Paraguay's Budget Masks Fiscal Crisis Behind Agricultural Boom and Strong Currency

The 2027 General Budget of the Nation is absorbing all of Paraguay's economic tension today, but what makes this debate singular is not the size of spending but a contradiction that even government technocrats can no longer disguise: the administration is projecting 4.2% GDP growth and a dollar pegged at 6,458 guaraníes, while the real exchange rate is falling hard enough for exporters to sound the alarm on their cost structures, the IMF flags a fiscal deficit of 3.5% of GDP, and economists across the ideological spectrum converge in labeling the official projections an "illusory vision."

The paradox is stark. On one side, the Central Bank has confirmed that GDP grew 6.6% in 2025 and that the first half of this year accumulated a 5.9% expansion, positioning the country among the most dynamic in the region. International reserves reached USD 11.44 billion, banking delinquency is contained at 2.3%, slightly below the regional average, and private sector agents are lifting their growth expectations toward 5% for the current fiscal year. The soybean complex injected USD 3.51 billion into the economy through July alone, and remittances from abroad add up to USD 732 million annually, consolidating a flow that is now feeding even the real estate market. On the other side, public debt already exceeds USD 22.2 billion, equivalent to 35% of GDP, and the 2027 PGN contemplates additional borrowing of roughly USD 2 billion to cover the projected deficit — all while wages, retirements, pensions, and debt service account for nearly 70% of budgetary rigidity.

The head of the Ministry of Economy and Finance defended the exchange rate projection and the review of tax exemptions as tools to broaden the fiscal base before the newly installed Bicameral Committee in Congress, explicitly ruling out any across-the-board tax hike. Óscar Lovera, who took office as the new minister, listed among his priorities the strengthening of revenue collection through the already-operational Dirección Nacional de Ingresos Tributarios — the merger between the Undersecretariat of Taxation and Customs that President Peña's own team pushed through before taking office. That agency's director, Óscar Orué, pledged to raise the tax burden from 10% to 12% of GDP and to collect an additional USD 400 million annually, a target the IMF endorses in principle while warning that it requires broadening the base and improving efficiency, not merely merging bodies.

Former minister Dionisio Borda was more direct: the 2027 PGN, in his view, kicks the fiscal problem down the road to the next administration rather than resolving it. The former deputy minister of economy was even harsher, calling current fiscal management the worst since 2003 and questioning whether the 1.5% of GDP deficit target required by the Fiscal Responsibility Law for 2028 can be met without a concrete adjustment plan starting now. Manuel Ferreira pointed to "financial cosmetics" in the budget numbers, while Arnold Benítez challenged whether projected GDP growth is sufficient to sustain the adjustment without additional spending measures. The government, for its part, paid USD 320 million in arrears to pharmaceutical firms in recent days and transferred USD 334 million to governorships and municipalities through July — signals that cash pressures are real and predate the parliamentary debate.

The strong guaraní — a consequence of abundant agricultural exports and the interest rate differential — is generating an asymmetric distributional effect that few analyses integrate with clarity. Import sectors and domestic consumption gain purchasing power, which partly explains the zero inflation recently reported, a data point that economists themselves call "striking" in the context of economic expansion. But manufacturing exporters, the expanding maquila sector, and firms competing with imports see their competitiveness eroded. The situation connects directly to the debate over electricity tariffs: official Giménez himself admitted that Paraguay lacks a long-term tariff for large industry, a shortcoming that hinders foreign direct investment precisely when the country is trying to diversify beyond soy and maquila.

In parallel, the debate over creating a Ministry of Energy and an independent regulator — which would require up to USD 5 million annually to guarantee autonomy, according to its promoters — is meeting resistance from ANDE's unions, who are worried about institutional fragmentation in the sector. Energy institutional reform and fiscal reform are the two structural axes of Peña's second three-year period, but they are advancing at different speeds and facing resistance of different kinds.

What to watch in the coming weeks is the negotiation within the Bicameral Committee, where public debt, the reference exchange rate, and tax exemptions will be the three friction points. The IMF's stance — which recognizes macroeconomic solidity but flags the deficit and money laundering as structural obstacles to growth — will provide technical cover for those demanding corrections before approving the budget. New Minister Lovera's meeting with international organizations in France will add signals on market appetite for new Paraguayan sovereign debt at a moment when local-market Treasury bonds already reach USD 1.2 billion. If the exchange rate keeps appreciating and inflation stays at zero, the government will have less room to justify the projection of 6,458 guaraníes per dollar, and the budget will need to be reformulated before approval or remain exposed to a forced adjustment midway through 2027.