Strong Growth Masks Fiscal Crisis as Paraguay Reshuffles Economics Ministry

The paradox defining Paraguay's economy at this moment is not growth — which remains the region's most dynamic — but the increasingly visible gap between a robust macroeconomy and a treasury operating on the brink of collapse. The guaraní is appreciating, activity is expanding above five percent, foreign direct investment reached record levels in 2025 according to the Banco Central del Paraguay, and yet the government has just lived through one of its most turbulent political-economic moments of the Peña administration to date: the departure of Economy Minister Carlos Fernández Valdovinos and his replacement by Óscar Lovera amid a declared "war economy."

The Fernández Valdovinos episode condenses the contradictions of the moment. The outgoing minister went so far as to publicly admit that "the economy is doing well, the Treasury is doing poorly" — an analytically honest distinction but a politically untenable one for a government whose legitimacy rests in large part on the discourse of fiscal orthodoxy. His departure, described by analysts cited by ABC Color as "a fairly strong political and economic signal," reflects the tension between structural fiscal constraints and internal political pressures within the ruling coalition. Cartista lawmakers had demanded his head, accusing him of having caused "havoc" and "irreparable damage." The new minister, Óscar Lovera, arrives with the explicit mandate to bring order to the "second half" of the Peña administration, as the Ministry of Economy also refreshes its vice-ministries. Iván Hass has taken over as the new vice minister. Lovera has shelved the "war economy" language — coined by the government itself — and prefers to speak of signs of improvement in revenue collection, though he admits the budget will not be back on track before 2028, after accumulated debts are paid down.

The scale of the fiscal problem is concrete. Caja Fiscal reserves have shrunk to levels not seen since 2009, according to ABC Color, and the deficit of that same fund required covering USD 1.421 billion from various sources. The MEF acknowledged that the exchange-rate mismatch — precisely the product of the guaraní's strength against the dollar — is costing the treasury roughly USD 600 million annually in revenue, given that a large share of tax income tied to foreign trade is calculated on foreign-currency values. It is a cruel irony: the very currency appreciation that eases inflation and lifts the purchasing power of urban wages is eroding the State's accounts. The Unión de Gremios de la Producción described the dollar's decline as a threat that already exceeds El Niño for the productive sector, and the banana export sector is reporting direct losses. The Cámara de Exportadores reported that some firms are opting outright to reduce their exports in the face of lost competitiveness. Meanwhile, the government and industry associations have set up a technical working group to analyze tools, though they ruled out directly intervening in the exchange rate. The BCP, for its part, reaffirmed the neutrality of its monetary policy.

The Caja Fiscal reform adds another layer of complexity. Analysts warn that without introducing minimum retirement ages, any parametric adjustment would be, in the minister's own words, "useless." The MEF acknowledges that the fund's deficit will continue to exert pressure, and former minister Ferreira warned of financial "window dressing" in the 2027 General Budget, which the bicameral commission is reviewing amid tensions — including a session described as "secret" from which journalists were removed. The bicameral is already proposing to cut debt payments to finance wage increases, which contradicts the consolidation logic Lovera promised from day one.

Against this backdrop, the government's boldest bet on energy and technology takes on an additional strategic dimension. Paraguay signed its accession to Pax Silica, which according to La Nación would attract a USD 12 billion artificial intelligence project. ANDE set a tariff for AI data centers of between USD 34 and 46 per megawatt hour — with a minimum annual adjustment of 2.5 percent starting in 2028 — although the contract with Araico, the company set to enter the sector, has not yet been published and is already drawing technical criticism. The opacity of the process, combined with the fact that the tariff exceeds the one applied to cryptocurrency operations and that it is unclear whether there was a competitive process, raises legitimate questions. On the broader energy backdrop, an ABC Color study concludes that the 22 feasible hydroelectric projects on inland rivers would generate just 398 megawatts — less than annual growth in electricity demand — underscoring the urgency of attracting private investment to the sector, as the Unión Industrial Paraguaya Joven has demanded.

On the labor front, unemployment fell in the third quarter, in line with the pace of economic expansion, though economists note that the trickle-down effect is still pending and that the geographic concentration of activity remains structural. The BCP reports cumulative expansion of 5.7 percent through August, and the World Bank projects growth of 4.4 percent for the year, while other private estimates point to topping five percent. Paraguay is attending the World Bank and IMF meetings in Washington with that figure as its calling card.

What lies ahead will demand attention on multiple fronts simultaneously: the ability of new minister Lovera to stabilize fiscal perceptions without triggering an internal political rupture; the trajectory of the exchange rate and whether the BCP eventually decides to intervene in the face of what economists are calling "extreme volatility"; the outcome of the 2027 General Budget in Congress, where the bicameral commission is already operating with a logic of its own; and the progress — or stagnation — of pension reforms that no government has managed to deliver. The combination of a dynamic real economy with a financially exhausted State is an equation Paraguay cannot sustain indefinitely.