Paraguay: Selected Issues

International Monetary Fund

No 2026/236, IMF Staff Country Reports from International Monetary Fund

Abstract: This Selected Issues paper focuses on the drivers and sustainability of credit growth in Paraguay. This paper uses a macro financial modeling tool developed by the IMF Institute for Capacity Development customized for the case of Paraguay. IMF considered two shock scenarios: (1) a drought calibrated to the experiences in 2019 and 2022, and (2) an asset quality deterioration in addition to the endogenous deterioration due to the drought. The results suggest that Paraguay’s financial system is resilient to these scenarios, with buffers sufficient to sustain the provision of credit—and thereby supporting economic growth—even under combined shocks. However, more severe shock combinations could generate amplification effects, including as banks’ efforts to rebuild buffers would be associated with tighter financial conditions. These findings underscore the importance of close supervisory monitoring and strengthening the supervision of climate-related risks. Development of the macroprudential policy toolkit, especially of borrower-based tools, would also increase the room of manoeuvre to contain vulnerabilities from the expansion of consumer credit.

Pages: 43
Date: 2026-09-01
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