Strong guaraní undermines Paraguay's optimistic 2027 budget assumptions

The guaraní has been appreciating for weeks and the dollar is trading below 6,000 guaraníes—a level not seen in a long time—just as the Ministry of Economy and Finance submits the 2027 General Budget to Congress with macroeconomic assumptions that market economists themselves describe as optimistic. The convergence of these two events sets the tone for the day: Paraguay is displaying strength in its external indicators while accumulating internal fiscal tensions that the official budget barely conceals.

The MEF presented a 2027 PGN of 166.3 trillion guaraníes, projecting GDP growth of 4.2%, inflation of 3.5%, and an exchange rate of 6,458 guaraníes per dollar. It is this last figure that has drawn the sharpest criticism. With the dollar trading today below 6,000 guaraníes—driven by soybean sector liquidations, which according to La Nación injected $3.513 billion into the economy through July, and by the strength of international reserves, which reached $11.441 billion according to ABC Color—projecting an exchange rate of 6,458 for the next fiscal year implies betting on a significant depreciation of the guaraní from current levels. Economists consulted by ABC Color called that projection an "illusory vision," while former minister Manuel Ferreira warned of financial "window dressing," and the former deputy minister of Economy went so far as to characterize current fiscal management as the "worst fiscal management since 2003," casting doubt on the feasibility of the 2028 deficit target.

The heart of the problem is not cyclical but structural. According to data published by ABC Color, wages, pensions, retirement benefits, and public debt account for nearly 70% of budget rigidity, leaving extremely narrow room for any real adjustment. Public debt reached $22.2 billion, equivalent to 35% of GDP, according to Última Hora, and the parliamentary debate revolved around the deficit, the trajectory of that debt, and the quality of budget execution. Economist Dionisio Borda was more direct in stating that the 2027 PGN passes the fiscal problem on to the next administration—a signal that the fiscal consolidation Santiago Peña's government touts as its banner could prove more gradual in practice than the official figures suggest. The Fiscal Responsibility Law, which historically has only been complied with in three fiscal years since it took effect, remains under review at the MEF.

The Minister of Economy publicly ruled out a tax hike but confirmed a review of tax exemptions—a semantic distinction the private sector is watching cautiously. The Cámara Empresarial de Norma y Comercio (Cerneco) rejected any increase in the tax burden and demanded that the State rationalize spending, while the Ministry of Industry and Commerce defended the preservation of the "10-10-10" scheme and Law 60/90, pillars of the investment attraction model that has set Paraguay apart in the region. The IMF, for its part, urged improvements in tax efficiency and a broadening of the base, in line with the tax pressure target of 11.2% projected in the budget—still well below the Latin American average.

The dollar's decline, meanwhile, is no neutral phenomenon. Exporters warned ABC Color that the guaraní's appreciation is already eroding their cost margins, and the impact extends even to informal recyclers, whose operations are denominated in dollars. The exchange rate dynamic has shifted structurally, according to economists, in part because greater productive diversification—the BCP noted that the economy is now less exclusively dependent on soy and beef—provides more stable foreign currency flows. Remittances, which total $732 million annually and drive both consumption and the real estate sector, further contribute to the supply of foreign exchange.

The picture is rounded out by positive signals at the margins: Paraguay posts a country risk of just 107 points, among the lowest in the region; bank delinquency remains at 2.3%, slightly below the regional average; and first-half GDP growth was robust, with economic agents, according to ABC Color, raising their annual expansion estimate toward 5%. The Central Bank reported growth of 6.6% in 2025. Nonetheless, with the underground economy estimated at up to 47% of GDP according to Última Hora—a figure that reflects the scale of contraband and informality—and with labor unions calling a plenary session against the electricity sector reform that proposes a regulator independent from ANDE, the government faces simultaneous pressures that complicate the stability narrative.

What warrants close monitoring in the coming weeks is the parliamentary debate over the 2027 PGN, where the discussion of the deficit ceiling and exchange rate projections will determine whether the government can sustain the fiscal consolidation narrative or must yield to increasingly technical and articulate criticism. Equally relevant will be the evolution of the exchange rate: if the guaraní continues to strengthen, the gap between market reality and the budget's assumptions will widen, placing additional pressure on the credibility of the medium-term fiscal framework.