The Executive Board of the International Monetary Fund (IMF) has approved this week a technical two-year support program for Paraguay regarding macroeconomic policies.
The new adjustments to be implemented through the Policy Coordination Instrument (PCI) would unlock financing for the South American country, it was reported.
The IMF explained in a statement that the PCI is a mechanism to help countries formulate and implement macroeconomic policy programs that can help them unlock financing from official creditors or private investors.
The ICP is available to all IMF members that do not require financing from the Fund at the time such programs are approved and does not involve maturing financial obligations to the IMF.
IMF Deputy Managing Director and Acting Chairman of the Board Kenji Okamura explained in the note that Paraguay needs to reestablish contingency funds and return to having a fiscal deficit ceiling of 1.5% of GDP in 2024.
The country must also improve the mobilization of revenues, reform the public pension fund, and increase public sector efficiency when the monetary policy is aimed at bringing inflation back to the 4% target and keeping inflation expectations well anchored.
Okamura also praised Paraguayan authorities for using foreign exchange interventions only to address disorderly market conditions.
According to the IMF, in 2020 and 2021, Asunción implemented appropriate fiscal, social and financial support measures to mitigate the negative impact of the pandemic and for a sustained recovery.
However, this year the South American country's economy has suffered several simultaneous shocks, such as a harsh drought and a spike in inflation due to the war in Ukraine. While the economic outlook remains favorable, several risks have emerged with global headwinds, more frequent adverse weather shocks, and domestic uncertainties,” Okamura noted.
In short, Paraguay would need to ensure macroeconomic stability and resilience; increase productivity while encouraging economic growth, and increase social protection and inclusiveness.