“A made-up budget”: Former minister warns Paraguay’s 2027 plan hides a larger deficit

Former Finance Minister and economist Manuel Ferreira says Paraguay’s 2027 national budget has been “drawn” to make the accounts close on paper while hiding a larger deficit.

Ferreira identified the size of the planned borrowing and the exchange rate used in the budget as his main concerns. He said total debt could approach $2.1 billion, with about $1.27 billion earmarked to cover outstanding obligations to construction companies and pharmaceutical firms. He was particularly critical of using debt to pay for medicines, arguing that new borrowing should finance investment instead of routine spending.

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There are two things that concern me about this budget, and they are important: first, the size of the debt, which is close to $2 billion. And note that the minister said, and this is what concerns me most, that part of it would be used to buy medicines.

“There are two things that concern me about this budget,” Ferreira said. “First, the size of the debt, which is close to $2 billion. And the minister said that part of it would be used to buy medicines.” He said borrowing for medical supplies conflicts with the principles of Paraguay’s Financial Administration Law.

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The exchange rate, 6,458, is completely outside market expectations. It makes me suspect that it was used to make the budget fit. In other words, they are talking about a deficit of 3.9% because the exchange rate is 6,458. With an exchange rate of 5,900, which would be more appropriate today, the deficit would probably not be 3.9% but considerably higher.

Ferreira also questioned the budget’s exchange-rate assumption of 6,458 guaraníes to the dollar. He said that figure stood well above market expectations and appeared designed to make the budget fit. With an exchange rate of 5,900, which he described as more appropriate, the projected deficit could rise well above the official estimate of 3.9% of gross domestic product.

He said investment borrowing should instead support projects such as roads, bridges and water systems that could generate resources and help the economy grow. Ferreira also described the fiscal outlook as complicated because the government expects revenue to increase by 8.6% next year, a target he considers difficult to reach amid current conditions and falling state income from sources including Itaipu energy sales.

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Basically, we should generate investments, roads, bridges, water, whatever they may be, that allow us tomorrow to generate new resources and grow the economy.