Paraguay’s economic outlook remains favorable

RIO DE JANEIRO, BRAZIL – The International Monetary Fund (IMF) said Paraguay’s economic outlook remains “favorable” despite heat waves and a “severe drought” the country faced, according to conclusions on the Article IV consultation with Paraguay this 2022.

“The medium-term outlook remains favorable, although there are short-term challenges. While heat waves and a severe drought have lowered the GDP (gross domestic product) growth outlook for 2022 to 0.3%, staff projects a 4.5% rebound in 2023 and 3.5% growth in the medium term,” the multilateral agency said in a statement.

This news was reported by several international media, such as Costa Rica’s El País, which indicated that, even though inflation at the end of 2022 would be above the Central Bank’s tolerance range, at around 8%, the IMF projects that it will converge again to the authorities’ target by the end of 2023.

According to its latest correction, the IMF’s official projection is above the estimated rate of the Central Bank of Paraguay (BCP), which is 0.2%. Some local agencies expect a retraction between 1% and 1.8% this year.

The agency added that the authorities remain committed to their medium-term fiscal target of converging back to the deficit limit of 1.5% of GDP. It also noted that the covid-19 pandemic appears to be “under control,” and most restrictions have recently been lifted.

CHALLENGES

The IMF noted that Paraguay’s challenges are fiscal pressures from demands for wage increases and climate change, as it faces risks from changes in rainfall patterns and the frequency and intensity of severe weather events.

The Fund recommended that the Paraguayan government’s monetary policy stance should maintain a “restrictive bias in the face of global inflationary pressures while striving to avoid adding undue stress to the financial system and the economy.”

It said that commitment to the fiscal rule must be maintained, and more revenue must be raised to protect fiscal credibility. The Fund considered the authorities should reevaluate the tax regimes and consider another reform that goes beyond the improvements enacted in 2020.

With information from La Nación