The government of Paraguay enacted Decree No. 6120/2026 with the aim of implementing public spending prioritization measures throughout 2026. The explicit acknowledgment of fiscal management problems is seen as a positive step, but analysts warn that targeted cuts, without structural reforms, serve only as temporary expense-reduction mechanisms.
According to experts, the financial sustainability of the public budget is not built simply by reducing spending volume to narrow the deficit, but by ensuring investments with high economic returns. The decree itself points to the need to control spending on non-essential services and non-priority expenditures, which raises the question of why these expenses were included in the 2025 budget when austerity had already been promised.
Four areas are considered urgent for restoring citizen confidence and the solvency of the National Treasury: inefficiencies in the public procurement system, the financial cost of accumulated debt with suppliers, poor public employment management, and the deficit of the Caja Fiscal.
The state procurement system has historically suffered from information asymmetries, collusion, cost overruns, influence peddling, and the supply of low-quality goods and services. According to analysts, the solution does not lie in austerity but in a substantial improvement in public procurement management.
The accumulation of debt and delays in payments to suppliers turn the state into a delinquent buyer, which drives up financial costs without generating economic returns. The state ends up paying more because it pays late, and it pays late because the overruns in procurement exhaust available resources.
Spending on personnel services consumes the largest share of tax revenue. Linear austerity measures, such as hiring freezes and blanket bans on salary adjustments, may contain the growth of the aggregate figure but erode the operational capacity of institutions by failing to distinguish sectors with no social benefit from those facing staff shortages and significant unmet obligations to the population, such as health, education, and care services.
Instead of across-the-board austerity, experts advocate implementing a competency-based civil service grounded in meritocracy and results, with the inclusion in the budget of a compensation pillar tied to performance.
The public sector pension and retirement system represents one of the greatest threats to the country's macroeconomic stability due to the chronic deficit of the Caja Fiscal. This is a structural problem, fiscally unsustainable in design and socially regressive, which cannot be resolved with short-term austerity measures.
Decree No. 6120/2026 establishes a roadmap for spending containment in the short term, but it should serve as a starting point for a broader structural transformation. International experience shows that countries that limit their fiscal strategy to austerity suffer a deterioration of public services, which hampers stable long-term growth and the generation of quality jobs.
The financial sustainability of the Paraguayan state must shift the discussion from how much is spent to how it is spent. Reducing overruns in state procurement, eradicating delinquency with suppliers, professionalizing the public service under rigorous suitability criteria, and reforming the pension structure of the Caja Fiscal are identified as the true reforms capable of restoring efficiency and quality to the overall budget.