Press Release No. 13/502

Press Release: IMF Concludes Staff Visit to Paraguay

December 12, 2013

An International Monetary Fund (IMF) mission visited Paraguay during December 2-12, 2013 for discussions with government officials, donors, and the private sector, as part of the IMF’s annual Article IV consultations with its member countries. At the end of the visit, Mission Chief Ugo Fasano issued the following statement today in Asunción:

“Paraguay has strong economic fundamentals—low debt, sizeable official reserves, and a manageable fiscal deficit. The main challenge ahead is to improve social and economic development, which has lagged behind the region amid widespread structural and institutional weaknesses.

“Paraguay’s outlook for 2014 is positive. Growth should be strong at 4.8 percent, annual inflation will likely rise from currently 4.4 percent to the Central Bank of Paraguay’s target rate of 5.0 percent, and the fiscal and current account deficits should be low. Overall, the risks to this outlook are balanced. The main downside risks stem from possible lower regional growth and tighter global financial conditions while upside risks encompass faster than expected progress on implementation of the government’s reform agenda. In addition, although the banking sector remains sound, closer monitoring is warranted if credit growth accelerates further.

“We welcome the recent decision by the Central Bank to move towards a more neutral monetary policy stance to contain rising inflationary pressures. Fiscal policy is expected to remain broadly neutral. The frameworks for both monetary and fiscal policy have recently been strengthened. Fiscal policy is anchored on the rules established in the fiscal responsibility law, while the Central Bank has made significant advances in implementing an inflation-targeting (IT) regime.

“The mission recommended further strengthening public investment management and planning and the government’s regulatory capacity. This will ensure that public projects, including those under the public-private partnerships (PPPs) framework, will provide high-quality infrastructure services efficiently. In addition, it would be important to aim at transparent fiscal accounting and comprehensive disclosure of all fiscal contingencies related to PPP projects. Improving budget design, control and monitoring must be a priority as much as mobilizing much needed additional resources.

“The mission supports the government’s focus on poverty reduction through inclusive growth. We welcome the authorities’ plan to address poverty in rural areas by improving roads and enhancing small-scale farmers’ earnings, and to work closely with the private sector to support job creation initiatives in poor regions of the country, and in expanding access to basic services such as schooling, health, safe water and sewerage, and electricity. Assuring the long-term sustainability of all these initiatives will be crucial to succeed. Labor market inefficiencies will have to be addressed to support the development strategy, as well. Efforts to increase female labor force participation—a large part of the informal sector––would be also crucial to raise productivity and lower poverty.”

“Finally, we would like to thank the authorities, donors and private sector representatives of Paraguay for their cooperation and a very open and fruitful dialogue.”