Paraguay's Central Bank credibility faces internal erosion amid 5.6% growth

Paraguay's financial system has been building up pressure for weeks that has finally found a public voice: economists, former ministers and business associations have pushed to the center of the national debate the question of whether the institutions safeguarding the country's monetary stability are being eroded from within. It is this tension — between a macroeconomy growing at a pace that is the envy of the region and a system of institutional credibility that some consider under siege — that defines Paraguay's economic moment today.

The Banco Central del Paraguay reported that economic activity expanded 5.6% through the end of July, consolidating a first half that has accumulated growth rates of around 5% annualized. Market participants, according to ABC Color, have raised their optimism about the year's performance, with projections hovering around that same threshold. ECLAC confirms a 4% expansion for the full year, while the IMF urges the country to take advantage of the positive cycle to improve tax efficiency and broaden the tax base. Against this backdrop, the guaraní has appreciated against the dollar — a dynamic that benefits importers and consumers but weighs on the competitiveness of agroindustrial exporters, with soybeans, the historic engine of the Paraguayan economy, watching currency developments warily.

What makes the day distinctive, however, is not that relatively favorable macro picture. It is the level of alarm expressed by heavyweight economic figures regarding the management of the financial system and, specifically, the perception of interference at the BCP. Former Finance Minister Dionisio Borda, in remarks reported by ABC Color following the meeting between President Santiago Peña, the Asociación de Bancos (Asoban) and central bank authorities, warned about the risk of banking concentration and demanded that the institutional integrity of the issuing entity be preserved. Along the same lines, economist Manuel Ferreira warned of the danger that Paraguay could lose confidence in the BCP, stressing that such confidence — built over more than two decades — constitutes one of the most valuable and fragile assets of the national economy. Business associations, for their part, placed credibility at the heart of the debate, warning that the "noise" surrounding the financial system could prove damaging to economic activity.

This debate is unfolding just as the bicameral congressional committee resumes analysis of the 2027 General Budget of the Nation, a project that concentrates multiple points of friction. The Ministry of Public Works (MOPC) budget climbs 34% and envisions physical investment of up to $1 billion — an ambitious figure in a country where slow budget execution has been repeatedly flagged as one of the main brakes on development. In contrast, the Administración Nacional de Electricidad will cut its budget by 6%, the Ministry of Education will reduce resources for physical investment and learning while raising salaries, and the Instituto de Previsión Social faces legislative scrutiny over an accumulated debt of $1.2 billion. Specialists warn that the budget consolidates a structural deficit and a debt trajectory that requires attention before the close of the payment cycle scheduled for 2028.

On the energy front, the dispute between ANDE and British firm Atome Energy has reached an inflection point. The state utility will require Atome to pay a $40 million guarantee if it fails to meet the September 30 deadline to advance the green hydrogen production project. Specialized consultants warn that ANDE's position in an eventual international arbitration is weakened by years of administrative negligence in monitoring the contract, and recall that the Comptroller General's Office never resolved a prior complaint linked to this case worth $117 million. In parallel, Itaipú Binacional will maintain a controlled opening of its spillway to avoid flooding along the banks of the Paraná, a preventive management stance that reflects the hydrological sensitivity of the country's main energy source.

On fuels, the market faces upward pressure that private operators describe as imminent across all segments. Diesel has accumulated increases of up to 43.8%, raising the cost of freight transport and affecting the entire agricultural and industrial supply chain. Private players question that Petropar, the state oil company, is maintaining subsidized prices that distort the market and hamper corporate planning. The underlying question is how long Petropar can sustain that position before being forced to pass the adjustment on to the final consumer.

The Peña government, closing out its second year at the helm of the executive, adds relevant institutional reforms to its record: the creation of the Ministry of Economy and Finance — which absorbed the Treasury and the Technical Secretariat for Planning — the merger of the Undersecretariat of Taxation with Customs into the new Dirección Nacional de Ingresos Tributarios, and the announcement of deep reforms for the industrial sector from the Ministry of Industry and Commerce, which is also studying its merger with the Secretariat of Tourism. The shadow economy, however, remains a major drag: current estimates place it between 40% and 47% of GDP, fueled by border smuggling and a structural informality that no tax reform has managed to reverse in a sustained way.

In the coming weeks, three vectors will bear close watching: the evolution of the dollar against the guaraní in an environment where the U.S. Federal Reserve keeps rates elevated, which according to local analysts could push the currency higher and alter capital flows; the resolution of the Atome case and its potential slide toward international arbitration with significant fiscal costs for ANDE; and the budget debate in Congress, where differences between the executive and legislators on deficit, debt and execution point to protracted negotiations before the legislative deadline.