Paraguay Lets Deficit Widen to Pay Old Bills

PARAGUAY · PUBLIC FINANCES · BUDGET

Paraguay’s finance ministry plans to let its yearly deficit rise to 3.9% of economic output in 2027 to clear about US$1.3 billion in overdue bills, then cut it back to a legal limit of 1.5% in 2028.

Paraguay’s finance ministry plans to run a central-government deficit of 3.2% of GDP in 2026 and 3.9% in 2027, mainly to pay about US$1.3 billion in bills the state owes to medicine suppliers and road builders. The ministry set out the plan in its 2026 Public Finance Report on Friday 23 October, and it promises a return to the legal deficit limit of 1.5% of GDP in 2028.

The report matters to foreigners because Paraguay now holds a second investment-grade credit rating, the ministry notes, and 89.0% of its central-government debt is owed abroad. Congress’s joint budget committee begins deliberating on the 2027 budget on Monday 26 October, so the numbers are about to be tested in public.

What the Report Plans for the Deficit

The central government closed 2025 with a deficit of 2.0% of GDP, an improvement of 0.5 percentage points on 2024, the report says. In the first half of 2026 revenue grew only 0.5% while spending rose 11.7%, which put the deficit at 1.2% of GDP for the half-year and 2.6% on an annual basis at June.

The ministry then reset its path to 3.2% of GDP for 2026, 3.9% for 2027 and a return to 1.5% in 2028. Without the one-off cost of the overdue bills, it says, the deficit would be 2.0% in 2026 and 1.9% in 2027.

Spending is planned at 15.2% of GDP in 2026, 16.2% in 2027 and 14.2% in 2028, against revenue of 13.8% of GDP in both 2026 and 2027. The ministry also raised its 2026 growth forecast to 4.5% from 3.8%, after growth of 6.6% in 2025, and expects inflation of 3.3% at the end of 2026.

The US$1.3 Billion in Unpaid Bills

At the start of 2026 the state owed about US$1.3 billion, of which about US$1.05 billion was due to health-ministry suppliers and about US$250 million to road and public-works contractors. The ministry blames different causes: health services grew faster than the payment calendar allowed, while some roadworks cost more in a given year than the money scheduled for them.

Clearing the bills equals about 2.0% of GDP, with 1.1% of GDP due in 2026 and the remaining 0.9% in 2027. Part of the health debt moved through a deal in which 39 suppliers passed their collection rights to 5 banks, worth PYG 2.388 trillion (about US$414 million), repaid in 36 monthly instalments from Tuesday 15 September.

The ministry says a new tracking system, SIGEBYS, will link contracts, invoices and payments so that late bills show up early. ABC Color, a Paraguayan daily, reported that Minister Lovera told lawmakers the payment chain for medicines used to take about six months and 60 offices and now takes about 17.

Debt, the Guaraní and Bond Investors

Central-government debt stood at 36.1% of GDP, or US$17.93 billion, at the end of 2025, and 89.0% of it is owed abroad. The ministry projects the ratio to fall to 31.0% in 2026, rise to 33.1% in 2027 and ease to 32.0% by 2031.

It attributes the 2026 drop mainly to the guaraní’s gain against the dollar, because debt owed in dollars shrinks when the local currency strengthens. The report puts the first-half 2026 average at PYG 6,385 per dollar, a 15.4% appreciation on the 2025 average, and the central bank’s reference rate on Friday 23 October was PYG 5,764.73 per dollar.

The ministry cites an IMF debt-sustainability framework as showing that the debt stays sustainable over the medium term. Debt service cost US$1.76 billion in 2025, of which bond payments took US$917 million.

Local-currency debt gained 5.5 percentage points of the total in 2025 as the government issued more guaraní bonds at home and abroad, and 91.9% of the debt is long-term. Fixed-rate debt remains the main type, which the ministry says limits exposure to higher international interest rates.

The 2027 Budget Proposal

The proposed 2027 budget totals PYG 166.3 trillion (about US$28.8 billion at the central bank’s 23 October rate), 11.2% more than the 2026 budget and equal to 38.4% of GDP. ABC Color converts it at the ministry’s assumed 2027 average of PYG 6,458 per dollar, which gives US$25.75 billion.

Health gets the biggest rise among the main ministries the report lists, 77.0% to PYG 18.2 trillion (about US$3.16 billion), and the medicines line alone more than triples from PYG 3.287 trillion (about US$570 million) to PYG 10.285 trillion (about US$1.78 billion). Public works rise 34.2% to PYG 9.2 trillion (about US$1.60 billion), and the interior and defence ministries together rise 16.9% to PYG 8.7 trillion (about US$1.51 billion).

The draft puts the central government’s net borrowing for 2027, the amount it must finance, at PYG 16.864 trillion (about US$2.93 billion), which is the 3.9% deficit. ABC Color reported that Lovera told the joint budget committee on Thursday 22 October that the plan includes about US$1.9 billion of new debt.

