Executive Summary
In July 2024, the Government of Paraguay attained the much-coveted investment-grade sovereign credit rating for its bond obligations denominated in foreign currency from Moody’s, one of the three major international credit rating agencies. Standard and Poor’s (S&P), another of the major ratings agencies, followed Moody’s Ratings’ lead in December 2025 with its own upgrade of Paraguay to investment grade status. These ratings upgrades represent a major milestone for the country, not just economically, but politically as well. They signify an independent endorsement of Paraguay’s economic management, especially on the fiscal front. Soon after the initial announcement from Moody’s, the upgrade opened the door to new sources of foreign capital for the country, particularly foreign credit, but also public and private equity investments.
However, the third major credit rating agency—Fitch Ratings—still rates the country below investment grade, though it recently revised Paraguay’s credit outlook to positive. For markets and foreign investors to be comfortable investing in Paraguay, the country needs to preserve its investment-grade ratings from Moody’s and S&P and see further improvement in its Fitch rating.
Before the country’s presidential election of mid-2023, Paraguay’s economy was already on the ascendancy. Much has happened since Santiago Peña took office as president in August 2023, and we believe that many of the economic and institution-building policies implemented since then have contributed to a further strengthening of the country’s credit and economic standing. Despite this progress, public perception—both inside and outside of Paraguay—appears to be lagging the tangible advances made in economic policy, with consequences for the country’s access to international credit markets. This paper seeks both to bridge that perception gap and recommend further steps that Paraguay can take to maintain the momentum of its ratings upgrades.
In Chapter 1, we review the significance of obtaining an investment-grade rating and discuss prior cases of countries in Latin America that obtained that status, only to slip back and lose that standing. There are lessons for Paraguay in those stories. Indeed, over the past decade and a half, Latin America has on average been deteriorating in sovereign credit quality. As such, the economic advancement of Paraguay stands out against its regional peers.
We then review the three major rating agencies’ sovereign methodologies and examine how they have applied these methodologies to the current ratings of Paraguay. We also provide a road map for policymakers and observers as to what factors are needed for Paraguay to obtain that third and final investment-grade sovereign rating.
In Chapter 2, we critically examine three major factors holding Paraguay back from further ratings upgrades. For each of these factors, we take stock of what Peña and his predecessors have so far accomplished, what still needs to be done, and where we believe Paraguay’s current sovereign credit ratings do not yet reflect recent advances.
The first factor we explore is Paraguay’s low economic diversification, which makes the country vulnerable to climate and energy shocks. The Paraguayan economy has been one of the fastest growing economies in Latin America over recent years. However, this growth masks a high reliance on agriculture, which is vulnerable to climate change and commodity price volatility, as well as a high dependence on hydroelectricity. These factors pose a risk to the generation of foreign exchange, which is needed to service the country’s external debt. The Peña administration has been actively trying to diversify the economy into manufacturing and encouraging the development of alternative energy sources such as nuclear and solar, but much work remains.
The trade agreement recently signed between the EU and the Mercosur trading bloc, of which Paraguay is one of four Latin American member states, represents good news. As a relatively open economy, the agreement will likely increase Paraguayan economic activity through higher export earnings and potentially attract greater foreign direct investment (FDI). Although a deal was arrived at in December 2025, it must now be ratified by both the EU’s and the Mercosur member nations’ legislatures. In mid-January, the European Parliament referred the accord to the EU’s Court of Justice, a step which could represent important delays in the legislative approval process. However, there is discussion that the accord may be implemented provisionally once at least one of the Mercosur legislatures approves the deal over the next few months.
We then turn to the second set of factors: fiscal issues. Following the COVID-19 period earlier this decade and the associated fiscal and debt deterioration, prudent management has led to a marked improvement in Paraguay’s fiscal accounts, and the country’s debt ratios have been stabilizing. The country still faces several challenges on this front, from low levels of tax collection to the high proportion of foreign currency-denominated debt and the volatility of foreign currency receipts due to climate factors. We discuss the efforts by the Peña administration to mitigate these risks—in particular, the attempts to tackle the problem of informality, the issuance of local currency debt, and the renewed commitment to the Fiscal Responsibility Law.
Third, we consider Paraguay’s progress on questions of institutional development. The government has been actively implementing dozens of important institutional reforms, including an anti-corruption law as well as other reforms in the area of pensions, revenue collection, and private sector investment, but many of the benefits of these reforms will take time to materialize. Control of corruption and upholding the rule of law remain important challenges, and they feature highly in the assessments of the rating agencies. Credible implementation of anti-corruption and good governance laws remains an important work in progress for the Paraguayan authorities.
In Chapter 3, we offer a list of recommendations for Paraguayan officials to consolidate existing reforms, consider additional ways that Paraguay can improve on these three dimensions, and ensure that progress is reflected in sovereign credit ratings. Paraguay is now at the threshold of full investment-grade status. By taking further steps to diversify the economy, shore up public finances, and build institutions, Paraguayan leaders can unlock new sources of capital to fund the country’s long-term development.
Global Americans’ policy recommendations to Paraguayan policymakers, legislators, and civil society members are the following:
Overall Recommendation: Continue to promote Paraguay’s positive credit trajectory to international institutions and global investors.
Economic Diversification
- Reallocate policy efforts from attracting new projects to completing approved projects.
- Further incorporate climate risk and potential mitigation efforts into investment decisions.
Fiscal Responsibility and Revenue Mobilization
- Focus on increasing tax efficiency via improved collection and modernization
- Prioritize meeting the fiscal rule in 2026.
- Develop and expand the local capital markets and reduce the proportion of public debt denominated in foreign currency via liability management.
Governance and Institutional Strength
- Intensify efforts to implement recent governance reforms passed by Congress.
- Consolidate spending through a reform of the Caja Fiscal.
- Engage with and further address citizens’ concerns about rule of law.
We firmly believe that with the right mix of reforms and political will, Paraguay can continue to build on past successful efforts to modernize its economy and also consolidate its investment-grade status, paving the way for a more inclusive, resilient, and competitive economy.
