Part 4 of a six-part series on capital costs and economic competitiveness in Latin America
After years of steady macroeconomic management and strong agricultural exports, Paraguay has an opportunity to move from stability to transformation. File Photo by Giuseppe Lami/EPA
Paraguay has entered a new economic moment. After years of steady macroeconomic management and strong agricultural exports, the country now has an opportunity to move from stability to transformation.
The challenge is no longer simply to prove that Paraguay is fiscally responsible. It has largely done that. The deeper challenge is to convert macroeconomic credibility into cheaper financing for companies and faster gains in income.
The country’s current position is unusually favorable by regional standards. The Central Bank of Paraguay projects economic growth of 4.2% in 2026, while International Monetary Fund estimates are close to 3.8%. Both figures place Paraguay well above the expected Latin American average.
That growth rests on solid foundations. Paraguay has a young population, a strategic location at the heart of Mercosur and real strength in agro-exports. Soybeans, beef and electricity have made it an increasingly important player in global commodity markets.
Yet one central problem remains unresolved: the cost of capital for Paraguayan companies is still too high.
That problem is not fully explained by sovereign risk. Paraguay’s public debt remains moderate, around 36.4% of gross domestic product, and the country has earned investment-grade status from Moody’s and S&P. Its EMBI spread has fallen to historically low levels, approaching 110-120 basis points as of mid-May 2026, down from 129 at the end of the first quarter.
In theory, those achievements should reduce financing costs across the economy. In practice, a wide gap persists between sovereign risk and private-sector risk. Local companies still face more expensive credit than the country’s macroeconomic indicators would suggest.
That gap reflects a broader concern among investors. They may trust Paraguay’s fiscal discipline, but they still price in legal uncertainty and weak contract enforcement. Until those concerns are reduced, Paraguay will not fully capture the benefits of its improved sovereign profile.
President Santiago Peña’s government has taken important steps in the right direction. Its international agenda has helped raise Paraguay’s profile and position the country as a serious investment destination. But the next stage must be domestic and institutional.
Energy as a test case
The electricity sector shows both Paraguay’s promise and its unfinished reform agenda.
For decades, Paraguay’s energy advantage has been one of its greatest assets. Abundant hydroelectric power gives the country a rare opportunity to attract electricity-intensive industries at a time when companies are seeking cleaner and more reliable energy sources.
The government’s decision to open space for private power generation, particularly in non-hydroelectric renewable energy, is an important step. It signals that Paraguay is willing to modernize a sector long dominated by the state.
But generation is only part of the equation. To unlock the full value of this advantage, the country must modernize transmission and distribution as well. Public-private partnerships could play a decisive role.
ANDE, the National Electricity Administration, still faces high technical and commercial losses. The utility’s leadership has reported a 2% decrease in losses in 2024, the largest single-year improvement on record, but total system losses remain well above levels seen in efficient grids. These losses amount to hundreds of millions of dollars that could otherwise strengthen the utility or help keep tariffs competitive.
Public-private partnerships in transmission could help modernize high-voltage lines, introduce real-time monitoring and reduce grid congestion. In distribution, private participation could support smart metering and a stronger response to electricity theft.
The economic impact would go beyond the electricity sector. A more reliable grid would make Paraguay more attractive to data centers, green hydrogen projects and other industries that require abundant power and long-term certainty.
This is the essential point: energy reform is not only about electricity. It is also about how investors perceive risk. When they see reliable infrastructure and transparent rules, they lower the premium they demand. Over time, that can narrow the gap between Paraguay’s low sovereign risk and the higher financing costs its companies still face.
From macro stability to investment credibility
Fiscal discipline must remain the first pillar of Paraguay’s economic credibility. The country’s Fiscal Responsibility Law sets a deficit ceiling of 1.5% of GDP, and respecting that rule is essential now that Paraguay has earned investment-grade recognition. But fiscal discipline should not mean passivity. Markets reward governments not only for spending less, but for spending well.
Tax policy also requires attention. Paraguay’s 10% corporate rate is competitive, but investors care as much about predictability as about the rate itself. A clearer system with fewer exemptions would strengthen the country’s appeal without undermining fiscal responsibility.
Infrastructure is another decisive factor. Paraguay’s geography should be a major advantage, but it remains underused. The Bioceanic Corridor and the Paraguay-Paraná Waterway can reduce logistics costs and strengthen the country’s role as a regional hub. When transport is unreliable or disputes take too long to resolve, investors demand higher returns.
Institutional reform must complete the agenda. Paraguay needs faster resolution of commercial disputes and sustained efforts to combat corruption. These are not abstract ideals. They directly influence how markets price private investment.
Unlocking Paraguay’s potential
Paraguay does not lack potential. It has abundant energy, a young workforce and a strategic location, along with a stronger sovereign profile than at any point in its recent history.
The question is whether the country can convert these advantages into a broader investment boom. That will require second-generation reforms focused on the private economy. If those reforms advance, Paraguay can reduce its corporate risk premium and allow more companies to access financing at rates closer to the sovereign benchmark.
Closing that gap is what the next phase of Paraguay’s economic development is really about. The sovereign foundation is in place. What remains is the harder work of aligning the country’s institutional and infrastructure realities with the credibility that financial markets have already begun to price in.
César Addario Soljancic is an economist specializing in public finance, with decades of experience advising governments and institutions across Latin America and the Caribbean. Over his career, he has led 69 capital-market issuances across 13 countries, totaling nearly $49 billion. The views expressed are solely those of the author.
