Paraguay: 2024 Article IV Consultation, Third Review Under the Policy Coordination Instrument, Modification of Targets, and First Review Under the Arrangement Under the Resilience and Sustainability Facility-Press Release; and Staff Report

PARAGUAY IMFCountryReportNo.24/200 July2024 2024ARTICLEIVCONSULTATION,THIRDREVIEWUNDERTHEPOLICYCOORDINATIONINSTRUMENT,MODIFICATIONOFTARGETS,ANDFIRSTREVIEWUNDERTHEARRANGEMENTUNDERTHERESILIENCEANDSUSTAINABILITYFACILITY—PRESSRELEASE;ANDSTAFFREPORT Inthecontextofthe2024ArticleIVConsultation,ThirdReviewUnderthePolicyCoordinationInstrument,ModificationofTargets,andFirstReviewUndertheArrangementUndertheResilienceandSustainabilityFacility,thefollowingdocumentshavebeenreleasedandareincludedinthispackage: APressReleaseincludingastatementbytheChairoftheExecutiveBoardandsummarizingtheviewsoftheExecutiveBoardasexpressedduringitsJune26,2024considerationofthestaffreportonissuesrelatedtotheArticleIVConsultationandtheIMFarrangement TheStaffReportpreparedbyastaffteamoftheIMFfortheExecutiveBoard’sconsiderationonJune26,2024,followingdiscussionsthatendedonMay8,2024,withtheofficialsofParaguayoneconomicdevelopmentsandpolicies.Basedoninformationavailableatthetimeofthesediscussions,thestaffreportwascompletedonJune10. AnInformationalAnnexpreparedbytheIMFstaff. AnUpdatedWorldBankAssessmentLetterfortheResilienceandSustainabilityFacility Thedocumentslistedbelowhavebeenorwillbeseparatelyreleased:SelectedIssues TheIMF’stransparencypolicyallowsforthedeletionofmarket-sensitiveinformationandprematuredisclosureoftheauthorities’policyintentionsinpublishedstaffreportsandotherdocuments. CopiesofthisreportareavailabletothepublicfromInternationalMonetaryFundPublicationServicesPOBox92780Washington,D.C.20090 Telephone:(202)623-7430Fax:(202)623-7201 E-mail:publications@imf.orgWeb:http://www.imf.org InternationalMonetaryFundWashington,D.C. ©2024InternationalMonetaryFund PR24/246 Paraguay:IMFExecutiveBoardConcludes2024ArticleIVConsultation,ThirdReviewofthePolicyCoordinationInstrumentandFirstReviewundertheResilienceandSustainabilityFacility FORIMMEDIATERELEASE Washington,DC–June27,2024:TheExecutiveBoardoftheInternationalMonetaryFund(IMF)concludedthe2024ArticleIVconsultation,ThirdReviewunderthePolicyCoordinationInstrument(PCI),modificationoftargets,andtheFirstReviewoftheArrangementundertheResilienceandSustainabilityFacility(RSF)forParaguayonJune26,2024.1,2 In2023,theeconomyexperiencedrobustpost-droughtgrowth,drivenbysignificantcontributionsfromtheagricultureandelectricitysectors.Inflationarypressuresdiminished,withinflationexpectationscloselyalignedwiththecentralbank's4percenttarget.Theexternalcurrentaccountwasinsurplus,attributedtosolidexportperformance,whiletheGuaranimaintainedrelativestability.However,thefiscaloutlookworsened,partlyduetosettlementofpreviouslyunrecordedclaimssuppliers.Theeconomystartedthisyearonastrongfootingandriskstotheoutlookarebalanced. ThePCIunderpinsParaguay'seconomicstrategyandstructuralobjectivesofmaintainingmacroeconomicstabilityandpromotingsocialwelfareandinclusion.ThePCIisyieldingpositiveresults,thoughtwotargetsweremissedduetotheidentificationofadditionalunrecordedhealthcare-relatedexpenditure.Threereformtargetshavebeenmet.Someofthereformtargetsagreedwiththepreviousgovernmentarenowbeingreformulated,namelyenhancementstotheinsolvencyframeworkandpropertycadaster,andactionswithrespecttotheformalizationoflabor. Underthetwo-yearprogramundertheRSF,thegovernmentiscommittedtoenactingaseriesofadaptationandmitigationmeasuresandtopreserveandexpanditsgreenenergymatrix. Threeofthefourreformmeasureswerecompletedandaimatexpandingcleanelectricitygenerationandprotectingforests.Theestablishmentofenergyefficiencystandardswillrequireamoreextensiveconsultationprocesswiththeprivatesector. FollowingtheExecutiveBoard’sdiscussion,Mr.KenjiOkamura,DeputyManagingDirectorandActingChairoftheBoard,issuedthefollowingstatement: “Paraguayanauthoritiescontinuetoimplementpoliciesaimedatmaintainingmacroeconomicstabilitythathavetranslatedintorobusteconomicgrowth,lowinflation,thrivingexports,anda 1ThePCIisavailabletoallIMFmembersthatdonotneedFundfinancialresourcesatthetimeofapproval.Itisdesignedforcountriesseekingtodemonstratecommitmenttoareformagendaortounlockandcoordinatefinancingfromotherofficialcreditorsorprivateinvestors(seePolicyCoordinationInstrument). 2TheResilienceandSustainabilityFacility(RSF)providesaffordablelong-termfinancingtocountriesundertakingreformstoreduceriskstoprospectivebalanceofpaymentsstability,includingthoserelatedtoclimatechangeandpandemicpreparedness(seeIMFResilienceandSustainabilityTrust) 2 stablebankingsystem.Riskstotheoutlookarebalancedamidexpectedrobusteconomicgrowthin2024andthemediumterm. “ThenewgovernmentiscommittedtocontinuingreformsguidedbythePCIandRSFarrangements.ItiscrucialforParaguaytorebuildfiscalbuffers,ensurethesustainabilityofthepublicservants’pensionfundandenhancesupervisionofpublicenterprisestolimit contingentrisks.Improvingthetargetingofsocialassistanceprograms,closinggendergaps,andreducingthecostoffinancialservicesshouldalsobepursuedtopromotesustainablegrowthandinclusion.Takingdecisiveactionagainstcorruptiontominimizereputationalrisks,reducinginformality,andincreasinginternationalmarketintegrationwillmakeP