Strong peso strangles Paraguay's budget as fiscal crisis deepens

The guaraní has been appreciating uninterruptedly against the dollar for nearly two years — roughly 36% since 2023, according to data published by Última Hora — and what was once read as a signal of export strength has now become the main source of friction between the private sector and the economic team of Santiago Peña's government. Ten business associations, including the Unión de Gremios de la Producción, have formally requested an emergency meeting with the Ministry of Economy and Finance to flag the impact of an exchange rate that, in their words, is falling "without a parachute." The government, for its part, has summoned those same associations to analyze the phenomenon, though the MEF simultaneously acknowledged that it expects the weak dollar to extend into fiscal 2027, while ruling out direct market intervention for now.

Currency tension is the epicenter of nearly everything else. The MEF, which is drafting the 2027 General Budget, faces an uncomfortable arithmetic: its tax revenue projections are denominated in guaraníes, but a significant share of taxable activity — especially in agriculture and foreign trade — is transacted in dollars. The DNIT has already warned that, although it projects a 14.3% increase in nominal tax collection for 2027, the dollar's slide erodes that figure in real terms. Lawmakers on the Bicameral Budget Committee openly questioned the MEF on how it will finance public spending under this scenario, while the same committee deliberated in closed session after removing journalists from coverage — adding opacity to a budget process already under pressure.

The underlying fiscal numbers are not reassuring. Caja Fiscal funds have shrunk to levels not seen since 2009, according to ABC Color, at a moment when interest payments on public debt grew 12.9% and central government wage spending advanced 9.9%. Salaries, pensions, and debt service account for nearly 70% of public financing. The Executive has already warned Congress that no funds are available for the wage increases demanded by several sectors, including physicians — whose adjustment the minister called "impossible to deliver." The 2027 PGN envisages 343,793 state positions, with a quarter of resources earmarked for remuneration. The MEF itself acknowledges that a return to the legal fiscal ceiling will not occur before 2028.

Against this backdrop of budgetary constraint, the government is seeking to monetize assets it has in abundance: energy. The agreement between U.S. firm Araico — partnered with Crusoe Energy — and ANDE to install an artificial intelligence center powered by Itaipú energy has dominated the week's economic debate. ANDE created, by resolution, a special tariff for AI centers set between USD 48.91 and USD 56.39 per megawatt-hour, which would translate into revenues of up to USD 10 million per month for the state utility once the project operates at full capacity. ANDE's engineers, however, are demanding that energy allocation to such centers be carried out through public tender, and estimate that the segment's potential could generate an additional USD 98 million per year. Meanwhile, the initiative is raising concerns in Brazil, given that the Iguazú AI City project would absorb part of the energy surplus Paraguay cedes to Itaipú under the binational treaty.

The Ueno Bank situation continues to add pressure to the financial system. The BCP has identified another five firms linked to the intervened bank's irregular lending network, and the head of the UIP publicly voiced concern that the crisis could spill over into employment and the real economy. The BCP's regulatory handling is under scrutiny: industry voices are questioning asymmetries in the treatment of different institutions, and the case is being flagged as a test of the country's international reputation. In parallel, the BCP held its policy rate unchanged, while international reserves surpassed USD 11 billion with 13.1% year-to-date growth — a figure the central bank showcases as a stability anchor in its conversations with the IMF and the World Bank.

The long-term macro picture remains enviable by regional standards: GDP reportedly grew 6.6% in 2025 according to the BCP — in what the government itself labeled a "war economy" to justify fiscal austerity — and the cumulative figure through August 2026 points to a 5.7% expansion. The IMF acknowledges the model's solidity, though it warns of risks, and the UN ranks Paraguay as the region's fastest-growing economy for 2026. But Economy Minister Óscar Lovera concedes that trickle-down to households will be gradual — a signal that macroeconomic figures have yet to translate into perceived well-being. According to the MIC, half of the country's MSMEs generate incomes that barely cover subsistence.

What to watch in the coming days: the MEF's concrete response to the business lobby's complaint on the exchange rate, the pace at which the Bicameral Committee finalizes the 2027 PGN, the regulatory resolution of the Ueno Bank case, and the evolution of the Araico energy agreement, whose tariff scheme and supply conditions have yet to be ratified through public tender. The combination of a strong guaraní, a tight fiscal position, and an ongoing banking crisis constitutes the most demanding scenario Peña's government has faced since taking office in August 2023.