Paraguay government plans US$262 million savings with new spending control plan

Paraguay's government has initiated a strategic plan to rein in public spending for 2026, anticipating savings of up to G. 1.6 trillion (approximately US$262 million). This initiative, formalized through decree 6120 issued in late May, is part of a broader effort to manage fiscal pressures and reduce the national deficit. The Ministry of Economy and Finance (MEF) is implementing these measures to optimize resource allocation and ensure efficient use of public funds.

The government clarifies that these actions do not constitute direct budget cuts or the elimination of public programs. Instead, the decree imposes execution limits on specific expenditures deemed non-priority, preventing them from exceeding 2025 levels. This approach aims to achieve fiscal consolidation without compromising essential services. The MEF expects this containment to represent about 0.4% of the Gross Domestic Product (GDP), contributing to the government's fiscal consolidation goals.

This move comes amid concerns over Paraguay's fiscal health. The fiscal deficit reached 0.8% of GDP in April, totaling G. 3.1 trillion (US$432 million), and on an annualized basis, it stood at 2.2% of GDP, exceeding the 1.5% target. The decree specifically targets administrative and operational costs, such as suspending new purchases of office equipment and limiting non-essential administrative supplies. It also prohibits expenses related to catering, lunches, and protocol events, with specific exceptions.

Crucially, resources allocated to critical sectors including health, education, security, and social programs are expressly protected under this new framework. The MEF emphasizes that the projected G. 1.6 trillion in savings is not a traditional budget reduction but rather an amount of spending that will be prevented from growing due to the imposed restrictions. This strategy is seen as a response to the "war economy" plan previously announced by former MEF minister Carlos Fernández Valdovinos.