Brazil & Southern Cone - March 2026

Over the years there has been no shortage of economic populism in Latin America, from both left-wing and right-wing presidents. But in Paraguay, President Santiago Peña is a technocrat who has been pushing ahead with a reform agenda that tackles some of the country’s most persistent structural development challenges. Just over halfway through his five-year term, Peña has a number of results to show for it. The country is among the fastest-growing economies in South America, inflation is below the central bank’s target, public finances are improving, and measures to heighten governance are being implemented.

The International Monetary Fund (IMF) in January gave its seal of approval on the state of Paraguay’s economy and the targets agreed with the Peña administration, making available about US$117m to the government under the Resilience and Sustainability Facility (RSF) arrangement. “Paraguay’s economy remains resilient despite global uncertainty. Real GDP growth is expected to stay robust in 2026 and thereafter, supported by macroeconomic stability and a wide range of reforms in train,” the IMF said in its review.

Credit rating agency S&P rewarded Paraguay in December 2025 with an investment-grade rating, marking the country’s transition to one of the most stable economies in the region. “The track record of macroeconomic stability and pro-market policies has strengthened Paraguay’s economic resilience and prospects for more consistent growth,” S&P wrote in its report.

With the exception of Guyana’s oil-driven bonanza, Paraguay’s economic expansion is the fastest in South America. GDP growth for 2025 was estimated at an impressive 6% in 2025, according to central bank figures, and is projected to exceed 4% this year. The budget deficit has fallen steadily to around 2% of GDP in 2025 from 4.1% of GDP in 2023 and is projected to shrink even further in 2026.

Underlying the good results have been prudent management and efforts to shore up the finances of Paraguay’s complex pensions system. Peña has also shrunk the number of government ministries and streamlined tax collection, customs, and social security. The improved fiscal discipline and the appreciation of the guaraní have helped slow consumer price increases. Annual inflation slowed to 2.7% in January, below the central bank’s 3.5% target. That is lower than in much of Latin America, including Brazil, Mexico, and Uruguay. As a result, the central bank on 20 February surprised markets by cutting its prime lending rate by a quarter percentage point for the second consecutive time to 5.5%.

A former finance minister (2015-2017), Peña won the presidential race in 2023 and became the youngest president of Paraguay since its return to democracy in 1989. He emerged from the shadow of his mentor, former President Horacio Cartes (2013-2018), to implement a series of reforms that aim to improve public sector governance.

These included a civil service law to promote meritocracy and reduce a bloated public sector, as well as a public procurement reform to reduce fraud. The impact of such measures remains to be seen but progress is likely to be slow in combating corruption and strengthening democratic institutions, two of Paraguay’s long-standing challenges. Paraguay is considered the most corrupt country in South America after Venezuela, according to the annual corruption perceptions index rankings released by Transparency International (TI). 

Low diversification

Another major challenge is Paraguay’s low economic diversification. As a major exporter of soy and meat, Paraguay’s agricultural sector remains vulnerable to climate-related shocks such as droughts and floods. Peña’s efforts to diversify include leveraging the country’s renewable energy matrix by attracting data centres and Taiwan-backed research and development, as well as expanding international trade partnerships. Under his administration, manufacturing exports have grown.