Paraguay’s next president seen focusing on infra projects, fiscal deficit

Paraguay’s next president Santiago Peña is expected to continue the infrastructure projects left by the outgoing administration, while also focusing on fiscal deficit reduction, according to ratings agency Moody’s.

Peña will take office on August 15.

“We expect President-elect Peña's administration to maintain Paraguay's push to complete ongoing infrastructure projects with the support of MDBs [Multilateral Development Banks]", Moody’s VP and senior analyst Samar Maziad (pictured) told BNamericas. “Overtime, pursuing the agenda of economic diversification and attracting higher private investment will be key to sustain high investment and economic growth,” she said, adding that this will help improve fiscal metrics. 

Former finance minister Lea Giménez, who is part of Peña’s transition team, warned last week that the current administration was embarked on a “tender festival,” especially at the public works ministry (MOPC).

“Whether we find an empty coffer or not will depend on the political will of President [Mario] Abdo, who can quickly solve the issue of these tenders that are popping up,” local daily La Nación reported her as saying. 

In response, public works minister Rodolfo Segovia said there are no new tenders planned for this year and that MOPC is focused on projects whose auctions have already been held.

BNamericas recently looked at some of the infrastructure projects that the Peña administration will inherit.

FISCAL FOCUS

One of Peña’s main campaign pledges was to reduce the fiscal deficit without increasing the country’s tax burden, which is one of the lowest in Latin America at 10.4% of GDP.

Maziad said the fiscal deficit is expected to converge towards the legally set target of 1.5% of GDP by 2024, following a three-year suspension of the fiscal responsibility law due to the pandemic during which it averaged 4.3%.

Lowering the deficit will be possible through the phasing out of pandemic-related spending and stronger economic growth, as well as reforms that Peña is expected to implement to improve tax collection and reduce economic informality, she said. 

Paraguay’s debt-to-GDP ratio of 36% in 2022 was lower than other countries with a similar sovereign rating, as well as lower than some of its regional peers, according to Maziad. “We estimate that debt will increase slightly to 37% of GDP in 2023 and stabilize around that level through 2024,” she said.