Paraguay: First Review Under the Policy Coordination Instrument and Request for Modification of Targets-Press Release; Staff Report

This paper presents Paraguay’s First Review Under the Policy Coordination Instrument (PCI) and Request for Modification of Targets. The PCI supports Paraguay’s macroeconomic policies and structural reforms, aiming at ensuring macroeconomic and fiscal stability, fostering economic growth, and enhancing social protection and inclusion. Paraguay’s economy has demonstrated remarkable resilience during a four-year period of multiple adverse shocks. As it was recovering from the impact of the coronavirus disease 2019 pandemic, a severe drought hit the economy in early 2022. Economic growth is now rebounding, mainly on behalf of the recovering agricultural sector. The medium-term outlook remains favorable. Paraguay is exposed to various external risks, but their potential impact appears moderate in the near-to-medium term. Economic growth is projected at 4.5 percent for 2023, the external current account is projected to improve notably, and the rate of inflation is expected to converge back to the central bank’s target of four percent in the first half of 2024 at the latest. Continued sound and credible fiscal policies will be critical to safeguard the favorable scenario.