Paraguay

This report does not constitute a rating action. Overview Institutional and economic profile Flexibility and performance profile Broad continuity in macroeconomic policy through national elections. Limited fiscal and external imbalances support creditworthiness. --An IMF program agreed with the outgoing administration sets reforms to strengthen macroeconomic resilience. --Modest current account deficits covered by foreign direct investment should keep the external profile a key credit strength. --General political agreement on reforms, but political tensions might delay their approval. --The fiscal responsibility law anchors the budget, but spending pressures will keep general government deficit above 2% of GDP. --We forecast a strong rebound in economic growth in 2023, following muted growth in 2022. --Flexible exchange rate and inflation-targeting regime strengthen monetary policy, though

...More benign weather conditions should boost agricultural output and counter the impact of slower economic growth globally. We estimate Paraguay will grow 5% in 2023, before returning to its trend of about 3%. Political tensions will weigh on the upcoming administration's policymaking effectiveness . However, we expect policy continuity after the transition given the commitment to cautious macroeconomic policies across key political players and economic policy institutions. We expect net general government debt to rise over the next several years but remain below 30% of GDP. Sustained growth and the sovereign's commitment to cautious fiscal execution should limit the erosion of fiscal accounts, despite rising spending pressure-- especially on health and pensions--amid low tax revenue....

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