Paraguay bets infrastructure boom against widening fiscal deficits.

The draft 2027 general budget has just laid bare a structural tension that defines Paraguay's economic moment: the country is growing strongly but spending more than its revenues can comfortably sustain, and the solution chosen by Santiago Peña's government is debt and massive public investment — a bet that excites the markets but unsettles more orthodox economists.

The Ministry of Economy and Finance (MEF) has presented a 2027 budget that assigns the Ministry of Public Works and Communications (MOPC) an increase of between 33% and 34% over the current fiscal year, raising that agency's physical investment to approximately US$ 1 billion, according to ABC Color. The figure is politically eye-catching but also analytically revealing: in a context where specialists are warning of a widening deficit and a heavier debt burden, the government is betting on infrastructure spending as the engine that pulls the rest of the economy along. Lawmakers have already begun asking uncomfortable questions about subsidies, works under the Public-Private Partnership mechanism and the rationale of sectoral allocations, while former minister Manuel Ferreira publicly warned about what he called financial "window dressing" in the budget presentation.

Underpinning that bet is a genuinely remarkable growth cycle. The Banco Central del Paraguay (BCP) posted GDP expansion of 6.6% in 2025, a figure that President Peña himself framed under the slogan of a "war economy" — rhetoric that the industrial sector is asking be translated into lower current spending rather than more borrowing. The economy has now strung together 24 consecutive months of growth above 4%, according to La Nación, and surveyed economic agents have raised their growth projection for the current cycle to close to 5%. The IMF, which in parallel is urging improvements in tax efficiency and a broader tax base, acknowledged the macroeconomic solidity but flagged risks, among them medium-term fiscal sustainability. According to Última Hora, the Fund laid out eleven pending tasks for Asunción, ranging from the deficit to the fight against money laundering.

The most visible contradiction of the day lies in the public accounts. Central government wage spending grew 9.9% year-on-year, interest payments on public debt rose 12.9%, and the country has US$ 5.625 billion in external loans under execution, with more than US$ 1.6 billion in additional disbursements in the pipeline for works, development and liquidity, according to ABC Color. The MEF placed G. 230.527 billion in Treasury Bonds in the local market, where the stock of that instrument already reaches some US$ 1.2 billion, and is seeking to close new international debt via bonds as well. The new Economy Minister, Óscar Lovera, indicated that the budget may only find its footing in 2028, once the weight of accumulated debt has been absorbed. The construction industry, meanwhile, is waiting for Lovera to speed up payment of outstanding obligations to state suppliers.

On the FX front, the guaraní went through weeks of accelerated appreciation. Economists consulted by ABC Color explained that the absence of the BCP's liquidity window was the factor that accelerated the dollar's slide, by reducing institutional demand for foreign currency. The local currency's appreciation, which compresses exporters' guaraní-denominated income, is happening just as consumption shows signs of decelerating: monthly activity indicators suggest a downward trend that worries analysts, though long-term data remain favorable. Remittances, which total US$ 732 million a year according to ABC Color, continue to be a meaningful cushion for both household consumption and the real estate market.

The energy sector delivered another focal point. ANDE will demand that firm Atome pay a US$ 40 million guarantee if it fails to meet the September 30 deadline for an addendum under negotiation, amid a striking absence of official information on the technical meetings between the two sides. An economist quoted by ABC Color questioned the government's "improvisation" in handling the case. In parallel, Paraguay and Brazil advanced talks on energy interconnection during a diplomatic visit, a development with long-term implications for the regional energy matrix.

Fuels are the most immediate cost-pressure vector on the real economy. Diesel prices are up a cumulative 43.8%, in line with the historic global high in diesel that is threatening logistics chains worldwide. Private distributors are already on their fifth round of price adjustments, while Petropar maintains subsidized prices that the private sector denounces as distorting competition. How long that policy can be sustained without greater fiscal strain has no definitive answer, though analysts agree the margin is narrowing.

On industrial policy, President Peña announced the merger of the Ministry of Industry and Commerce (MIC) with the Secretaría Nacional de Turismo (Senatur), while the MIC is seeking to expand financing lines to accompany industrial investment. The Dirección Nacional de Ingresos Tributarios (DNIT), which emerged from the merger of the tax and customs agencies, is preparing a project to modify the tax treatment of electric vehicles — a sign that the institutional consolidation of Peña's first year is beginning to translate into concrete regulatory initiatives.

The variables to watch over the coming weeks are precisely those where uncertainty is greatest: the evolution of the exchange rate against a backdrop of guaraní appreciation and decelerating consumption; the outcome of the Atome case and its implications for the energy sector's regulatory credibility; the progress of the budget debate in Congress, where the tension between infrastructure spending, debt service and wage pressure has yet to find a consensus formula; and Paraguay's stance in the European Union–Mercosur negotiations, where Asunción is demanding equal quotas for access to the European market — a position that reflects the growing commercial ambition of a country that, according to the World Bank, will be the second fastest-growing economy in the region in 2025.