Paraguay is accelerating a shift toward local‑currency borrowing as rising US interest rates and a stronger dollar push up funding costs across Latin America, finance minister Oscar Lovera said in an interview.
The government has been moving toward fixed‑rate instruments and broader funding diversification to shield its balance sheet from external volatility, said the minister, who was speaking on the sidelines of an event in Bangkok organized by LatinFinance and Latin American development bank CAF.
“One of the measures we are already adopting domestically is to focus more on borrowing at fixed rates, rather than taking on debt at variable rates,” he said. Greater diversification in its sources of financing reduce a “significant” fiscal risks posed by currency fluctuations for a small, open economy like Paraguay’s that still has “a certain dependence on external financing,” he said.
Paraguay’s guarani has slumped against the US dollar over the last month on expectations of further interest rate hikes by the Federal Reserve to calm inflation. The currency has fallen by more than 25% against the greenback over the last 12 months.
Lovera said the government’s strategy is to increase the share of its debt in guaranis to 30% by next year, up from 25% this year and just 7% in 2023. It sped up the process earlier this year with the sale of $1 billion in local currency bonds in the cross-border market. It also printed $300 million in US dollar-denominated notes as part of the deal.
“For three consecutive years now, we have issued bonds in guaranis,” he said. “So we are in a process of diversification to minimize these [fiscal] risks, but we remain exposed.”
The government is seeking congressional approval for a larger funding program of up to $2.7 billion for 2027.
“We expect to go to the market with a larger amount than in previous years, but our goal is to continue issuing debt in guaranis,” he said. “At the same time, we are not ruling out—and indeed intend to continue—issuing in US dollars in the international market.”
Lovera ruled out pricing bonds in other currencies, such as euros or Swiss francs.
On the fiscal front, he said the government expects the budget deficit to widen to the equivalent of 3.9% of GDP in 2027 from 3.2% expected for this year, before falling sharply to 1.5% in 2028.