- IMF Sees Paraguay Growth At 4.40% In 2026 As Strong Fundamentals Cushion External Risks
Paraguay’s economy is expected to expand by 4.40% in 2026, remaining one of the stronger performers in Latin America as robust macroeconomic fundamentals, structural reforms and diversified economic activity help cushion the country against heightened global uncertainty, the International Monetary Fund has said.
The IMF Executive Board, concluding its 2026 Article IV consultation with Paraguay, said the economy continued to demonstrate “remarkable resilience”, supported by sound macroeconomic policies and reform efforts, although sustained structural reforms would be needed to raise productivity and secure durable and inclusive growth.
Paraguay’s real gross domestic product grew 6.60% in 2025 before expanding another 5.80% year-on-year in the first quarter of 2026, supported by services, manufacturing, agriculture, construction and energy distribution.
The Fund expects full-year growth to moderate to 4.40% in 2026 before settling around its estimated medium-term potential of 3.80%.
Headline inflation stood at 2.10% year-on-year in June, as increases in domestic fuel prices were offset by lower prices in some food categories and imported durable goods, helped by a stronger guaraní.
The IMF expects inflation to reach the central bank’s 3.50% target by the end of the year. The strength of Paraguay’s currency has become one of the defining features of the current macroeconomic environment. The guaraní appreciated 23.10% against the US dollar in nominal year-on-year terms and 8.60% on a year-to-date basis as of June.
While that appreciation has helped contain imported inflation, it has also contributed to weaker customs and non-tax revenues. Net international reserves stood at about US$11.00 billion at the end of June, while gross reserves remained comfortably within the IMF’s adequacy thresholds.
Paraguay’s current account deficit narrowed to 2.50% of GDP in 2025 and is projected at 2.60% in 2026. The Fund expects the economy to continue benefiting from relatively strong buffers, although global trade, commodity-market and financial risks remain sources of uncertainty.
The fiscal deficit stood at 2.00% of GDP in 2025 and is expected to widen to 3.50% in 2026, largely because of the partial clearance of expenditure arrears accumulated between 2023 and 2025 and weaker government revenues linked partly to the appreciation of the guaraní.
As of June, cumulative tax revenue had grown just 2.10% year-on-year. Internal taxes supported overall collections, but customs revenue declined 11.50%, while non-tax revenue dropped 11.30%, according to the IMF.
The Executive Board therefore placed significant emphasis on restoring compliance with Paraguay’s Fiscal Responsibility Law. Authorities have committed to return to compliance by 2028.
IMF Directors said improved tax administration, a broader tax base and stronger expenditure efficiency would be needed to support fiscal consolidation while protecting social and development spending.
They also stressed the need to clear expenditure arrears on time and strengthen public financial management to preserve fiscal credibility.
The Fund’s assessment suggests Paraguay currently has room to manage the adjustment without abandoning priority expenditure, provided fiscal consolidation is accompanied by stronger revenue mobilisation and tighter spending controls.
The IMF said there could be scope for gradual further easing if the current energy shock proves temporary, inflation expectations remain anchored and economic activity moderates in line with projections.
Directors nevertheless urged policymakers to keep decisions data-driven given elevated external uncertainty.
They also backed the continued use of a flexible exchange rate as an important shock absorber and encouraged further improvements in liquidity and foreign-exchange management, alongside stronger central bank autonomy and governance.
Paraguay’s banks are well capitalised, liquid and profitable, according to the IMF, although rapid consumer credit growth is attracting closer scrutiny.
Overall credit growth moderated sharply after peaking at 22.80% in early 2025.
It slowed to 6.80% year-on-year in December and to 3.20% in May 2026.
Consumer credit, however, continued expanding at 22.80%, creating a potential pocket of vulnerability if underwriting standards weaken.
Banks’ liquid assets stood at 24.30% of total liabilities in May, while Tier 1 and total regulatory capital ratios were 14.00% and 17.30%, respectively, comfortably above minimum requirements of 8.00% and 12.00%.
The IMF urged authorities to continue monitoring consumer lending closely and develop macroprudential tools, particularly borrower-based instruments, that could be deployed if vulnerabilities build.
The Fund also called for completion of Paraguay’s updated National Risk Assessment and the prompt resolution of weaknesses identified in the country’s anti-money laundering and counter-terrorist financing framework.
Beyond short-term macroeconomic management, the IMF sees structural reforms as decisive to Paraguay’s ability to sustain growth beyond the current cycle.
Executive Directors encouraged further measures to reduce informality, strengthen governance and anti-corruption institutions, improve the investment climate and deepen reforms aimed at increasing climate resilience.
The Fund also highlighted the importance of measures introduced under the Resilience and Sustainability Facility in strengthening the country’s ability to withstand natural disasters.
The IMF projects real GDP growth to settle at 3.80% annually from 2027 through 2031, while public-sector debt is expected to remain relatively contained, declining from 38.20% of GDP in 2025 to 36.70% in 2026 and gradually to 34.70% by 2031.
The broader policy challenge will be preserving that resilience as growth normalises. For Paraguay, the IMF’s message is that the country enters the next phase with favourable fundamentals, but maintaining them will require fiscal discipline, careful management of rapid consumer lending and continued structural reforms.
The next test is whether policymakers can turn that resilience into a higher-productivity, more inclusive and sustainable growth model without eroding the fiscal and financial buffers that currently distinguish Paraguay from many of its regional peers.
