Paraguay: 2024 Article IV Consultation, Third Review Under the Policy Coordination Instrument, Modification of Targets, and First Review Under the Arrangement Under the Resilience and Sustainability Facility-Press Release; and Staff Report

PARAGUAY 2024 ARTICLE IV CONSULTATION, THIRD REVIEWUNDER THE POLICY COORDINATION INSTRUMENT,MODIFICATION OF TARGETS, AND FIRST REVIEWUNDER THE ARRANGEMENT UNDER THE RESILIENCEAND SUSTAINABILITY FACILITY—PRESS RELEASE;ANDSTAFF REPORT In the context of the2024 Article IVConsultation, Third Review Underthe PolicyCoordination Instrument, Modificationof Targets,and First Review UndertheArrangement Underthe Resilience and Sustainability Facility, the following documentshave been released and are included in this package: •APress Releaseincluding a statement by the Chair of the Executive Boardandsummarizing the views of the Executive Board as expressed during itsJune 26, 2024consideration of the staff report on issues related to the Article IV Consultation andthe IMF arrangement •TheStaff Reportprepared by a staff team of the IMF for theExecutive Board’sconsideration onJune 26, 2024, following discussions that ended onMay 8, 2024, withthe officials ofParaguayon economic developments and policies.Based oninformation available at the time of these discussions, the staff report was completedonJune 10. •AnInformational Annexprepared by the IMFstaff. •AnUpdated World BankAssessment Letter for the Resilience andSustainabilityFacility The documents listed below have been or will be separately released:Selected Issues TheIMF’stransparency policy allows for the deletion of market-sensitive information andpremature disclosure of the authorities’ policy intentions in published staff reports andother documents. Copies of this report are available to the public fromInternational Monetary Fund•Publication ServicesPO Box 92780•Washington, D.C. 20090Telephone: (202) 623-7430•Fax: (202) 623-7201E-mail:publications@imf.org Web:http://www.imf.org International Monetary FundWashington, D.C. Paraguay: IMFExecutive Board Concludes 2024 Article IVConsultation, Third Review of the Policy CoordinationInstrument and First Review under the Resilience andSustainability Facility FOR IMMEDIATE RELEASE Washington, DC–June 27, 2024:The Executive Board of theInternational Monetary Fund(IMF) concluded the 2024 Article IV consultation, Third Review under the Policy CoordinationInstrument (PCI), modification of targets, and the First Review of the Arrangement under theResilience and Sustainability Facility (RSF) for Paraguay on June 26, 2024.1,2 In 2023, the economy experienced robust post-drought growth, driven by significantcontributions from the agriculture and electricity sectors. Inflationary pressures diminished,with inflation expectations closely aligned with the central bank's 4 percent target. Theexternal current account was in surplus, attributed to solid export performance, while theGuarani maintained relative stability. However, the fiscal outlook worsened, partly due tosettlement of previously unrecorded claims suppliers. The economy started this year on astrong footing and risks to the outlook are balanced. The PCI underpins Paraguay's economic strategy and structural objectives of maintainingmacroeconomic stability and promoting social welfare and inclusion. The PCI is yieldingpositive results, though two targets were missed due to the identification of additionalunrecorded healthcare-related expenditure. Three reform targets have been met. Some of thereform targets agreed with the previous government are now being reformulated, namelyenhancements to the insolvency framework and property cadaster, and actions with respect tothe formalization of labor. Under the two-year program under the RSF,the government is committed to enacting aseriesof adaptation and mitigation measures and to preserve and expand its green energy matrix.Three of the four reform measures were completed and aim at expanding clean electricitygeneration and protecting forests. The establishment of energy efficiency standards willrequire a more extensive consultation process with the private sector. Following the Executive Board’s discussion, Mr. Kenji Okamura, Deputy Managing Directorand Acting Chair of the Board, issued the following statement: “Paraguayan authorities continue to implement policies aimed at maintaining macroeconomicstability that have translated into robust economic growth, low inflation, thriving exports, and a stable banking system. Risks to the outlook are balanced amid expected robust economicgrowth in 2024 and the medium term. “The new government is committed to continuing reforms guided by the PCI and RSFarrangements. It is crucial for Paraguay to rebuild fiscal buffers, ensure the sustainability ofthe public servants’ pension fund and enhance supervision of public enterprises to limitcontingent risks. Improving the targeting of social assistance programs, closing gender gaps,and reducing the cost of financial services should also be pursued to promote sustainablegrowth and inclusion. Taking decisive action against corruption to minimize reputational risks,reducing informality, and increasing international market integratio