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Paraguay: Sixth and Final Review Under the Stand–By Arrangement—Informational Annex

Author(s):
International Monetary Fund
Published Date:
August 2008
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Annex 1. Paraguay—Fund Relations

(As of May 31, 2008)

I. Membership Status: Joined December 28, 1945; Article VIII

II. General Resources Account:

In millions of SDRsIn percent of Quota
Quota99.90100.00
Fund holdings of currency78.4378.51
Reserve position in Fund21.4821.50

III. SDR Department:

In millions of SDRsPercent of Allocation
Net cumulative allocation13.70100.00
Holdings28.27206.39

IV. Outstanding Purchases and Loans: None

V. Latest Financial Arrangements:

TypeApproval

Date
Expiration

Date
Amount Approved

(SDR Million)
Amount Drawn

(SDR Million)
Stand–ByMay 31, 2006Aug 31, 200830.000.00
Stand–ByDec 15, 2003Nov 30, 200550.000.00

VI. Projected Payments to Fund

(SDR Million; based on existing use of resources and present holdings of SDRs):

Forthcoming
2008200920102011
Principal
Charges/Interest0.000.000.000.00
Total0.000.000.000.00

VII. Exchange Rate Arrangement: The currency of Paraguay is the Paraguayan guaraní. The exchange rate regime is a managed float. The exchange rate is determined in the interbank foreign exchange market, but the central bank intervenes in the foreign exchange and monetary markets to smooth out exchange rate fluctuations in real effective terms. The U.S. dollar is the principal intervention currency. On May 30, 2008, the average interbank rate for the U.S. dollar was G/ 4,070 =US$1. Paraguay has accepted the obligations of Article VIII, Sections 2(a), 3 and 4 of the Fund’s Articles of Agreement. Staff is considering whether the application of the income tax regime may give rise to exchange restrictions subject to Fund jurisdiction.

VIII. Article IV Consultation: The Executive Board concluded the 2007 Article IV consultation on June 29, 2007.

IX. Technical Assistance:

DepartmentPurposeDate of Delivery
MFDReorganization of the Central Bank and Monetary OperationsJanuary 2004
FADCustoms Administration AdvisorJuly 2004–May 2005
MFDMonetary Operations and Monetary Policy FormulationOctober 2004
MFDPublic Banking RestructuringFebruary 2005
FADCustoms and Tax AdministrationFebruary 2005
MFD and WBFSAP MissionApril 2005 and July 2005
FADUpdate of ROSCSeptember 2005
STAROSCJanuary–February 2006
MFDCentral Bank RecapitalizationMarch 2006
MFDPeripatetic Banking ExpertOctober 2005, February and August 2006
FADPublic Financial ManagementMarch 2006
FINSafeguards AssessmentMarch 2006
STAConsumer Price IndexApril–May 2006
FAD and LEGTax Procedure CodeMay 2006
LEGMoney LaunderingJuly 2006
STAMonetary and Financial StatisticsAugust–September 2006
MCMPayments SystemOctober 2006
STABalance of PaymentsNovember 2006
FADRevenue AdministrationDecember 2006
FADPeripatetic Customs Advisor / Customs AdministrationMay, August, and December 2007
FADTax Code RegulationsJune 2007
MCMDevelopment of Local Capital MarketsJune 2007
MCMBanking Regulation and SupervisionJune, August, and November 2007
STAQuarterly National AccountsAugust 2007
STAConsumer Price IndexAugust 2007
STAMonetary and Financial StatisticsNovember 2007
MCMBank regulation and supervisionFebruary – March 2008, June 2008
FADTax Administration StrategicApril 2008
Planning

X. Safeguards Assessment: Under the Fund’s safeguards assessment policy, Central Bank of Paraguay (CBP) is subject to a full safeguard assessment in respect to the arrangement approved on May 31, 2006. A safeguards assessment of the CBP was completed in October 2006. The report states that while the CBP has made some progress in strengthening the safeguards framework since the 2003 safeguards assessment, vulnerabilities remain in certain areas such as financial reporting and program data reporting to the Fund.

