IMF Completes 2026 Article IV Review in Paraguay

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for Paraguay. [1] The authorities have consented to the publication of the Staff Report prepared for this consultation. [2]

Paraguay has recorded strong macroeconomic performance. After expanding 6.6 percent in 2025, real GDP grew 5.8 percent year on year (y-o-y) in 2026 Q1, underpinned by strong performance of services, manufacturing, agriculture, construction, and energy distribution. Growth in 2026 is expected to reach 4.4 percent and to moderate to its potential of 3.8 percent over the medium term. Risks around the outlook are balanced. Headline inflation reached 2.1 percent, y-o-y, in June as higher domestic fuel prices were offset by decreases in some food segments and imported durables because of a stronger guaraní. Headline inflation is projected to reach the central bank's target of 3.5 percent this year. The current account deficit declined in 2025 to 2.5 percent of GDP and is expected to reach 2.6 percent in 2026. The guaraní appreciated 23.1 percent against the U.S. dollar in nominal terms, y-o-y, and 8.6 percent year to date in June 2026. Net international reserves stood at around USD11 billion in end-June and gross reserves are well within adequacy thresholds.

The fiscal deficit reached 2 percent of GDP in 2025 and it is expected to increase to 3.5 percent of GDP in 2026 owing mainly to the partial clearance of expenditure arrears accumulated over 2023-2025 and weaker revenues owing to the appreciation of the guaraní. As of June, 2026, tax revenue grew by 2.1 percent, y-o-y, cumulatively, driven by internal taxes, while customs revenue shrunk by 11.5 percent. Non-tax revenue declined 11.3 percent y-o-y, owing mainly to the guaraní appreciation.

Overall credit growth has moderated, and the banking sector remains well capitalized, liquid, and profitable. After peaking in early 2025 at 22.8 percent, credit growth reached 6.8 percent in December, y-o-y, and 3.2 percent in May 2026. However, consumer credit still expanded at 22.8 percent. In May 2026, banks' liquid assets stood at 24.3 percent of total liabilities and capital adequacy ratios at 14 percent and 17.3 percent (Tier 1 and total regulatory capital ratios, respectively), well above the 8 percent and 12 percent minimums.

Executive Board Assessment [3]

Executive Directors agreed with the thrust of the staff appraisal. They welcomed Paraguay's continued strong macroeconomic performance, underpinned by sound policies and sustained structural reforms, and positively noted favorable medium-term growth prospects and balanced risks to the outlook. However, noting heightened external uncertainty and domestic vulnerabilities, Directors underscored the need to maintain prudent macroeconomic policies and continue to advance structural reforms to strengthen resilience and support durable and inclusive growth.

Directors welcomed the authorities' commitment to restore compliance with the Fiscal Responsibility Law (FRL) by 2028. They highlighted that sustained efforts to improve tax administration and broaden the tax base, and to strengthen expenditure efficiency, would support fiscal consolidation and create space for priority social and development spending. Directors highlighted the criticality of a timely clearance of expenditure arrears and of strengthening public financial management to preserve fiscal policy credibility, and welcomed the authorities' efforts to that end. They also supported reviewing and strengthening the fiscal framework, once consolidation goals have been achieved.

Noting elevated external uncertainties, Directors agreed that monetary policy decisions should remain data-driven. They concurred that Paraguay's credible inflation-targeting framework and flexible exchange rate have supported macroeconomic stability, and underscored that the exchange rate should continue to play a key role in absorbing external shocks. Directors encouraged additional efforts to enhance liquidity and FX management frameworks and to strengthen central bank autonomy and governance.

Directors noted that while financial sector risks appear contained, rapid consumer credit growth warrants close monitoring and readiness to act if signs of weaker underwriting standards emerge. They highlighted that developing a macroprudential toolkit, especially of borrower-based tools, will help strengthen the authorities' ability to contain vulnerabilities. Directors urged the authorities to complete the approval of the updated National Risk Assessment and promptly address any identified gaps to further strengthen the AML/CFT framework.

Directors welcomed the authorities' structural reform efforts and underscored that their sustained implementation will be key to increasing productivity and ensuring durable and inclusive growth. They encouraged the authorities to pursue additional reforms to reduce informality, building on recent gains. Directors also encouraged the authorities to further strengthen governance and anti-corruption institutions to support the investment climate. They also stressed that continuing with climate-related reforms, including those initiated under the RSF, would further strengthen Paraguay's resilience to natural disasters.

It is expected that the next Article IV consultation with Paraguay will be held on the standard 12-month cycle.

Table 1. Paraguay: Selected Economic Indicators, 2023-2031

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] Under the IMF's Articles of Agreement, publication of documents that pertain to member countries is voluntary and requires the member consent. The staff report will be shortly published on the www.img.org/pry page.

[3] At the conclusion of the discussion, the Managing Director, as Chair of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .