— Paraguay’s secondary sector contracted 1.4% year-on-year in January 2026, with construction dragging output as both public and private works execution slowed
— The state owes construction firms roughly $360 million through the Ministry of Public Works alone, with industry groups warning of a “selective internal default”
— The sector has already shed an estimated 20,000 direct jobs, and industry leaders say the promised goal of adding 100,000 construction workers is now impossible
Paraguay’s construction sector has officially stalled, with the central bank’s January activity data confirming what builders have been warning for months: the industry that was supposed to be one of the economy’s engines is now running at reduced speed. The Banco Central del Paraguay’s monthly economic activity index (IMAEP) showed the secondary sector contracted 1.4% year-on-year in January, dragged down by a Paraguay construction slowdown driven by reduced execution of both public and private works. The Rio Times, the Latin American financial news outlet, covers emerging market intelligence Latin America and the fiscal pressures reshaping infrastructure investment across the region.
Paraguay Construction Slowdown Confirmed by Data
The central bank data validated what the Paraguayan Construction Industry Chamber (Capaco) has been arguing for months. Capaco president José Luis Heisecke said the IMAEP figures simply corroborate the sector’s own reporting, noting that construction — which the industry considers one of the economy’s primary motors — is operating at diminished capacity. The contraction comes after Paraguay’s economy grew an estimated 6% in 2025, with construction contributing positively through most of the year before momentum stalled in the final months.
Heisecke warned that the Paraguay construction slowdown carries direct employment consequences. The sector has already lost an estimated 20,000 direct jobs in recent months, and the ambition of adding 100,000 new construction workers is no longer achievable in public-sector projects. While private-sector activity may absorb some displaced labor, Heisecke emphasized that the scale of government infrastructure work cannot be replaced by commercial building alone.
$360 Million Debt Strangling the Sector
At the root of the crisis is a mounting debt the Paraguayan state owes to construction firms. Three major industry chambers — Capaco, the Paraguayan Road Chamber (Cavialpa), and the Paraguayan Consultants Chamber — issued a joint statement this month warning of a “grave and unsustainable” situation. The outstanding balance at the Ministry of Public Works and Communications (MOPC) alone has reached approximately $360 million, covering certified, approved, and in some cases completed works that remain unpaid for years. Including interest, the total approaches $370 million.
The numbers expose a structural gap. The 2026 infrastructure budget totals $570 million, but committed works for the year amount to $800 million. When the accumulated debt is added, the real deficit reaches an estimated $590 million — a hole that cannot be closed under normal fiscal management. The government had pledged in October to clear arrears by March, but that deadline has passed without resolution. Some firms have already halted operations, and Heisecke warned that post-Easter shutdowns could accelerate if significant payments do not materialize. Companies report selling machinery and assets to survive, and the industry describes the situation as approaching technical bankruptcy for many firms.
Fiscal Discipline Versus Infrastructure Investment
The tension reflects a deeper policy dilemma. Finance Minister Carlos Fernández Valdovinos has refused to raise the fiscal deficit ceiling of 1.5% of GDP, arguing that doing so would destroy the credibility that earned Paraguay its investment-grade credit rating. The government is instead pursuing a factoring mechanism that would allow firms to cede their receivables to banks, potentially covering an initial $150 million. But the industry sees this as shifting the cost onto contractors rather than addressing the underlying payment failure.
The central bank projects Paraguay’s GDP will grow 4.2% in 2026, led by services and manufacturing. But that forecast assumed construction would contribute positively — an assumption the January IMAEP data now challenges. Heisecke’s message to the government was blunt: honor the contracts and pay the debts, just as the state pays its financial creditors on time. The construction sector, he argued, deserves the same treatment as the bondholders.