Paraguay’s economy remains resilient: IMF
WASHINGTON: A staff team from the International Monetary Fund (IMF), led by Mr. Hamid Faruqee, visited Asunción during February 15-26 to hold discussions for the 2016 Article IV consultation. The team met with Central Bank of Paraguay (BCP) President Carlos Fernández, Minister of Finance Santiago Peña, Minister of Industry and Commerce Gustavo Leite, Minister of Public Works and Communications Ramón Jiménez, Minister of Planning José Molinas, Social Action Minister Héctor Cárdenas and other senior officials, as well as representatives from the private sector, think tanks, and the donor community.
At the conclusion of the visit, Mr. Faruqee said, "Against the backdrop of a prolonged regional slowdown, Paraguay's economy remains relatively resilient. We expect growth at around 3 percent this year and next, reflecting sound macroeconomic fundamentals, lower oil prices, and vibrant construction activity. Public debt is low and international reserves are adequate.
Downside risks to the growth outlook have risen mainly from the external side-linked to lower agricultural commodity prices and economic weaknesses among trading partners, including a deep recession in Brazil. These risks add to longstanding structural challenges that the authorities have begun to address through an ambitious reform agenda to reduce poverty, promote inclusion, improve education, and close infrastructure gaps. "The current mix of macroeconomic policies is broadly appropriate. In response to some underlying inflation pressures from currency depreciation, the BCP has recently tightened policy to keep inflation expectations anchored. Some fiscal expansion is expected for 2016, as tax revenues are likely to be weaker given slower growth and soft commodity prices, while important public investment projects are likely to be executed. By implication, the budget deficit for 2016 may exceed the Fiscal Responsibility Law's (FRL) ceiling.
"Monetary policy remains slightly accommodative and, coupled with a flexible exchange rate, should be the principal tool if growth were to weaken further, within the limits of meeting the central bank's price stability objectives. Headline inflation is temporarily elevated due to volatile food prices but should decrease this year to the BCP's inflation target.