Abstract
This paper discusses key findings of the Sixth and Final Review Under the Stand-By Arrangement for Paraguay. The program remains broadly on track. All performance criteria for end-March 2008 were met, and those for end-June 2008 are expected to have been observed. With one exception, all structural benchmarks for 2008 are expected to be implemented, albeit with delays. The economy grew 6¾ percent in 2007 and is expected to continue expanding at least 5 percent in 2008 driven by strong agricultural exports.
The Executive Board of the International Monetary Fund (IMF) today completed the sixth and final review of Paraguay’s economic performance under a 27–month Stand–By Arrangement for an amount equivalent to SDR 30 million (about US$49 million). Although completion of the review will make up to SDR 30 million (about US$49 million) available to the country, the Paraguayan authorities intend to continue treating the arrangement as precautionary.
The original amount of the arrangement of SDR 65 million (about US$107 million) was reduced—at the authorities’ request—to SDR 30 million (about US$49 million) at the time of the fourth review (see Press Release No. 07/231). The Stand–By Arrangement was approved May 31, 2006 (see Press Release No. 06/117), and expires on August 31, 2008.
Following the Board’s discussion of Paraguay’s economic performance, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, said:
“Paraguay has had a commendable track record of successful policy implementation under two successive stand–by arrangements. The country’s macroeconomic fundamentals are currently among the best in over a quarter of a century, notwithstanding the recent increase in inflation. Notable achievements over the past five years have been a more than doubling of per capita GDP; the halving of public debt; the tripling of external reserves; the considerable strengthening of the financial sector and elimination of systemic risks.
“Overall macroeconomic performance continues to be good. After record real GDP growth in 2007, growth is expected to continue to be robust, driven by agricultural exports. In an effort to address inflationary pressures from food and energy price increases, the central bank increased interest rates earlier this year and raised reserve requirements more recently. Fiscal discipline has been preserved, and international reserves have grown significantly.
“The Fund welcomes the authorities’ commitment to maintaining sound macroeconomic policies. They are to be commended for consistently maintaining fiscal discipline. The current countercyclical fiscal stance is appropriate given that the economy is growing above potential and that inflationary pressures are rising. The recent increase in reserve requirements is a welcome step, and a further tightening of monetary policy may be needed since monetary aggregates are growing rapidly, and interest rates have become negative in real terms.
“The central bank’s financial position will need to be sustainably strengthened, and reforms of state–owned enterprises will improve efficiency and service delivery. The Fund looks forward to continued close cooperation with the Paraguayan authorities in the period ahead,” Mr. Portugal stated.