MercoPress. South Atlantic News Agency

Paraguay advised to monitor inflation and tackle State spending

Mauricio Villafuerte's report underlined the country's vulnerability to meteorological factors

The International Monetary Fund (IMF) has issued a recommendation to the Government of Paraguay IMF to keep an eye on inflation and move forward with structural reforms in addition to improving State spending.

A consultation IMF mission left the country Monday leaving behind a report which points out that Paraguay's economy has experienced external shocks since 2019, due to which it would be sage to monitor inflation and advance in structural reforms, such as in public spending.

The IMF document signed by mission head Mauricio Villafuerte acknowledged the 2019 floods, the COVID-19 pandemic in 2020 and the intense droughts. The ongoing war between Ukraine and Russia has also boosted international inflation. In that scenario, the IMF suggested the Central Bank (BCP) carefully monitors inflation factors and uses foreign exchange interventions to limit exchange rate volatility in the short term.

The increase in “external shocks” makes it urgent to address structural and social reforms for inclusive economic growth, suggests the IMF report, in addition to the increase in the frequency of severe weather events (floods and droughts), which make the country and its agricultural production vulnerable.

By 2022, inflation is forecast to be above the 4% estimated at the beginning of the year by the BCP. Some projections place it above 6%, while, economic growth is forecast at +0.3% of GDP.

An increase in the fiscal deficit is also on the radar. From the initial projection of 2.9% of GDP, it could reach 3.2% with the decrease in revenues for the State due to the drought affecting energy generation and the measures used to subsidize the increase in fuel prices.

The IMF also suggested Paraguay improved its public spending. The country has one of the highest expenditures on salaries as a percentage of total public spending, compared to other Latin American countries.

The international finance agency also said the country had room to improve social programs, starting with the selection of the beneficiaries of these programs, which could be extended to protect the population in vulnerable situations.