Appreciating guaraní squeezes exporters as Paraguay debates fiscal crisis

The guaraní traded below 6,000 per dollar this Tuesday, a level that seemed unthinkable just months ago and that now sets the tone for virtually every economic debate in Paraguay. The appreciation of the local currency —explained by economists as the result of a confluence of foreign exchange inflows from the soybean complex, which has already injected USD 3.513 billion into the economy through July, remittances exceeding USD 732 million annually, and dollar demand that is not growing at the same pace— is quietly but forcefully redistributing winners and losers. Exporters warn that their guaraní costs are rising while their dollar revenues compress. Recyclers, who charge in foreign currency for materials sold abroad, report shrinking margins. The real estate sector, where a significant share of transactions is denominated in dollars, faces price distortions that the Cámara Paraguaya de Desarrolladores Inmobiliarios, Capadei, already acknowledges as an operational challenge. At the same time, international reserves have climbed to USD 11.4412 billion, a sign of strength that the Central Bank displays with pride but which also reflects, paradoxically, part of the same appreciation pressure punishing tradable sectors.

This currency backdrop frames the most intense moment of the year's fiscal debate: the presentation of the 2027 General Budget of the Nation, which the Ministry of Economy and Finance —an institution barely two years old since its creation under the Santiago Peña administration— submitted to Congress at 166.3 trillion guaraníes. The new minister Óscar Lovera, who recently took office and whose priorities are beginning to take public shape, defends the budget's macroeconomic projections: 3.5% inflation, a tax burden of 11.2%, and growth that official optimism places near 5% for year-end —a figure the Central Bank backs with its own reading of a GDP that reportedly surged 6.6% in 2025. The criticism, however, is sharp. The former deputy minister of Economy describes fiscal management as the "worst handling since 2003" and questions the viability of the 2028 deficit target. Former minister Dionisio Borda warns that the budget passes the fiscal problem on to the next administration. Former minister Ferreira speaks of financial "window dressing." And economist Arnold Benítez questions that GDP growth, rather than a structural spending adjustment, is the anchor on which the entire projected adjustment rests. Public debt, meanwhile, has already reached USD 22.2 billion, equivalent to 35% of GDP, with wages, retirement benefits, pensions and debt service absorbing nearly 70% of budget rigidity. The IMF itself, which published its assessment on Paraguay this week, acknowledges the country's macroeconomic strength —and projects it growing at nearly twice the global average— but lists eleven pending tasks ranging from improving tax efficiency and broadening the tax base to strengthening anti-money-laundering efforts. The Fund urges reducing informality, which in the industrial sector reaches 55.3% of employment, and rationalizing tax exemptions, a point on which minister Lovera confirms reviews are underway though he rules out tax hikes. Cerneco, for its part, rejects any increase in the tax burden and demands that the State begin by rationalizing its own spending.

A proposed fifth hike in fuel prices looms on the short-term horizon, adding pressure on households and businesses already navigating a volatile currency environment. In the electricity sector, the debate over regulatory reform is gaining urgency: large energy consumers are calling for clear tariff rules with a horizon through 2037 in order to plan investments, while deputy minister Bejarano warns that without an independent regulator, capital will not flow into the sector. The chairman of the Energy Committee, Zavala, questions that the proposed regulator would operate at the same institutional level as ANDE. Meanwhile, the Corpus Christi hydroelectric project remains in a limbo that legislators want to lift, demanding a report from the Foreign Ministry on its actual status. The MEF, for its part, projects a 31% drop in Itaipú-derived revenues for 2027, a figure that will further strain budget negotiations in Congress, where the Bicameral Commission has already been convened to study the bill. On the external trade front, Paraguay is negotiating with the European Union under the Mercosur framework agreement, demanding equal access quotas for its products.

Scrutiny of Ueno Bank is dominating regulatory and parliamentary attention. The so-called "Rivarola report" is circulating among legislators who have already formally requested information from the banking sector. The revelations are troubling: three "mega-accounts" concentrate more than 77% of the institution's net worth, and Ueno's stake in "other companies" reportedly surged 8,000%. Asoban, the banking association, responds cautiously to Congress's request for information. The case comes at a moment when Industry Day serves as a platform for the Ministry of Industry and Commerce to call for industrialization as an antidote to informality, defend the "10-10-10" tax scheme and Law 60/90 on investment incentives, and announce that it will seek to expand available financing to support industrial projects. Manufacturing, which accounts for 16.2% of formal private employment —with the Central department bringing together 41.5% of its workers—, is consolidating its relative weight in the economy but is not enough on its own to resolve the tension between aggregate growth and citizen welfare that the third anniversary of the Peña administration lays bare: GDP is growing, but the perception of improvement in everyday incomes remains elusive for a significant share of the population.

What will need to be watched closely in the coming weeks is the trajectory of the exchange rate and whether the Central Bank intervenes to moderate the guaraní's appreciation before the damage to exporters becomes structural; the passage of the 2027 PGN through Congress, where pressure to review tax exemptions and the possible fifth fuel price hike will add contentious chapters; the regulatory outcome on Ueno Bank, which could lead to supervisory measures with implications for the entire financial system; and the approval, with the modifications announced by Chamber of Deputies president Alliana, of the civil service pension reform, whose final content will largely determine the credibility of the fiscal consolidation path the government promises to complete in 2028.