The committee, chaired by deputy Cristina Villalba, starts deliberating on Monday 26 October. Both chambers of Congress can still change the amounts.

The Risk Scenario and the Pension Fund

The report tests a combined shock in 2027: a 1-point rise in the US Federal Reserve’s rate, weaker domestic spending, weaker demand from trading partners and a weaker guaraní. Growth would slow to 2.6% instead of 4.2%, the 2028 deficit would be 2.2% of GDP instead of 1.5%, and debt would reach 35.3% of GDP instead of 32.7%, though the report stresses these are tests, not forecasts.

The Caja Fiscal pension system remains a structural risk: its overall deficit was US$379 million in 2025, or 0.8% of GDP, and the teachers’ and security-forces schemes alone ran deficits totalling US$1.421 billion from 2021 to 2025. A reform passed in March 2026, Law 7633, is projected to cut the average yearly shortfall for 2027 to 2031 to US$631 million from US$796 million.

Taxes are thin: tax revenue was 11.2% of GDP in 2025, against 17.7% for regional peers in the IMF’s comparison. The ministry’s strategy is to raise it through better tax administration, electronic invoicing and border controls, and the report’s preface says earlier gains came without altering the main pillars of the tax system.

What It Means for You

If you hold Paraguayan bonds or a fund with Paraguay exposure, the plan is a dated rise in the deficit followed by a promised return to the legal 1.5% limit in 2028. The risk sits in the second step, because it depends on Congress passing the budget, on revenue holding up as the guaraní strengthens and on no new overdue bills.

If you sell medicines, equipment or construction services to the Paraguayan state, the plan reads as a payment timetable, with the bills from before 2026 due to be cleared by the end of 2027. The report shows the pressure from the strong guaraní: by June, taxes collected at the border had fallen 13.3%, or PYG 1.1 trillion (about US$191 million), and royalties from the binational dams had fallen 33.0%.

If you travel or live in Paraguay, the report is a spending and debt plan rather than a change to entry rules, and its stated tax strategy is better administration, electronic invoicing and border controls. The next checkpoint is the budget committee that starts work on Monday 26 October.

What Is Not Known

It is not yet known whether Congress will pass the 2027 budget as proposed, because the joint committee only starts deliberating on Monday 26 October and the amounts can change in both chambers. How the US$1.9 billion of new debt that Lovera cited relates to the draft’s net borrowing of about US$2.93 billion is not spelled out in the sources reviewed.

The report does not name the suppliers that are owed money. ABC Color reported that Senator Celeste Amarilla asked Lovera for the list of pharmaceutical and road companies with unpaid bills, and that he promised to try to deliver it.

Frequently Asked Questions

What is Paraguay’s deficit plan?

The finance ministry plans a central-government deficit of 3.2% of GDP in 2026 and 3.9% in 2027, then a return to the legal 1.5% limit in 2028. The extra spending clears about US$1.3 billion in overdue bills.

Why does Paraguay owe US$1.3 billion in unpaid bills?

About US$1.05 billion is owed to health-ministry suppliers and about US$250 million to public-works contractors. The ministry says health services outgrew the payment calendar and road payments lagged the pace of construction.

How big is Paraguay’s public debt?

Central-government debt was 36.1% of GDP, or US$17.93 billion, at the end of 2025. The ministry projects 31.0% in 2026 and 33.1% in 2027, with a stronger guaraní explaining most of the 2026 fall.

What is the Caja Fiscal?

It is the public-sector pension system for civil servants, teachers, soldiers and police, and its deficit was US$379 million in 2025, or 0.8% of GDP. A March 2026 reform is projected to cut the average yearly shortfall for 2027 to 2031 to US$631 million.

Sources: Paraguay finance ministry, Public Finance Report 2026 (PDF), Paraguay finance ministry, news release of 23 October 2026, Paraguay finance ministry, release on the budget committee, 22 October 2026, Central Bank of Paraguay, daily reference exchange rates for 23 October 2026, ABC Color, MEF opens the possibility of not returning to the fiscal cap, 25 October 2026, ABC Color, PGN 2027 new debt of US$1.9 billion, 23 October 2026, ABC Color, legislators question financing as the dollar falls, 23 October 2026, ABC Color, budget committee deliberations from Monday, 23 October 2026, Última Hora, MEF report warns of a possible GDP reduction in 2027, 24 October 2026, La Nación, MEF projects higher GDP growth and a return to the fiscal limit in 2028, 25 October 2026 Guaraní conversions use the central bank’s reference rate of PYG 5,764.73 per US dollar for Friday 23 October 2026. All retrieved 25 October 2026.

This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error · Editorial responsibility: Matthias Camenzind, Editor-in-Chief