Paraguay faces a scenario of growing macroeconomic vulnerability, with the worsening of the structural fiscal deficit and the exhaustion of the two main growth drivers of the last two decades: the expansion of the labor force and the availability of energy from the Itaipú and Yacyretá hydroelectric plants.
According to a recent analysis, ordinary revenues of the Central Government no longer cover permanent expenditures, due to the disorderly increase in spending in recent years. The structural fiscal deficit exceeds 2% of GDP, making the 1.5% ceiling established in the Fiscal Responsibility Law unattainable. Furthermore, gaps in the Public Financial Administration Law allow underreporting in budget execution, with debts to suppliers not reflected in official reports, which compromises fiscal credibility and could lead rating agencies to withdraw the country's investment grade.
On the growth front, the labor force has grown only 1.5% per year since 2018, with 45,000 new entrants annually, well below the previous decade, according to the INE Employment Survey. Population projections indicate that this trend will worsen. At the same time, specialized organizations warn that the surplus power from Itaipú and Yacyretá will be exhausted around 2030, a deadline that could be brought forward with the installation of data centers promoted by the government. Although there are options to expand supply, such as solar energy, current regulatory frameworks do not favor private investment and project execution timelines are long.
Faced with this scenario, the economic growth plan prepared by the consulting firm McKinsey for the Ministry of Industry and Commerce (MIC) proposes an evolution of the export-based model, focusing on productivity, productive diversification, added value, and greater capital intensity and innovation. However, to finance investments in infrastructure, education, and health, more resources will be needed, which requires serious conversations among political, business, and civil society leaders.
The analysis emphasizes that the poor experience with the use of public resources over the last two decades demands credible commitments: severe punishments for corruption, rigorous austerity and prioritization mechanisms, a deep reform of the Caja Fiscal and the social security system, eliminating sectoral privileges, as well as reform plans that specify the additional resources needed and tax adjustments to obtain them, with a sustainable debt plan for infrastructure.