Paraguay's fiscal mirage: strong economy masks budget credibility crisis

The Ministry of Economy and Finance submitted the 2027 General Budget to Congress this week, and the reception was immediately hostile: lawmakers, economists and former officials questioned with unusual unanimity not only the project's numbers, but the credibility of the assumptions on which it is built. It is that tension between a macroeconomy that genuinely stands out in the region and a fiscal policy that keeps accumulating signs of deterioration that defines Paraguay's economic moment today.

The project presented by the MEF totals 166.3 trillion guaraníes and projects GDP growth of 4.2% for 2027, inflation of 3.5%, and an exchange rate of 6,458 guaraníes per dollar. This last figure drew the most immediate criticism: economists consulted by ABC Color called the FX projection an "illusory vision," given that the guaraní has appreciated sharply in recent months and exporters are already warning that the falling dollar is hitting their margins directly. The MEF minister himself had to defend the projection before deputies, simultaneously ruling out a tax hike but confirming that the government will review the tax exemption regime — a signal that the business sector reads as a stealth increase.

The deeper criticisms go further than the exchange rate. The former Vice Minister of Economy called the current fiscal management the worst since 2003 and cast doubt on whether the 2028 deficit target is achievable. Former minister Manuel Ferreira spoke of "financial makeup" and a "sketched-out budget" that hides a larger deficit than declared. Dionisio Borda, a historical reference point of Paraguayan fiscal orthodoxy, warned that the 2027 budget simply pushes the problem onto the next administration. The Fiscal Responsibility Law — which has been complied with in only three years since its enactment — is once again at the center of the debate, with the MEF weighing changes to its framework. Arnold Benítez, from Congress, questioned the logic of using GDP growth as the anchor supporting the fiscal adjustment, an argument several economists consider circular.

The rigidity of spending compounds the picture. According to data published by ABC Color, salaries, pensions, retirement benefits and debt service account for nearly 70% of the budget, leaving minimal room to maneuver for any correction. Public debt already exceeds USD 22.2 billion and stands at around 35% of GDP, while Treasury bonds in the local market reach roughly USD 1.2 billion. In parallel, Itaipú has transferred USD 27 million less to the Paraguayan State so far this year compared with the same period last year, a reduction that further pressures fiscal revenues in a year when collection is already facing headwinds.

Even so, the Paraguayan paradox is real: on the same day economists flag yellow lights on the fiscal front, the country's sovereign risk sits at just 107 basis points, among the lowest in the region; international reserves reach USD 11.441 billion — a record; bank non-performing loans are contained at 2.3%, slightly below the regional average; and business optimism has returned to positive territory, with growth projections that some market participants push up to 5%. The Central Bank reported that the economy grew 6.6% in 2025, and the soy complex injected USD 3.513 billion into the economy in the first seven months of the year. The IMF's expectations — simultaneously highlighting Paraguay's strength while urging improvements in tax efficiency and the fight against money laundering — capture that duality well.

The industrial sector marked its commemorative day with positive data: manufacturing is consolidating its weight in GDP, and the Ministry of Industry and Commerce is seeking to expand financing lines to support investment. The Unión Industrial Paraguaya highlighted the sectoral impact, though the government admitted that Paraguay lacks a long-term electricity tariff for large industries — a structural weakness that specifically hampers attracting larger-scale investment. On the FX front, a strong guaraní benefits importers and consumers but punishes agricultural and industrial exporters, creating a sectoral rift the budget does not resolve.

In the coming days, the newly installed Bicameral Commission will begin a detailed analysis of the 2027 budget. The five demands Congress will need to uphold — according to ABC Color's analysis — include credible fiscal targets, transparency on the real deficit, a concrete plan to reduce debt, a review of budget execution, and clear signals on the Fiscal Responsibility Law. The question that will frame that debate is the same one raised by the day's press coverage: if the government chose to rein in the deficit now rather than after the elections, does it have the real fiscal instruments to do so, or is it managing perception rather than the problem?