Guaraní surges as Latin America's best performer despite investment-grade impasse

The guaraní became Latin America's best-performing currency this week, buoyed by a sustained inflow of foreign exchange from the export sector — a signal that encapsulates the most revealing contradictions of the Paraguayan economy: a country growing vigorously, yet still unable to convince rating agencies that it deserves investment grade.

According to data published by ABC Color, the guaraní led regional currency appreciations, with the dollar retreating against the local currency amid strong foreign exchange inflows from agro-industrial exports. The Banco Central del Paraguay (BCP) reported that economic activity had expanded 5.6% cumulatively through the end of July, in line with the 5.8% growth recorded in the first quarter and 5.1% during the first four months of the year. The World Bank projects the country will grow 4.7% in 2026, above the regional average, while the IMF estimates Paraguay will grow at nearly twice the global average rate. In any other Latin American context, these figures would be enough to justify an upgrade in the sovereign rating.

The story, however, is more complex. Former Finance Minister Benigno López warned this week that rating agencies do not assess macroeconomic indicators alone: they also weigh the quality and reliability of institutions. Another former minister in the same portfolio, identified in ABC Color's coverage, was more direct in pointing to the factors holding back investment grade: rising public debt, a persistent fiscal deficit, and structural corruption. The Unión Industrial Paraguaya (UIP) added its own list of conditions, while representatives of CAF and the IDB, present at a forum organized by the Cámara de Vialidad del Paraguay (Cavialpa), argued that attaining investment grade would open the door to financing infrastructure with private savings — an option currently closed off.

The tension between growth figures and institutional perception is also laid bare in the dynamics of the public budget. Specialists consulted during the debate over the 2027 General Budget (PGN) warned of a troubling pattern: salaries, pensions, and debt service absorb nearly 70% of public financing, leaving a narrow margin for infrastructure and capital investment. Cavialpa noted that reversing the country's road infrastructure deficit would require at least USD 2 billion annually, a figure that today lies out of reach within the current budgetary structure. The Ministry of Economy projects that fiscal accounts will not be back on track until 2028, after accumulated debt commitments have been paid down.

The BCP, for its part, has not stood still. The monetary authority raised its benchmark policy rate in response to inflationary pressures and the external context generated by Federal Reserve rate hikes, whose impact on Paraguay translates primarily into higher refinancing costs on external debt and pressure on capital flows. The MEF placed PYG 230.527 billion in Treasury Bonds this week, a routine operation reflecting the need for domestic financing at a moment of adjustment. In parallel, a meeting between President Santiago Peña, the BCP, and private banking representatives was interpreted by participants as a forum for dialogue on credit conditions and liquidity prospects.

In the energy sector, Itaipú supplied 17.5% more energy to ANDE during the period analyzed, but transferred USD 23 million less to the State under Annex C of the Treaty — a technical paradox with direct fiscal implications. Compounding this, the Entidad Binacional Yacyretá issued an alert forecasting high water levels on the Paraná River through year-end, which could affect both hydroelectric generation and riverside productive activities. In parallel, Petropar has accumulated 6.1 million hectares in oil exploration concessions without drilling a single well, while diesel prices logged their sixth consecutive increase, reaching their highest historical level, with the fuels sector under mounting pressure.

On the regulatory and financial front, the BCP uncovered maneuvers by Ueno Bank to conceal ties with related companies, and confirmed it is preparing a comprehensive report on the entity and other banking institutions, as requested by Congress. The case feeds the debate over the soundness of the financial supervision system, one of the factors weighing negatively in rating agency assessments.

What will bear close watching in the coming weeks is the pace of approval of the 2027 PGN, where the clash between institutions demanding additional resources — the Universidad Nacional has requested USD 61 million more, IPS is debating its salary structure, and the Ministry of Health awaits allocations despite low execution in 2026 — and the need to contain the deficit will test the fiscal discipline of the Peña administration. Also key will be Fitch's formal pronouncement on Paraguay's sovereign rating, as well as progress in negotiations between Paraguay and Brazil on energy interconnection and the future of the Itaipú Treaty, whose financial framework directly affects State revenues.