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Western Hemisphere > Paraguay

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Cover IMF Staff Country Reports
Paraguay: First Review Under the Policy Coordination Instrument and Request for Modification of Targets-Press Release; Staff Report
International Monetary Fund. Western Hemisphere Dept.
Recent developments: Paraguay continues to recover from last year’s severe drought, with economic growth for 2023 expected at 4.5 percent. The recovery of agricultural exports is also contributing to an improved external current account, easing potential pressures on the exchange rate. In the context of a continued tight monetary policy stance, inflation has been declining over the last twelve months. The government successfully reduced the fiscal deficit to 3 percent of GDP, and fiscal policies remain on the envisaged consolidation path. Paraguay’s financial and banking sector remains stable. On April 30, Paraguay held national elections in which the candidate for the ruling Colorado party, Santiago Peña, was elected President by a significant margin.
Cover IMF Staff Country Reports
Paraguay: First Review Under the Policy Coordination Instrument and Request for Modification of Targets-Press Release; Staff Report
International Monetary Fund. Western Hemisphere Dept.
This paper presents Paraguay’s First Review Under the Policy Coordination Instrument (PCI) and Request for Modification of Targets. The PCI supports Paraguay’s macroeconomic policies and structural reforms, aiming at ensuring macroeconomic and fiscal stability, fostering economic growth, and enhancing social protection and inclusion. Paraguay’s economy has demonstrated remarkable resilience during a four-year period of multiple adverse shocks. As it was recovering from the impact of the coronavirus disease 2019 pandemic, a severe drought hit the economy in early 2022. Economic growth is now rebounding, mainly on behalf of the recovering agricultural sector. The medium-term outlook remains favorable. Paraguay is exposed to various external risks, but their potential impact appears moderate in the near-to-medium term. Economic growth is projected at 4.5 percent for 2023, the external current account is projected to improve notably, and the rate of inflation is expected to converge back to the central bank’s target of four percent in the first half of 2024 at the latest. Continued sound and credible fiscal policies will be critical to safeguard the favorable scenario.
Keywords:
policy buffer; inflation target band; macroeconomic policy; Policy recommendation; Policy discussion; policy meeting; IMF's transparency policy; Government debt management; Inflation; Public sector; Structural reforms; Global
Cover Selected Issues Papers
Food Insecurity in Nigeria: Food Supply Matters: Nigeria
Mr. Alun H. Thomas and Ms. Rima A Turk
Against the backdrop of high international food and fertilizer prices, this paper discusses food insecurity in Nigeria, investigates its drivers in a cross-country setting, and assesses the role of policies. Using two proxies for food security, we find that high per capita consumption, high yields and low food inflation support food security. Cross-country estimates of yields and production provided by the FAO/OECD reveal that use of inputs is lower in Nigeria than in other countries, and that policies to raise crop yields positively correlate with better food security conditions. The paper also uses detailed domestic commodity price indices to assess linkages with international prices and the role of import bans. Central bank policies for funding agriculture and import bans have not managed to stimulate agricultural output nor moderated the impact of international food prices. Rather, policies should focus on use of inputs that are severely underused in Nigeria as elsewhere in SSA.
Keywords:
Food insecurity; agriculture; yields; inputs; inflation support food security; food price inflation; vegetable oil; inflation differential; food inflation; food category; food import ratio; food consumption; food availability; food import reliance; Food security; Food prices; Consumption; Agricultural commodities; Food imports; Global
Cover IMF Staff Country Reports
Paraguay: Request for a Two-Year Policy Coordination Instrument-Press Release; Staff Report; and Statement by the Executive Director for Paraguay
International Monetary Fund. Western Hemisphere Dept.
Paraguay continues to recover from the COVID-19 pandemic amidst simultaneous shocks that would lead to flat GDP growth and inflation above the IT range this year. Those conditions are reflected in rising social demands within a politicized environment before the 2023 general elections. The outlook remains favorable, and the authorities are pursuing policies to follow a stronger, more resilient, and inclusive development path. On the back of very positive experiences with Fund-supported programs, the authorities are requesting approval of a two-year program supported by the Policy Coordination Instrument (PCI) to underpin the implementation of needed structural reforms.
Keywords:
governance assessment report; reform agenda; government support; government structure; spillover effect; Social assistance spending; Government debt management; Global
Cover IMF Staff Country Reports
Paraguay: Request for a Two-Year Policy Coordination Instrument-Press Release; Staff Report; and Statement by the Executive Director for Paraguay
International Monetary Fund. Western Hemisphere Dept.
This paper discusses Paraguay’s request for a two-year Policy Coordination Instrument (PCI). Paraguay continues to recover from the coronavirus disease 2019 pandemic amidst simultaneous shocks that would lead to flat GDP growth and inflation above the Central Bank’s target range. The PCI aims to address the current challenges and foster policy continuity that would encompass two years, the last year of the current and the first year of the next administration. Program reviews take place on a semiannual fixed schedule. While the PCI involves no use of IMF resources, successful completion of program reviews would help signal Paraguay’s commitment to continued strong economic policies and structural reforms. Rebuilding policy buffers and returning to the fiscal deficit ceiling of 1.5 percent of GDP in 2024 will be critical to ensure macroeconomic stability. Important measures include enhancing domestic revenue mobilization, reforming the public pension fund, and raising the efficiency of the public sector. The authorities are focused on fostering the conditions for sustained economic growth, bolstering the efficient use of public resources, and creating more favorable conditions for private investment.
