Paraguay’s economy is projected to experience a strong recovery in 2023, according to the International Monetary Fund (IMF). This landlocked country located in the heart of South America, bordered by Brazil, Argentina, and Bolivia, is expected to see a growth rate of 4.5 percent, with a decrease in the fiscal deficit to 2.3 percent of GDP. This positive macroeconomic performance is crucial for the country to rebuild its fiscal buffers and enhance its resilience to future shocks, following a substantial increase in public debt due to the impact of the COVID-19 pandemic and the measures aimed at economic recovery.
The IMF team, led by Mr. Mauricio Villafuerte, visited Asunción, the capital city of Paraguay, from March 27 to April 4 to conduct discussions on the first review under the Policy Coordination Instrument Arrangement with Paraguay. At the conclusion of the discussions, Mr. Villafuerte expressed encouragement for the Paraguayan government’s commitment to reducing the deficit further in 2024 to comply with the Fiscal Responsibility Law’s deficit ceiling of 1.5 percent of GDP. This will ensure that the country maintains a stable fiscal position and can continue to invest in infrastructure, health, and education while also meeting its debt obligations.
Inflation is also expected to decrease and be close to the Central Bank of Paraguay’s target by the end of 2023. The authorities’ cautious and moderately tight monetary policy stance is appropriate for now and could be relaxed once inflation moves closer to the inflation target later this year. This approach will help maintain price stability and support the country’s economic growth.
Furthermore, the external current account is expected to end up with a minor surplus in 2023 after a larger-than-expected deficit in 2022. The successful implementation of an inflation-targeting framework, combined with the exchange rate’s role as an important shock absorber, has helped maintain the country’s external stability.
The implementation of the Paraguayan Government’s Public Investment Program (PCI) has progressed well, with the quantitative targets stipulated for December 2022 broadly met. Commitments under the PCI’s structural reform agenda, including the submission of civil service reform and movable assets-based financing bills and the expansion in the coverage of social programs, have been met.
The government’s commitment to advancing on the PCI reform targets set for 2023, including the preparation of a transition law for the Caja Fiscal and a new version of the law for the supervision of the pension system, is a positive sign. Also, encouraging is the authorities’ intention to issue regulations supporting the implementation of the recently approved public procurement law and finalize a draft law that orders the structure of the State.
The IMF is supportive of the Paraguayan government’s efforts to implement its plans towards sustainable and inclusive economic growth. The country’s strong macroeconomic performance in 2023, along with the government’s commitment to further fiscal consolidation and structural reforms, bodes well for the country’s economic future.