XI. Resident Representative: Mr. Tobias Roy has been appointed as resident representative since December 2007.

Annex 2. Paraguay—World Bank Relations1

(As of June 19, 2008)

The Country Assistance Strategy (CAS) was approved in December 2003. It aimed at restoring confidence in the economy and at supporting reforms in key areas of the economy, such as financial sector, rural development, health, and education. At the moment the Bank’s portfolio consists of four operations, of which three are projects under implementation:

  • Pilot Community Development (US$9 million, approved in FY02).

  • Secondary Education Reform (US$24 million, approved in FY04).

  • Road Maintenance Project (US$74 million, approved in FY07).

One project is awaiting Parliament approval:

  • Sustainable Agricultural Development (US$37.5 million, approved in January 2008).

The four World Bank–financed projects presently under implementation or awaiting ratification by Parliament have a total value of US$144.5 million in commitments, of which US$116.4 million remain undisbursed as of May 31, 2008.

In addition to loans, the Bank has mobilized grants for the institutional strengthening of Congress (US$0.4 million) and the Ministry of Finance (US$0.3 million); for improving the management of indigenous lands (US$1.7 million); to support social development in two municipalities (US$0.9 million); to promote development in indigenous communities (US$1.6 million), and to improve biodiversity and forestry (US$0.3 million from the Institutional Development Fund, and US$0.3 million and US$0.9 million from the Global Environment Fund). Paraguay has also elected to become a governance and anti–corruption (GAC) pilot country. A high level seminar on governance, to be convened by the authorities and organized with the support of the Bank is likely to take place soon after the new Government takes office in mid–August.

On the analytical front, in FY07 the Bank completed a Land Tax Study and an Integrated Fiduciary Framework (jointly with the Interamerican Development Bank and the European Union). A Secondary Education Attainment Assessment was completed in FY08. The Policy Notes for the New Administration were also completed in FY08 and will be presented to the incoming administration at the end of June 2008.

While the CAS has now formally expired, the Bank is proceeding with the preparation of two additional projects already included in this CAS (Additional Financing for the Pilot Community Development Project, and a Water Reform Project). A new CAS will be prepared with the forthcoming administration and presented to the Board in late FY09.

Financial Relations With The World Bank(In millions of U.S. dollars)
I. IBRD/IDA Active Operations (as of May 31, 2008)
Committed
(Net of Cancellations)
Disbursed
Undisbursed
Active loans
Community development9.08.70.3
Education Reform24.019.44.6
Road Maintenance74.00.074.0
Sustainable Agricultural Development37.50.037.5
Total active loans144.528.1116.4
Total IBRD/IDA21,083.8
Repaid626.0
Total outstanding228.9
O/w IBRD (including exchange rate adjustment)211.2
O/w IDA17.7
II. IFC Operations (as of May 31 2008)
LoansEquityTotal
Commitments0.00.00.0
Held by IFC0.00.00.0
Undisbursed0.00.00.0
III. IBRD/IDA Loan Transactions (calendar year)
1998199920002001200220032004200520062007
Disbursements37.742.146.626.813.542.316.216.731.913.0
Repayments24.624.620.215.316.821.034.826.627.528.9
Net Lending13.117.526.411.5–3.321.3–18.6–9.94.4–15.9
Annex 3. Paraguay—Inter–American Development Bank Relations1

(As of May 30, 2008)

Portfolio

As of May 30, 2008, the active loan portfolio amounts to US$716.2 million, with an undisbursed balance of US$479 million. In addition, there are 68 active Technical Cooperation operations (regular TCs, MIF, and Small Projects) for US$23.8 million, of which US$15.1 million are undisbursed. Loan approvals in 2008 have reached US$58 million.

Strategy

A review of IDB’s Country Strategy with Paraguay was approved in November, 2006. The main focus of IDB’s actions for 2008 will be the support of economic growth and modernization of the state. During 2008 a new IDB strategy for 2009–2013 will be prepared in accordance with the new government’s priorities. It is expected that the main emphasis will be placed on social programs for poverty alleviation.

