Brazil & Southern Cone - May 2026

Since taking office in 2023, President Santiago Peña pushed hard to implement market-friendly reforms and tighten the reins of public spending to consolidate Paraguay’s reputation as one of the region’s economic success stories. But there is a limit to how much free-market and belt-tightening a nation can take. Peña’s popularity has declined since the start of his term, and with municipal elections coming up later this year, big wigs in the ruling Asociación Nacional Republicana-Partido Colorado (ANR-PC) have pushed for a change in direction – less austerity and more tangible benefits.

Peña swapped out Minister of Economy and Finance Carlos Fernández, the architect of Paraguay’s recent ascent to investment grade status. In his place he appointed on 8 April a bureaucrat, Oscar Lovera, who has been a civil servant for over 30 years, with various roles in the finance ministry and in Paraguay’s state-owned development bank (BNF). Fernández had come under fire from Colorado party legislators for his hardline positions in defending austerity in the government’s pension reform bill and more broadly in government spending amid falling tax revenue.

During Lovera’s swearing-in ceremony Peña left no doubt over the direction his new economy chief was to take for the remainder of his term. “Oscar, I want to leave you with a clear and forceful message: in this second phase, Paraguayans want a more present government, a government that provides answers, where management and results are our daily reality,” Pena said. “In this second phase, we need to move faster, be more agile, respond more quickly. In this second phase, we need a state that takes better care of Paraguayans.”

And just over a week after Lovera took office, public finances seemed to have miraculously improved, or at least enough to free up spending that had been put on hold. Past-due payments to construction companies were the first to be settled, Lovera said. “Given the current outlook, with an improvement in tax collection recorded in March and its continuation in April, we are in a position to commit US$150m between both months, for the suppliers of the ministry of public works,” Lovera said, adding that other government liabilities would also be settled. “The president of the republic has been clear: the debt of the state will be honoured.”

Recovering fiscal credibility under Fernández produced undeniable results. S&P Global Ratings joined Moody’s in upgrading Paraguay to investment grade, citing a disciplined reduction of the fiscal deficit, which stood at 4.1% in 2023 but is projected to fall to 1.5% in 2026.

Honor Colorado

However, this tightening came at a political cost. The ‘Honor Colorado’ faction of the ruling party, led by Peña’s political mentor, former president Horacio Cartes (2013-2018), had faced increasing pressure from grassroots political bases demanding more visible public spending. Lovera’s appointment could be aimed at bridging this gap – maintaining the confidence of Wall Street while opening the spigot for domestic infrastructure and social programmes.

President Peña continues to navigate a complex relationship with Cartes. While Peña provides the technocratic ‘face’ that attracts foreign direct investment (FDI), the party’s traditional structure demands clientelistic stability.

Possible projects

In the coming months, the government is likely to roll out a series of infrastructure works, particularly related to the ‘Bioceanic Corridor’ and energy projects. But in an effort not to squander its fiscal strength, the government could move away from direct debt-funded public works toward public-private partnerships (PPPs), where the private sector contributes a significant part of the investment. The administration is also likely to expand social assistance programmes, while seeking to raise tax revenue by boosting oversight and cutting back the country’s high informality rate (still hovering around 60%).