Press Release No. 23/466

IMF Executive Board Concludes Second Review under the Policy Coordination Instrument and Approves Resilience and Sustainability Facility for Paraguay

December 19, 2023

• IMF’s Executive Board concluded today the Second Review under the Policy Coordination Instrument (PCI) and approved a two-year Resilience and Sustainability Facility (RSF) for Paraguay.
• The government is committed to continued prudent macroeconomic policies and the implementation of structural reforms, including a series of adaptation and mitigation measures and to preserve and expand its green energy matrix.
• The two-year program under the RSF allows Paraguay a maximum access of SDR 302.1 million (150 percent of quota). Paraguay is the first South American country to secure access to the RSF.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded today the Second Review under the Policy Coordination Instrument (PCI) and approved a two-year Resilience and Sustainability Facility (RSF) for Paraguay. The two-year program under the RSF allows Paraguay a maximum access of SDR 302.1 million (150 percent of quota). Paraguay is the first South American country to secure access to the RSF.

The Board also granted a request for the extension of the PCI and modification of the end-December 2023 and end-June 2024 targets.[1]^,[2] Paraguay’s two-year program under the PCI was approved in November 2022. The PCI supports Paraguay’s macroeconomic policies and structural reforms, aiming at ensuring macroeconomic and fiscal stability, fostering economic growth, and enhancing social protection and inclusion.

The PCI program is performing well despite a few targets missed by narrow margins. Most of the reform targets were also met. Some aspects of the reform agenda had to be reprogrammed to reflect the new government’s priorities and allow adequate time to build consensus on long-standing challenges. The authorities requested the extension of the PCI by 12 months.

The government is committed to enacting a series of adaptation and mitigation measures and to preserve and expand its green energy matrix. In this connection, the authorities requested the approval of a two-year program under the RSF with maximum access of SDR 302.1 million (150 percent of quota).

The economy is growing strongly in 2023, boosted by agriculture and electricity production. Inflationary pressures have also receded, and expectations are well anchored to the central bank’s target of 4 percent. A small surplus is projected for the external current account on the back of strong exports. The guarani has been relatively stable this year. The fiscal position has deteriorated somewhat from last year, including because of a need to register and settle previously unrecorded claims to government suppliers.  

Barring global and weather-related external shocks, Paraguay’s growth prospects are bright. Economic growth is projected to moderate only slightly to 3.8 percent for 2024, while inflation will stay close to the target. The external current account is expected to remain in a small surplus. The authorities are planning to gradually reduce the fiscal deficit back towards the 1.5 percent of GDP ceiling under the fiscal rule by 2026, which will boost policy credibility. The banking system remains stable and profitable, a necessary condition for supporting investment and financial inclusion, buttressed by continued sound supervision. Renewed focus on implementing structural reforms by the new administration includes measures to strengthen governance and the rule of law, safeguard the viability of pension programs and other social assistance, and policies to tackle ongoing climate change.

Following the Executive Board’s discussion, Mr. Kenji Okamura, Deputy Managing Director and Acting Chair of the Board, issued the following statement:

“The Paraguayan authorities have continued to implement policies conducive to preserving macroeconomic stability. High economic growth, lower than expected inflation, strong performance of the export sector, and a stable banking system are factors contributing to the recent re-affirmation of the country’s sovereign rating. Barring specific events, including adverse climate and external shocks, key economic variables are expected to remain robust in 2024 and beyond. The new government is committed to continue to implement reforms underpinned by the PCI focused on macroeconomic stability, fostering economic growth, and enhancing social protection.

“It remains important for Paraguay to rebuild fiscal buffers, including through implementation of long-standing structural reforms. The reestablishment of the fiscal deficit rule by 2026 is rightfully the government’s key priority. Strengthening the public sector’s efficiency is also a crucial part of a sustainable fiscal strategy. Going forward, the need to ensure the sustainability of the public servants’ pension fund is imperative. Improving oversight and governance of public enterprises would also reduce fiscal risks. Streamlining social assistance programs through better targeting and efficiency gains should also be an objective which would contribute to more inclusive growth. Decisive steps in combatting corruption and limiting reputational risks will go a long way in improving the investment environment.

“The authorities are committed to implementing an ambitious set of climate-related reforms consistent with maximum access under the RSF. Reforms will be aimed at increasing the resilience of public investments, developing a green taxonomy, containing climate risks to the financial sector, preserving and expanding a clean electricity matrix, decarbonizing its economy, conserving forests, and improving waste management. Timely fulfillment of these commitments, closely coordinated with development partners, will help build the country’s image as a “green” investment destination.”

1/ The PCI is available to all IMF members that do not need Fund financial resources at the time of approval. It is designed for countries seeking to demonstrate commitment to a reform agenda or to unlock and coordinate financing from other official creditors or private investors (see Policy Coordination Instrument).

2/ The Resilience and Sustainability Facility (RSF) provides affordable long-term financing to countries undertaking reforms to reduce risks to prospective balance of payments stability, including those related to climate change and pandemic preparedness (see IMF Resilience and Sustainability Trust).