Paraguay’s econ­omy re­mains re­silient: IMF

The Pak Banker - - FRONT PAGE -

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.

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