Keywords:
governance assessment report; reform agenda; government support; government structure; spillover effect; Social assistance spending; Government debt management; Global
Cover IMF Staff Country Reports
Paraguay: Technical Assistance Report-Bank Resolution Framework and the Deposit Guarantee Fund
International Monetary Fund. Monetary and Capital Markets Department
This paper discusses Paraguay’s Technical Assistance report on bank resolution framework and the deposit guarantee fund. The mission identified several areas where the existing deposit guarantee fund and bank resolution framework could be enhanced. The Central Bank of Paraguay should consider developing an ongoing process of recovery and resolution planning and underpin it in its regulatory framework, in line with international modern practices Coordination with members of the financial safety net of other jurisdictions is key to ensuring adequate crisis preparedness during normal times and enabling adequate coordination of crisis management measures if there are concerns about the viability of a foreign-owned bank with operations in Paraguay. A one-voice method of communication with the public should be considered, and advance preparation is paramount to ensure a smooth process for communications in the event of a crisis situation. The resolution framework should stipulate clear and expeditious access to temporary funding, based on financial stability considerations, in situations where private sector funding has been exhausted or cannot achieve resolution objectives.
Keywords:
RESOLUTION framework; resolution framework; C. Resolution tool; DGF framework; DGF coverage; Bank resolution framework; Bridge bank; Basel Core Principles; Crisis prevention; Bank resolution
Cover IMF Staff Country Reports
Paraguay: 2022 Article IV Consultation-Press Release; and Staff Report
International Monetary Fund. Western Hemisphere Dept.
After two consecutive years of GDP decline driven by external shocks, Paraguay’s economy rebounded in 2021. In 2019, drought and flooding reduced economic growth to -0.4 percent. In 2020, the impact of the pandemic on the secondary and tertiary sectors was partly compensated by a rebound of agriculture and an extensive emergency package, and GDP fell by only 0.8 percent. Growth rebounded to 4.2 percent in 2021, but heatwaves and a severe drought decelerated the recovery and have limited 2022 growth prospects, though a recovery is projected for 2023 and the medium-term. While the loss of agricultural export revenue is affecting Paraguay’s balance of payments in 2022, the external position in 2021 was stronger than the level implied by fundamentals and desirable policies.
Keywords:
PPI coverage; substantial spending needs; financial asset; headline inflation; data ROSC; liability positions vis-à-vis nonresident; tolerance corridor; money market rate; inflation risk; Inflation; Basel Core Principles; Global
Cover IMF Staff Country Reports
Paraguay: Selected Issues
International Monetary Fund. Western Hemisphere Dept.
Selected Issues
Keywords:
inflation volatility; WB staff calculation; D. inflation targeting; staff team of the International Monetary Fund; exchange rate volatility; Exchange rates; Inflation targeting; Inflation; Foreign exchange intervention; Social assistance spending; Global
Cover IMF Working Papers
Macroeconomic Impact of the Itaipú Treaty Review for Paraguay
Ms. Natasha X Che
With the debt obligation of Itaipú Binational being completed paid off by 2023, the Annex C of the Treaty of Itaipú, which governs the operation and revenue distribution of the Itaipú Dam, is due for review and possible revisions. The implications for Paraguay’s export revenues and fiscal position are potentially significant. The paper reviews the current energy distribution and sales arrangements of Itaipú and the potential implication of the Annex C revision for the future.
Keywords:
revenue distribution; distribution of the Itaipú Dam; sales arrangement; Annex C revision; compensation payment; Electricity; Exports; Fiscal stance; Renewable energy; Natural resources
Cover IMF Staff Country Reports
Paraguay: 2020 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Paraguay
International Monetary Fund. Western Hemisphere Dept.
In the past two decades, Paraguay has seen strong growth and a sharp reduction in poverty. Strong GDP growth was the result of sound macro policies (with low inflation and low fiscal deficits and debt) and an agricultural commodity price boom which spilled over to the non-tradable sector. Growth was not just high but also volatile, as bad weather shocks led to poor harvests, which spill over to the broader economy. In early 2020, Paraguay was rebounding strongly from another weather shock, and full-year growth was forecast at over 4 percent. In 2019, bad weather had reduced the harvest, and GDP growth had come to a near standstill. A recovery started in the second half of 2019 and gathered strength in early 2020—in February economic activity was 7 percent higher than a year earlier. The Covid-19 epidemic halted the recovery. An early lockdown—which kept the death toll among the lowest in the region—led to a sharp contraction in economic activity, with April activity levels at 20 percent below those in February. Women, informal sector workers, and workers in the service sector were particularly hard hit; while children were severely affected by the closing of the schools until the end of 2020.
Keywords:
ISCR; CR; investment spending; supply and demand demand shock; emergency spending; compilation method; liquidity provision