IMF Staff and Paraguayan Authorities Reach Staff-Level Agreement on the First Review of the Policy Coordination Instrument (PCI)

April 5, 2023

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.
  • The expected economic recovery from last year’s drought is underway. Inflation is continuing to recede while the Central Bank of Paraguay maintains a moderately tight monetary policy stance. The medium-term economic outlook remains favorable, but there are risks from a worsening global outlook and extreme weather events.
  • The fiscal consolidation path remains on track. Quantitative targets and reform targets were broadly met. The mission held cordial and constructive discussions with the authorities about the economic outlook and the reform agenda going forward.
  • The IMF team and the Paraguayan government reached a staff-level agreement on the macroeconomic policies and structural reforms needed to complete the first review under the PCI.

Washington, DC: An International Monetary Fund (IMF) team led by Mr. Mauricio Villafuerte visited Asunción from March 27 to April 4 to conduct discussions on the first review under the Policy Coordination Instrument Arrangement [ [1] ] with Paraguay.

At the conclusion of the discussions, Mr. Villafuerte issued the following statement:

“The macroeconomic performance in 2023 is strong, as the economy is recovering from last year’s drought and the implementation of policies remains on the expected path. Growth is projected at 4.5 percent for 2023, and the fiscal deficit of this year is foreseen to decrease to 2.3 percent of GDP. This is important, as Paraguay needs to rebuild fiscal buffers and preserve resilience against future shocks after the past few years’ substantial increase in public debt due to the impact of the COVID-19 pandemic and the measures aimed at the economic recovery. We encourage the authorities to also keep their view focused on further reducing the deficit in 2024 to comply with the Fiscal Responsibility Law’s deficit ceiling of 1.5 percent of GDP.

“Inflation is heading downwards and expected to be close to the BCP’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.

“The external current account in 2023 will likely end up with a minor surplus (0.1 percent of GDP), after a larger-than expected deficit of 6½ percent in 2022. Over the past six months, the authorities have continued implementing a successful inflation-targeting framework while letting the exchange rate act as an important shock absorber. Despite a marginal increase in the ratio of non-performing loans to total loans, financial sector solvency indicators comfortably exceed the legal minimum capital requirements, and banks’ profitability has recovered to pre-pandemic levels.

“The implementation of the PCI in Paraguay has been progressing well and the quantitative targets stipulated for December 2022 have been broadly met. Commitments under the PCI’s structural reform agenda were met, including the submission to the National Congress of civil service reform and movable assets-based financing bills and the expansion in the coverage of the Tekoporã and Pension Alimentaria para Adultos Mayores social programs.

“The Paraguayan government is committed to advance on the PCI reform targets set for 2023. They include the preparation of a transition law for the Caja Fiscal and a new version of the law for the supervision of the pension system, which would lay the foundation for a more comprehensive pension system’s reform. The authorities intend to soon issue the regulations supporting the implementation of the recently approved public procurement law and to finalize a draft law that orders the structure of the State.

“Additionally, the mission discussed with the government of Paraguay the inclusion of additional reforms under the PCI. The authorities are committed to work on a new version of the insolvency law, recognizing its potential to significantly strengthen the business climate in the country. In addition, they aim to complete an updated National Risk Assessment, which serves as a vital input for addressing new and emerging AML/CFT risks.

“The team met with Central Bank of Paraguay (BCP) President José Cantero, Minister of Finance Óscar Llamosas, other senior government officials, and representatives from the multilateral financial institutions. The staff team is grateful for the authorities’ excellent cooperation and candid and constructive discussions and reaffirms the IMF’s support for the government’s efforts to implement its plans towards the achievement of a sustainable and inclusive economic growth.”


[[1]] The IMF’s Policy Coordination Instrument (PCI) is designed for countries that do not need balance of payments financial support. The PCI helps countries design effective economic programs that, once approved by the IMF's Executive Board, signal to donors, multilateral development banks, and markets the Fund's endorsement of a member's policies.

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