Press Release No. 23/381

IMF Staff and Paraguayan Authorities Reach Staff-Level Agreement on the Second Review of the Policy Coordination Instrument (PCI) and on a request for access under the Resilience and Sustainability Facility (RSF)

November 6, 2023

• The IMF team and Paraguayan authorities reached staff-level agreement on a request for access under the Resilience and Sustainability Facility (SDR 302.1 million) and the second review under the Policy Coordination Instrument. The IMF’s Executive Board will consider these requests in the coming weeks.
• Paraguay requests financing from the IMF’s Resilience and Sustainability Facility to support its ambitious climate-centric reforms aimed at reducing the vulnerability to climate change and at achieving a more sustainable growth pathway.
• The authorities remain dedicated to bolstering macroeconomic stability, advancing their structural reform agenda, and sustaining a close policy dialogue with the Fund under the auspices of the PCI.

Asunción, Paraguay: An International Monetary Fund (IMF) team led by Mr. Mauricio Villafuerte held meetings with the Paraguayan authorities during October 25 – November 3, 2023 for the second review of the Policy Coordination Instrument (PCI), subject to approval by the IMF Executive Board. The team also discussed the authorities’ request to access financial resources under the Resilience and Sustainability Facility (RSF) in the amount of 150 percent of quota (SDR 302.1 million). At the conclusion of the mission, Mr. Villafuerte issued the following statement:

“The IMF team and the Paraguayan authorities reached staff-level agreement on the policies needed to complete the second review under the PCI as well as on the request to access financial resources from the RSF. The IMF’s Executive Board will discuss these requests in the coming weeks.

“Paraguay is firmly recovering from the drought last year, with GDP projected to grow by 4.5 percent in 2023 led by a resurgence in agriculture production and electricity generation. Inflation has fallen quickly in recent months, well below the 4 percent inflation target of the Central Bank of Paraguay (BCP). The external current account is expected to shift to a surplus of 0.2 percent of GDP in 2023 driven by the sharp recovery in agricultural export volumes and the fall in international fuel prices. Risks to the outlook are balanced.

“The fiscal outcome as of June 2023 indicates that the central government fiscal deficit, the current primary expenditure, and the net incurrence of floating debt limits were close to targets. However, the 2023 fiscal position will turn out to be weaker than originally projected this year as the new government intends to register and regularize, in the coming months, outstanding claims from private contractors accrued during the pandemic. Afterwards, the fiscal deficit will gradually converge to the 1.5 percent of GDP deficit ceiling of the fiscal rule by 2026.

“The BCP’s decisive monetary policy stance, supported by clear and transparent communication, put inflation on a firm downward trend. Since inflation expectations have consolidated around its inflation target of 4 percent, the BCP has gradually lowered the policy rate. The cautious pace of relaxation is warranted given upside risks to inflation due to commodity prices’ volatility and global financial conditions that contribute to a strong U.S. dollar.

“Commitments under the PCI’s structural reform agenda were mostly met. The government added large and medium-sized taxpayers to the Integrated National Electronic Invoicing System (SIFEN) exceeding the anticipated threshold. The administrative regulation for the new procurement law was enacted. A draft law to reorder the structure of the state was finalized and presented to the National Congress. The authorities are working towards an updated version of the National Risk Assessment (NRA), and a draft bill aiming at the formalization of dependent workers within micro, small, and medium enterprises (MSMEs) and independent workers is being revised by the government.

“The authorities have proposed to expand their structural reform agenda through mid-2025 covering the analysis of tax expenditures, public financial management actions to ensure the registration of accrued expenditures, the promotion of public-private partnerships for public works, actions to combat corruption, as well as continued improvements to the information systems of social programs.

“Paraguay has also formally requested financing under the IMF’s RSF to further advance its ambitious climate adaptation and mitigation agenda. The new facility would support Paraguay’s efforts to increase the resilience of public investments, mobilize financial resources to support adaptation and mitigation efforts, contain climate risks to the financial sector, preserve and expand the country’s clean electricity matrix, decarbonize its economy, and conserve its forests. Reform measures will be closely coordinated with the World Bank, the Inter-American Development Bank, CAF – Development Bank of Latin America and other international partners. The facility provides resources at longer maturities and affordable terms, while helping catalyze critical climate financing from other official and private partners.

“The IMF team is grateful to the Paraguayan authorities and other counterparts for the productive discussions.”