Pipeline

The lending program for 2008 includes the following operations:

  • a. Conditional Line of Credit for AFD, $50 million (approved).

  • b. Environmental System Support II Phase, US$8 million (approved).

  • c. Strengthening of the Customs Administration II Phase, US$9.0 million .

  • d. Strengthening of the Fiscal Administration II Phase, US$9.5 million.

  • e. Integrated Municipal Fiscal Management and Development, US$120 million.

  • f. Trade Facilitation Banco Sudameris, US$5 million.

Expected total 2008: US$201.5 million.

Annex 4. Paraguay—Statistical Issues

Data provision to the Fund has some shortcomings, but is broadly adequate for surveillance. Following a data ROSC mission in January–February 2006, the authorities’ response to the report and the mission’s recommendations were published on the Fund’s website on June 30, 2006. The country is a GDDS participant.

A. Real Sector

National accounts estimates, broadly consistent with the guidelines of the 1993 SNA, were released in 2005. However, no comprehensive regular program for data collection through economic censuses and surveys exists (an industrial survey was conducted in 2002) and source data for nonfinancial services, household consumption, and changes in inventories are insufficient. Major areas of concern include: (i) the 1994 reference year needs to be updated; (ii) excessive use is made of fixed coefficients for value added and household consumption; (iii) changes in inventories are obtained residually; (iv) informal activities are not monitored; and (v) supply and use tables have been compiled only until 1997. While the periodicity of annual GDP meets GDDS recommendations, timeliness does not because data are disseminated with a lag of 11 months. An STA mission on the compilation of quarterly national accounts (QNA) was fielded in August 2007. The mission agreed with the authorities on a work plan for the production of provisional QNA series by end–2008. Production of definite QNA series would need to await a revision of the national accounts base year and the compilation of supporting basic data, which are tentatively scheduled for completion by 2009/10. A follow–up QNA mission is currently scheduled for early–August 2008.

Both the consumer (CPI) and producer price indices (PPI) are reported on a regular and timely basis. From January 2008, the Central Bank of Paraguay (BCP) is using a new CPI index based on the 2005–06 household budget survey. The geographic coverage of the CPI is limited to Asunción (the capital) and expenditure weights are representative of the consumption patterns of urban households. The PPI has a base weight period of December 1995 and its basket (150 items) is not fully representative of current national output; electricity, water, gas, and services are not covered.

Since the introduction of a regular household survey in 1998, the coverage and quality of employment and unemployment statistics have improved significantly. However, frequencies remain at the annual level, and the publication lag is close to one year. Wage indices are updated twice a year.

The data ROSC mission found that the resources are insufficient for real sector statistics and constrain further development, particularly the full adoption of the 1993 SNA. The authorities have been trying to address these resource shortcomings in the context of the recent compilation of a new CPI and the production of provisional QNA series.

B. Fiscal Sector

The Government finance statistics (GFS) used for internal purposes and for reporting to WHD are broadly consistent with the recommendations of the Manual on Government Finance Statistics 1986 (GFSM 1986). The authorities have not yet prepared a plan to migrate to the Government Finance Statistics Manual 2001 (GFSM 2001). Monthly data are available for the central administration (budgetary central government). The asset position of the social security system is available on a daily basis. Statistics on the central administration include data of the Postal Service Directorate (a nonfinancial public corporation) and the statistics of the nonfinancial public sector include data of financial public corporations ––four employer social insurance schemes. These social insurance schemes are treated as financial corporations in the monetary and financial accounts. Data on medium–and long–term external debt are reliable and available on a monthly basis. Domestic debt data are available on request, but need to be fully integrated with the external debt database. Deficiencies remain in recording short–term supplier and commercial credit of the public sector. Moreover, there is a discrepancy in the fiscal data reported by the monetary and fiscal authorities. Measures are being taken to make reporting more transparent.

Annual data covering general government for 2006 have been reported for publication in the 2007 edition of the GFS Yearbook. However, since 1994 no outstanding debt data and no breakdowns for expenditure by function have been provided for publication in the GFS Yearbook. Monthly and quarterly data are not reported for publication in IFS.

