July. Moody's held the country's sovereign rating, the World Bank provided $300 million to strengthen economic resilience, and CAF will expand its private financing arm in Paraguay. Treasury bonds in the local market total $1.2 billion, and the government is seeking to close on new debt through a bond issuance whose bid reception window is already open. Bank delinquency stands at 2.3%, slightly below the regional average, and economic agents' confidence in growth points to 5% for the year.

What remains unresolved is the question underlying all others: whether Paraguay will grow fast enough for citizens to feel it in their pockets. Inflation was zero in August, a technically positive data point the BCP attributes to seasonal factors, but since Peña took office food prices have climbed a cumulative 23%. The shadow economy reaches 47.1% of GDP and moves $23.595 billion, indicating that formal growth captures only a fraction of real activity. With the consumer confidence index in pessimism territory and the 2025 elections already on the political horizon, in the coming weeks the government will have to defend before Congress a budget its own critics call unrealistic, negotiate a credible path of fiscal consolidation with the IMF, and respond to a private sector that is simultaneously demanding lower taxes, lower spending, and greater legal certainty.