Paraguay First Economic Management Development Policy Loan

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The Paraguay First Economic Management Development Policy Loan (EMDPL1) in the amount of US$200 million is the first operation, in a programmatic series of two, aimed at supporting Paraguay’s efforts to reduce its external, environmental, and public finance vulnerabilities. The operation is a key instrument for the implementation of the Country Partnership Framework (CPF) for Paraguay for FY19-FY23, discussed by the Board on January 22, 2019, and supports select priorities of the Paraguayan Administration within the framework of its Plan de Gobierno 2018-2023: Paraguay de la Gente. The Government plans to use the EMDPL1 with the Deferred Drawdown Option (DDO) as a contingency line of financing to address repercussions from increased regional volatility and weaker global growth. Since 2004, Paraguay has been characterized by solid economic growth supported by prudent macroeconomic policies and leveraging of the country’s natural wealth. Economic growth has been above the regional average, inflation is under control and public debt is low. Foreign reserves have remained at prudent levels. The financial sector is sound, with well-capitalized banks with low non-performing loans. Growth has been based on extensive leveraging of the country’s natural resources, particularly land and hydroelectric potential, and on an expanding service sector. Due in large part to the strong performance of the agricultural exporting sector, Paraguay stands out in the region for the positive contribution of net trade to growth. Demographic change in Paraguay has led to a sizable expansion of the working-age population, adding to economic output. However, in the first half of 2019, Paraguay faced a recession due to weak growth of its main trading partners and adverse climatic conditions. The economy is expected to return to growth in 2020.