Fitch affirms Paraguay at ’BB+’ with positive outlook as growth outpaces peers
Investing.com — Fitch Ratings affirmed Paraguay’s Long-Term Foreign-Currency Issuer Default Rating at ‘BB+’ with a Positive Outlook on Wednesday, citing the sovereign’s prudent macroeconomic management, robust growth trajectory, and low public debt levels. The credit rating agency highlighted that strong private consumption and broad-based expansion drove real GDP growth to 6.6% in 2025, outperforming Latin American peers and setting a solid foundation for continued economic convergence.
The rating agency expects growth to moderate to a still-healthy 4.5% in 2026 before stabilizing around 4.0% over the medium term. Against that backdrop, an expanding pipeline of large-scale investment projects offers significant upside potential, though execution uncertainty lingers around major undertakings such as the Paracel pulp mill and the Atome green hydrogen project.
Meanwhile, a 26% appreciation of the guaraní between March 2025 and September 2026 has provided significant tailwinds for local price stability. Coupled with the country’s extensive reliance on hydroelectricity, currency strength helped pull inflation down to 1.5% by August 2026, keeping long-term inflation expectations firmly anchored near the central bank’s 3.5% target.
Despite these macroeconomic strengths, persistent weaknesses in public financial management continue to weigh on fiscal credibility and delay planned consolidation efforts. The accumulation of $1.3 billion in unbudgeted arrears to pharmaceutical and construction vendors forced authorities to push back the 1.5% deficit ceiling target from 2026 to 2028, lifting near-term deficit projections to 3.2% in 2026 and 3.9% in 2027.
Nevertheless, government debt metrics remain a key structural advantage, declining to 31.7% of GDP in 2025, well below the ‘BB’ median of 51.6%. Consecutive international guaraní bond issuances and local currency strength have also improved debt composition, narrowing the foreign-currency portion of sovereign debt to 74.5% in June 2026 from over 90% three years prior.
Ultimately, Fitch signaled that a formal rating upgrade to investment grade depends on sustained execution across the country’s strategic investment pipeline alongside credible fiscal discipline. Analysts will be monitoring whether the government can successfully stabilize public debt, prevent future payment arrears, and advance institutional reforms to overcome historical governance headwinds.
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