Strong guaraní masks Paraguay's institutional rot and fiscal pressures.

The guaraní has emerged this week as Latin America's best-performing currency, a distinction that carries both good news and a cautionary signal. Driven by export flows, the exchange rate against the dollar has steadily given ground, confirming an appreciation trend that the Banco Central del Paraguay has chosen not to counter aggressively. This currency strength arrives at a peculiar moment: the economy expanded in the second quarter, albeit at a slower pace than in prior periods, and the BCP's economic activity indicator posted growth of 5.6% through July. Market participants, according to recent surveys, estimate that annual growth could hover around 5%, in line with ECLAC's projections. Yet the robust surface contrasts with frictions accumulating underneath.

Fitch Ratings' decision to maintain Paraguay's sovereign rating at BB+ with a positive outlook — still withholding the coveted investment grade — has captured the attention of the political and business establishment. President Santiago Peña responded with equanimity that "the rating agencies take their time," but a more uncomfortable reading comes from former minister Benigno López, who warned that the agencies do not evaluate macroeconomic fundamentals alone but also the country's institutional quality. That warning resonates strongly given the context: former minister Carlos Borda publicly flagged the risks posed by the debt level, the fiscal deficit and, especially, corruption to the state's credibility before international markets. Various voices from the private sector, including those gathered around business figures interviewed by ABC Color, stressed that legal insecurity and corruption are the main obstacles to attracting foreign investment at scale.

That tension between an attractive macro picture and questioned governance precisely defines Paraguay's current moment. On one hand, the World Bank announced a USD 300 million disbursement to strengthen the country's economic resilience, a vote of confidence from a top-tier multilateral lender. On the other, the IMF listed eleven pending tasks for Paraguay, ranging from deficit reduction to combating money laundering. Última Hora reported that the underground economy now accounts for between 40% and 47% of GDP, a figure that lays bare the magnitude of the structural problem.

On the fiscal front, the 2027 national budget is under parliamentary scrutiny, with specialists warning about the growing deficit, the trajectory of public debt and a relative decline in investment. The Ministry of Economy and Finance — the Peña administration's flagship institutional reform, which merged the former Ministry of Finance, the Planning Secretariat and the Civil Service — placed PYG 230.527 billion in Treasury Bonds this week, a sign that domestic financing remains active. Paraguay also maintains USD 5.625 billion in external loans under execution, a figure that underscores the importance of preserving smooth access to international credit markets. Compounding this, customs revenue has fallen 9.1% year-to-date, slowing revenue growth at the Dirección Nacional de Ingresos Tributarios, the new entity that merged the tax and customs authorities, whose director, Óscar Orué, pledged to raise the tax burden from 10% to 12% of GDP and collect an additional USD 400 million per year. The DNIT, meanwhile, is studying the elimination of tax exemptions on electric and hybrid vehicles, a proposal that faces resistance in a market where that segment is still incipient.

On the energy front, the Peña government acknowledged there is no news on the renegotiation of the Itaipú tariff and set its sights on the Brazilian elections as a conditioning factor for any progress. Paraguay and Brazil held a diplomatic meeting to advance bilateral electricity interconnection, suggesting that the energy agenda remains alive even without concrete short-term results. In parallel, the Singaporean firm Atome notified the termination of its contract with ANDE for the energy-intensive tariff but is keeping an international arbitration case against the Paraguayan state open, a dispute that could generate significant contingent liabilities for public finances. Petropar, the state oil company, announced the hiring of an international consultancy to "revive" oil exploration in the country, an initiative that has gone decades without producing commercial results and will draw skepticism from sector analysts.

In the agricultural sector, which remains the anchor of the export economy, agricultural prices have accumulated gains of 13%, although production costs have also risen, compressing margins. The European Union–Mercosur agreement remains the most ambitious long-term bet for Paraguay: the Cámara Nacional de Comercio y Servicios del Paraguay called on the government to design a concrete domestic agenda to translate the treaty into real investment, implicitly acknowledging that ratification of the agreement does not on its own guarantee any automatic benefit.

The coming weeks will be shaped by three variables that deserve close monitoring: the evolution of the exchange rate in the face of any adjustment in U.S. Federal Reserve policy — whose rate moves are already generating local analysis of their impact on the cost of Paraguayan external financing; the pace of negotiation of the Itaipú tariff, which depends largely on Brazil's political cycle; and the 2027 budget process, where the balance between current spending, public investment and fiscal consolidation will determine whether Paraguay is in a position to make the definitive leap to investment grade at the next Fitch or Moody's review.