Karachi, The International Monetary Fund’s (IMF) Executive Board has concluded the Second Review under the Policy Coordination Instrument (PCI) for Paraguay, simultaneously approving a twoyear Resilience and Sustainability Facility (RSF). This approval marks a significant step in Paraguay’s economic reform and environmental sustainability initiatives.
According to International Monetary Fund, the decision allows Paraguay to access a maximum of SDR 302.1 million (150 percent of quota) under the RSF, making it the first South American country to secure access to this facility. The Board also approved an extension of the PCI and modified certain targets set for the end of December 2023 and June 2024.
Paraguay’s commitment under the PCI, which was initially approved in November 2022, includes maintaining prudent macroeconomic policies and implementing structural reforms. Despite narrowly missing a few targets, the PCI program is performing well, with most reform targets being met. The program aims at ensuring macroeconomic and fiscal stability, fostering economic growth, and enhancing social protection and inclusion.
The government’s dedication to enacting adaptation and mitigation measures, along with preserving and expanding its green energy matrix, is evident. The economy has shown strong growth in 2023, driven by agriculture and electricity production. Inflationary pressures have receded, and expectations are well anchored to the central bank’s target. The external current account is projected to have a small surplus, primarily due to strong exports.
Looking ahead, Paraguay’s economic growth is projected to moderate slightly to 3.8 percent in 2024, with inflation staying close to the target. The authorities plan to reduce the fiscal deficit back towards the 1.5 percent of GDP ceiling by 2026, enhancing policy credibility. The banking system remains stable and profitable, supporting investment and financial inclusion.
Mr. Kenji Okamura, Deputy Managing Director and Acting Chair of the Board, commended Paraguay’s efforts, emphasizing the importance of rebuilding fiscal buffers and implementing longstanding structural reforms. He highlighted the significance of strengthening public sector efficiency and improving oversight and governance of public enterprises. Okamura also noted the commitment to ambitious climaterelated reforms under the RSF, aiming to increase resilience, develop a green taxonomy, and decarbonize the economy.
This initiative by the IMF and the Paraguayan government represents a critical step in addressing economic challenges and environmental concerns, setting a precedent for sustainable development in the region.