Paraguay's Ministry of Economy and Finance (MEF) successfully completed the second issuance of 2025 fiscal year treasury bonds on the domestic securities market yesterday. Through this issuance, the MEF raised a total of 640.85 billion Guaraníes (approximately $80.5 million at current exchange rates). These funds are intended to be used for fulfilling fiscal commitments stipulated in the Public Debt Management Law (Ley 6338/2020), in line with the government's financial strategy.

This bond issuance was conducted through the Central Bank of Paraguay (BCP) and included two types of bonds: a 12-year bond maturing in 2035 and a 15-year bond maturing in 2037. The interest rates were set at 9.10% for the 12-year bond and 9.15% for the 15-year bond. The MEF noted significant participation from non-resident investors, who accounted for approximately 42% of the total bids. This can be interpreted as an indicator of sustained international investor interest in Paraguayan treasury bonds.

According to previous announcements by the MEF, the remaining issuance limit for this treasury bond program was approximately 1.23 trillion Guaraníes (about $155 million). While a significant portion of this limit has now been utilized, the Paraguayan government is expected to continue raising funds through both domestic and international markets in the future.

Growing Concerns Over Expanding Bond Issuance and Increasing Public Debt 

While treasury bond issuance is recognized as a crucial tool for covering fiscal expenditures in the National Budget (PGN), there's also growing criticism that it increases Paraguay's public debt levels. In particular, concerns are being raised that continuous bond issuance could undermine the nation's fiscal health.

According to the latest debt report released by the MEF, as of April this year, the total public sector debt balance in Paraguay stands at $19.064 billion, which represents 41.3% of its Gross Domestic Product (GDP). Of this, the central government's debt is $17.006 billion, accounting for 89.5% of the total public debt.

Breaking it down further, external debt amounts to $16.718 billion, representing 87.7% of the total debt and 36.2% of GDP. In contrast, domestic debt is $2.346 billion, making up 12.3% of the total debt and 5.1% of GDP. As of April this year, treasury bonds account for approximately 56% of the total debt, indicating their very high proportion in the government's financing methods.

Paraguay's public debt has been on a steady upward trend since the early 2000s. The pace of debt increase accelerated particularly after the 2020 pandemic due to increased government stimulus packages and social welfare spending. The International Monetary Fund (IMF) has warned that while Paraguay's debt level is currently manageable, persistent fiscal deficits and increasing public debt could undermine long-term economic stability.

Future Outlook and Challenges 

The Paraguayan government maintains that it will use the funds raised through bond issuance for national development, including infrastructure investments and expansion of social welfare programs. However, opposition parties and some economic experts question the government's debt management capabilities and urge transparent and efficient fiscal execution.

Moving forward, the Paraguayan government faces the challenge of controlling the pace of debt growth and ensuring fiscal soundness by boosting economic growth, expanding the tax base, and increasing the efficiency of public spending. Furthermore, volatility in international financial markets and the possibility of interest rate hikes could also exacerbate Paraguay's external debt repayment burden, necessitating close monitoring and the development of responsive strategies.

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