Press release No. 23/381

IMF Staff and Paraguayan Authorities Reach Staff-Level Agreement on the Second Review of the Policy Coordination Instrument (CPI) and an Access Request under the Sustainability and Resilience Facility (SRS)

November 6, 2023

Post-mission press releases include statements from IMF staff teams explaining preliminary findings at the end of a country visit. The views expressed in this statement are those of the IMF staff and do not necessarily represent those of the Executive Board. Based on the preliminary conclusions of this mission, the technical staff will prepare a report that, subject to Management approval, will be presented to the IMF Executive Board for discussion and decision.

• The IMF team and the Paraguayan authorities reached an agreement at the staff level on an access request under the Resilience and Sustainability Facility (SDR 302.1 million) and the second review under the Policy Coordination Instrument . The IMF Executive Board will consider these requests in the coming weeks.
• Paraguay requests financing under the IMF’s Resilience and Sustainability Facility to support its ambitious climate-focused reforms aimed at reducing vulnerability to climate change and achieving more sustainable growth.
• The authorities remain dedicated to strengthening macroeconomic stability, advancing their structural reform agenda and maintaining close political dialogue with the Fund under the auspices of the ICP.

Asuncion, Paraguay: A team from the International Monetary Fund (IMF) led by Mr. Mauricio Villafuerte held meetings with the Paraguayan authorities from October 25 to November 3, 2023 for the second review of the Policy Coordination Instrument (PCI), subject to approval of the IMF Executive Board. The team also discussed the authorities’ request to access financial resources under the Resilience and Sustainability Service (SRS) in the amount of 150 percent of the quota (SDR 302.1 million). At the end of the mission, Mr. Villafuerte issued the following statement:

“The IMF team and the Paraguayan authorities reached an agreement at the technical staff level on the policies necessary to complete the second review of the ICP, as well as the request for access to financial resources from the SRS. The IMF Executive Board will discuss these requests in the coming weeks.

“Paraguay is recovering strongly from last year’s drought and GDP is forecast to grow by 4.5 percent in 2023, driven by a resurgence in agricultural production and electricity generation. Inflation has fallen rapidly in recent months, well below the Central Bank of Paraguay’s (BCP) 4 percent inflation goal. The external current account is expected to reach a surplus of 0.2 percent of GDP in 2023, driven by the strong recovery in agricultural export volumes and the decline in international fuel prices. Risks to the outlook are balanced.

“The fiscal result as of June 2023 indicates that the central government’s fiscal deficit, current primary expenditure and net incurred floating debt limits were close to the objectives. However, the 2023 fiscal position will prove weaker than originally anticipated this year, as the new government intends to register and regularize in the coming months outstanding claims accumulated during the pandemic from private contractors. Subsequently, the fiscal deficit will gradually converge to the fiscal rule’s deficit ceiling of 1.5 percent of GDP by 2026.

“BCP’s decisive monetary policy stance, supported by clear and transparent communication, placed inflation on a firm downward trend. As inflation expectations consolidated around the 4 percent inflation target, the BCP gradually reduced its monetary policy rate. The cautious pace of easing is justified, given the upside risks to inflation linked to commodity price volatility and global financial conditions contributing to a strong US dollar.

“Most of the commitments of the ICP’s structural reform agenda have been fulfilled. The government incorporated a number of large and medium-sized taxpayers above the expected threshold into the National Integrated Electronic Invoice System (SIFEN). The administrative regulations of the new procurement law were promulgated. A bill to reorganize the structure of the State was concluded and presented to the National Congress. The authorities are working on an updated version of the National Risk Assessment (ENR), and the government is reviewing a bill aimed at the formalization of dependent workers in micro, small and medium-sized enterprises (MSMEs) and independent workers.

“The authorities proposed to expand their agenda of structural reforms until mid-2025, covering the analysis of tax expenditures, actions in the management of public finances to ensure the registration of accrued expenses, the promotion of public-private alliances for public works, actions to combat corruption, as well as continuous improvements in the information systems of social programs.

“Paraguay also formally requested financing under the IMF SRS to continue advancing its ambitious climate adaptation and mitigation agenda. The new mechanism would support Paraguay’s efforts to increase the resilience of public investments, mobilize financial resources to support adaptation and mitigation efforts, contain climate risks for the financial sector, preserve and expand the country’s clean electricity matrix, decarbonize its economy and conserve its forests. Reform measures will be closely coordinated with the World Bank, the Inter-American Development Bank, CAF – Development Bank of Latin America and other international partners. The facility provides resources with longer maturities and affordable terms, while helping to catalyze critical climate financing from other official and private partners.

“The IMF team thanks the Paraguayan authorities and other counterparts for the productive discussions.”