IMF Mission Concludes Staff Visit to Paraguay

IMF Mission Concludes Staff Visit to Paraguay

F.P. Report

WASHINGTON: End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.

An International Monetary Fund (IMF) staff team led by the mission chief for Paraguay Mr. Mauricio Villafuerte visited Asunción, Paraguay, during November 2-4, 2021 to discuss recent economic developments and policies. The mission also made a presentation on the global and regional economic outlook and potential implications for Paraguay. At the conclusion of the visit, Mr. Villafuerte issued the following statement:

“Paraguay’s economy is recovering strongly following the authorities’ proactive policy response to the pandemic, reduced COVID-19 incidence, and favorable external conditions. Real GDP growth is projected to rebound from a 0.6 percent contraction in 2020 to a 4.5 percent expansion in 2021, driven by fast growth in manufacturing, construction, and services. COVID-19 infections have fallen dramatically, while vaccination rates are expected to reach 50 percent of the population by year-end.”

“The rise in inflation, though driven by higher global food and fuel prices, has become a concern and has prompted the authorities to appropriately shift towards monetary policy normalization. 12-month inflation rose again in October to 7.6 percent and is projected to stay above the upper bound of the central bank’s inflation target range well into 2022. The Central Bank of Paraguay has raised the policy rate by a cumulative 200 basis points over the last three months and has signaled further policy actions to contain second round effects and keep inflation expectations stable.”

“To restore policy buffers for future shocks and limit the rise in public debt, it will be important to gradually return to the Fiscal Responsibility Law (FRL) deficit ceiling of 1.5 percent of GDP. In this context, the authorities aim to limit the budget deficit to 3 percent of GDP in 2022 and to push for reforms currently in congress to increase the efficiency of spending. However, should adverse shocks materialize, revenue enhancing measures may also be needed to avoid an undue restriction of public investment and social expenditures in the years ahead.”

“The sweeping global changes and challenges call for an acceleration of reforms to ensure a higher, greener, and more inclusive growth. Particular focus should be placed on strengthening governance, the business climate, as well as health and education services. Addressing climate change vulnerabilities and diversifying the sources of economic growth toward non-agricultural sectors will also be key going forward.”

“IMF staff also discussed with the authorities a capacity development (CD) project to continue strengthening Paraguay’s overall Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime.”

The IMF mission met with government officials, development partners. and private sector representatives during its stay. It wishes to thank the authorities for their hospitality and fruitful discussions.

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