C. Money and Banking Sectors

Paraguay completed the establishment of a unified compilation and reporting system for the whole range of monetary data. This new system intends to harmonize monetary data for use within the BCP, for reporting to STA for publication in IFS, and for operational and monitoring purposes. A revision of the classification criteria has led also to a marked reduction in the discrepancies of interbank positions. However, the lack of coverage of the credit cooperatives remains a matter of concern since they account for around 25 percent of deposits and loans of the banking sector. The BCP, with assistance from STA, plans to include monthly data of the 20 largest credit cooperatives in the monetary survey during 2009. The superintendence of banks publishes a detailed and informative report on the soundness of the financial system.

D. External Sector

The classification of the balance of payments and the international investment position (IIP) follows the recommendations of the Balance of Payments Manual, 5th edition. Quarterly and annual data on balance of payments and the IIP are available from 2001 onwards on the central bank website, and are reported only once a year to STA for publication in the IFS. Improvements have been made in the quality of the data on capital flows, especially in the coverage of foreign direct investment, and in the recording of external debt transactions. Special studies by the central bank have improved the estimation methods for remittances of Paraguayans abroad and unregistered trade transactions, but serious deficiencies remain.

Also, there are deficiencies in the area of private capital outflows, which are difficult to register due to Paraguay’s open capital account. An STA mission on Balance of Payments Statistics assisted the BCP in November 2006 in implementing recommendations of the ROSC mission. In particular, the mission focused on: (1) assessing the surveys used to capture data on services, direct investment, nonfinancial private sector portfolio investment, and other investment; (2) reviewing and updating the statistical techniques used to calculate unrecorded trade; (3) reassessing the treatment of the binational hydroelectric energy enterprises in the external sector accounts; and (4) reviewing and preparing a preliminary template for reporting data on international reserves and foreign currency liquidity.

Paraguay: Table of Common Indicators Required for Surveillance(As of February 29, 2008)
Date of latest observationDate receivedFrequency of Data1Frequency of Reporting1Frequency of publicationMemo Items:
Data Quality Methodological soundness7Data Quality Accuracy and reliability8
Exchange RatesMay 20086/18/08DDD
International Reserve Assets and Reserve Liabilities of the Monetary Authorities2Apr. 20085/28/08DMD
Reserve/Base MoneyMay 20086/10/08DMDO, LNO, LO, OO, O, O, LO, LO
Broad MoneyApr. 20086/10/08MMM
Central Bank Balance SheetApr. 20086/10/08DMD
Consolidated Balance Sheet of the Banking SystemApr. 20086/10/08MMM
Interest Rates3Apr. 20086/10/08MMM
Consumer Price IndexMay 20086/18/08MMMO, LO, O, OO, LO, LNO, O, LO
Revenue, Expenditure, Balance and Composition of Financing4—General Government5Jun. 200608/03/07MMMLO, LO, LO, LOLO, LNO, O, LO, LO
Stocks of Central Government and Central Government-Guaranteed Debt6Ql 200707/19/07QQQ
External Current Account BalanceQl 200707/19/07QQQO, LO, LO, LOLO, O, LO, LO, LO
Exports and Imports of Goods and ServicesQ4 200609/06/07MMM
GDP/GNP200704/07/08AAAO, LO, LO, LOLO, O, LNO, O, LO

Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market–based and officially–determined, including discounts rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition

Reflects the assessment provided in the data ROSC published on June 30, 2006 and based on the findings of the mission that took place during January 25–February 8, 2006. For the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning (respectively) concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), or not observed (NO).

Same as footnote 7, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); Not Available (NA).

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market–based and officially–determined, including discounts rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition

Reflects the assessment provided in the data ROSC published on June 30, 2006 and based on the findings of the mission that took place during January 25–February 8, 2006. For the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning (respectively) concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), or not observed (NO).

Same as footnote 7, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

Prepared by the staff of the World Bank..

As of January 31, 2008

Prepared by the staff of the IDB.

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