Paraguay's Treasury shrinks as economy booms: the guaraní paradox

The paradox defining Paraguay's economic moment under Santiago Peña is as sharp as it is revealing: the country is growing at the fastest pace in the region —with projections exceeding 5% for 2026 according to local economists' estimates, and partially confirmed by ECLAC, which raised its forecast to 4.5%— while its Treasury endures a fiscal drought unseen since 2009. It is that contradiction, between a robust macroeconomy and public accounts under severe strain, that today commands the entirety of the country's political and financial attention.

The crux of the problem is currency-related. The guaraní has appreciated significantly against the dollar —with the effective exchange rate retreating another 40 points in the most recent session, according to ABC Color— and that strengthening is hitting fiscal revenues particularly hard. The Ministry of Economy and Finance openly acknowledged that the exchange rate mismatch is costing the Treasury nearly 600 million dollars, a figure that largely explains the institutional turbulence of recent weeks. The departure of Minister Carlos Fernández Valdovinos —who, before leaving the post, admitted that "the economy is fine, the Treasury is not"— was the inflection point that laid bare the magnitude of the problem. Business leaders criticized him harshly, and MSME representatives warned that the economy is "completely stalled," in direct contrast to aggregate growth data.

His successor, Óscar Lovera, has adopted a deliberately more conciliatory tone from day one. He publicly discarded the "war economy" framing his predecessor had installed, preferring instead to speak of signs of improvement in tax collection and of an adjustment affecting the Treasury rather than the broader economy. Last week the MEF announced the payment of salaries to public employees and disbursements to suppliers of the Hambre Cero program totaling 184.194 billion guaraníes, seeking to demonstrate operational capacity while navigating a public debt that grew by 1.498 billion dollars in just six months. Meanwhile, the Caja Fiscal's funds have shrunk to their lowest levels in 16 years, according to ABC Color, and the deficit of that pension institution will continue to exert pressure, the MEF itself admitted to Última Hora. Economist Dionisio Borda summed up the problem with a phrase now widely circulating: "The investment grade went to the heads of the economic team," suggesting that obtaining investment grade led the government to underestimate the need for sustained fiscal discipline.

The debate over the 2027 General Budget is laced with all of these tensions. The Bicameral Commission opened deliberations without having received complete reports from the MEF —an omission legislators are openly questioning— while former minister Benigno Ferreira warns of "financial window-dressing" in the figures presented. More significantly still: the MEF itself has opened the door to not returning to the fiscal deficit cap foreseen for 2028 in what it described as a "risk scenario," and economists participating in a recent debate acknowledged that returning to the legal deficit ceiling could take up to a decade. The IMF, which met with the BCP president and Minister Lovera this week, has its own list of eleven pending items for Paraguay ranging from the deficit to the fight against money laundering, according to Última Hora.

In this context of fiscal adjustment, the business inter-guild association announced a demonstration in front of the MEF, while the National Directorate of Tax Revenues —the new entity merging Tax and Customs administrations— is considering limiting fiscal incentives for investment under the "war economy" umbrella. The measure is generating alarm in the private sector: a cabinet minister acknowledged that cutting incentives will generate "uncertainty and risk." Simultaneously, guilds are demanding that the Instituto de Previsión Social withdraw its funds from Ueno Bank, adding tension to the financial system, though banking supervisor Borda warned that supervision must deliver "visible results," in a signal that the regulator is aware of the fragility of the moment.

Where the official narrative finds its strongest backing is in broader macroeconomic data. International reserves grew 13.1% in 2026 and exceed 11 billion dollars, a record that reinforces the country's external buffer. Foreign trade registered a surplus of 712 million dollars in the third quarter. The soy complex generated 2.492 billion dollars through May. Bank deposits grew 9% as of the end of September. Paraguay remains, according to the IMF, the economy with the highest growth projection in the region, expanding at nearly twice the global average. And an artificial intelligence center set to establish operations in the country —paying between 48.91 and 56.39 dollars per MWh to ANDE— could generate revenues of up to 10 million dollars monthly for the state power company when fully operational, with the institution's engineers calculating up to 98 million dollars in additional annual revenue, according to ABC Color.

What will define the coming months is whether Lovera can consolidate the fiscal credibility needed for markets to distinguish between the country's macroeconomic solidity and its Treasury's vulnerabilities. The guaraní's appreciation —which worries banana and soy producers alike, and which cattle ranchers are seeking to stabilize through specific financial instruments— does not appear likely to reverse in the short term. The BCP monitors the exchange rate without signs of speculation, according to Lovera, but economists are demanding that the central bank intervene in cases of "extreme volatility." The minister's meeting with international organizations in France, and Paraguay's presence at the World Bank and IMF meetings, will serve as thermometers of the degree of confidence that creditors and multilateral bodies maintain in the country's new economic leadership.