Paraguay's growth and fragility collide as fuel crisis looms

The simultaneous emergence of two opposing forces defines Paraguay's economic moment this week: GDP growth that the Central Bank confirmed at 6.6% for 2025 —one of the region's most robust readings, now marking 24 consecutive months of expansion above 4%— coexists with a buildup of fiscal, financial, and price tensions that analysts warn could erode that very strength if the government fails to act swiftly.

The growth figure, which the MEF puts at a 5.6% advance year-to-date and 5.1% for the first four months, is no small feat in a global context of deceleration. The IMF, which recently highlighted the country's economic strength while flagging latent risks, projects that Paraguay will grow nearly double the global average. The World Bank ranks it as the region's second-fastest-growing economy in 2025. Optimism among economic agents is also reflected in surveys, where a growing number of operators project expansion of around 5% for the full year. Remittances —$732 million annually— continue to fuel consumption and the real estate market, the soy complex injected $3.513 billion into the economy through July, and credit delinquency remains at a contained 2.3%, slightly below the regional average.

Yet this bright picture has cracks that are widening. The most urgent today is fuel prices. According to ABC Color, price increases are "imminent for all" private-sector brands: several have already updated their prices as of this morning. The private sector accuses Petropar of maintaining "political prices" that distort the market, and suspicions circulate openly that the state oil company will delay any adjustment until after the municipal elections. The business community's warning is clear: an escalation in fuel prices does not stay at the pump — it ripples through the entire productive chain, hitting transportation, agribusiness, and basic consumer goods. This transmission mechanism connects directly to the concerns about inflation and competitiveness that the IMF has already hinted at in its latest communications, urging Paraguay to improve tax efficiency and broaden the tax base.

The second line of tension is fiscal. The 2027 General Budget is under intense parliamentary scrutiny. The bicameral committee resumes its analysis this week with four key entities, and the numbers are raising alarm among specialists: central government wage spending grew 9.9%, public debt interest payments rose 12.9%, and in parallel the MEF cut Ministry of Education resources earmarked for physical investment and learning, while raising its wage bill. Both the deficit and debt are under legislative scrutiny. An economist quoted by ABC Color was blunt: "Yellow lights are flashing and the government must act before a crisis." The MEF transferred $334 million to departmental and municipal governments through July and opened a period for receiving creditor offers, a signal that the government is looking to secure new debt through bond issuance. Treasury bonds outstanding in the local market already total $1.2 billion.

The third disturbance is in the financial system. Several former ministers and heavyweight economists, among them Dionisio Borda and Manuel Ferreira, warned this week about the risk of losing confidence in the Banco Central del Paraguay. The trigger was the meeting that President Santiago Peña and the BCP held with the Banking Association (Asoban), the exact content of which remains partially opaque, though participants let enough signals slip to generate unease. Borda was explicit: he warned about concentration risk in the system and called for preserving the central bank's institutional integrity. That "noise," as one former minister quoted by ABC Color put it, could be damaging to the economy if it drags on. In that context, data on Deposit and Administration Houses (CDA) takes on added relevance: they hold 43.86% of their portfolio in guaraníes and 82.86% of their assets in dollars, an FX exposure that becomes especially relevant in an environment in which the US Federal Reserve is holding rates high.

Precisely, the impact of the Fed's monetary policy is another vector to watch. The guaraní has shown strength —the dollar fell again at the start of this week— but analysts are debating whether a new Fed rate hike could reverse that trend and which sectors would emerge as winners or losers from an eventual rebound in the greenback. Soy and beef exporters would celebrate; importers and households with foreign-currency debt, not so much.

On the institutional front, the Peña era has consolidated two reforms of significant architecture: the creation of the Ministry of Economy and Finance —which absorbed the Ministry of Finance, the Planning Secretariat, and the Civil Service Secretariat— and the National Tax Revenue Directorate, born of the merger between the SET and Customs. The new ministry's priority, according to Minister Óscar Lovera, is to bring the budget into balance in 2028 following the debt payment cycle. President Peña also announced credits for the productive sector this week and the merger of the MIC with Senatur, while the ministry seeks to expand industrial financing. The MIC, for its part, previewed "deep reforms" for the manufacturing sector.

On the external front, Paraguay is advancing in the EU-Mercosur agreement, demanding equal quotas for its exports, and the maquila sector continues its trajectory of sustained growth. What will need to be watched closely in the coming weeks is the resolution of the fuel tariff conflict —particularly whether Petropar adjusts before or after the municipal elections— the evolution of the 2027 budget debate in Congress, the international arbitration that Atome activated against ANDE and whose explanation was demanded in the Chamber of Deputies, and the outcome of the investigations into Ueno Bank, whose stake in "other companies" jumped 8,000% according to data released this week, and whose Rivarola report is circulating in Congress generating questions without public answers.