IMF Approves Paraguay’s Policy Coordination Instrument

Washington, DC: On November 21, 2022, The Executive Board of the International Monetary Fund (IMF) approved a two-year Policy Coordination Instrument (PCI) for Paraguay.[1]

Paraguay continues to recover from the COVID-19 pandemic amidst simultaneous shocks that would lead to flat GDP growth and inflation above the Central Bank’s target range this year. The outlook for a recovery in 2023 is favorable, and the authorities are pursuing policies to follow a stronger, more resilient, and inclusive development path. On the back of very positive experiences with Fund-supported programs, the authorities requested approval of a two-year program supported by the Policy Coordination Instrument (PCI) to underpin the implementation of needed structural reforms.

The PCI aims to address the current challenges and foster policy continuity that would encompass two years, the last year of the current and the first year of the next administration. Program reviews take place on a semi-annual fixed schedule. While the PCI involves no use of IMF resources, successful completion of program reviews would help signal Paraguay’s commitment to continued strong economic policies and structural reforms.

The authorities’ reform efforts will be anchored by three key pillars: (i) ensure macroeconomic stability and resilience by making efforts to rebuild fiscal buffers and ensure fiscal sustainability going forward, while continuing to implement a data-dependent and forward-looking monetary policy; (ii) enhance productivity and foster economic growth by advancing structural reforms to improve the effectiveness of the government, modernize the public sector and improve the business climate, and; (iii) enhance social protection and inclusiveness through augmenting coverage and efficiency of Paraguay’s social assistance programs, and implementing reforms to pull informal workers into the formal economy.

Following the Executive Board’s discussion, Mr. Kenji Okamura, Deputy Managing Director and Acting Chair, issued the following statement:

“The Paraguayan authorities implemented appropriate fiscal, social, and financial support measures to mitigate the negative impact of the pandemic and to sustain recovery in 2020 and 2021. However, this year the economy is facing simultaneous shocks, including a severe drought in late 2021/early 2022 and a spike in global inflation exacerbated by Russia’s war in Ukraine. While the economic outlook remains favorable, several risks arise from global headwinds, more frequent adverse climate shocks, and domestic uncertainties.

“Against this backdrop, the authorities’ economic program under the PCI will be focused on policies to ensure macroeconomic stability, foster economic growth, and enhance social protection. The PCI is underpinned by strong macroeconomic policy plans and will support ongoing initiatives aimed at the implementation of a broad structural reform agenda.

“Rebuilding policy buffers and returning to the fiscal deficit ceiling of 1.5 percent of GDP in 2024 will be critical to ensure macroeconomic stability. Important measures include enhancing domestic revenue mobilization, reforming the public pension fund, and raising the efficiency of the public sector. Monetary policy is aimed at bringing inflation back to the 4 percent target and keeping inflation expectations well-anchored. The authorities are committed to maintaining a strong reserve position and using foreign exchange interventions only to address disorderly market conditions.

“The authorities are focused on fostering the conditions for sustained economic growth, bolstering the efficient use of public resources, and creating more favorable conditions for private investment. Envisaged actions include modernizing public institutions, increasing government effectiveness, strengthening governance and controlling corruption, as well as improving the business climate. Efforts to build resilience to climate change are also needed.

“The emphasis of the authorities’ reform agenda on enhancing social protection and reducing poverty and inequality is welcome. Further measures will be needed to improve the impact of social assistance programs, increase their coverage among the vulnerable population, promote the formalization of the economy, and strengthen financial inclusion.”

[1]The PCI is available to all IMF members that do not need Fund financial resources at the time of approval. It is designed for countries seeking to demonstrate commitment to a reform agenda or to unlock and coordinate financing from other official creditors or private investors. (see

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