Carlos Fernandez, the incoming finance minister of Paraguay, has expressed his desire to reduce the country's dependence on dollar funding by implementing measures to make it more attractive for foreign investors to purchase local currency bonds on the domestic debt market. Paraguay has been a regular issuer of global bonds, having sold more than $6.5 billion worth since 2013, as well as domestic bonds denominated in guarani, the country's currency. In June, Morgan Stanley's Eaton Vance unit became the first foreign investor to buy guarani bonds under new rules at a government debt auction.
Fernandez believes that increasing the issuance of bonds in guarani could change the balance between local and foreign currency issuances. The administration of President-elect Santiago Peña also plans to issue at least $500 million worth of global bonds early next year to fund the budget, refinance debt, and pay suppliers.
Fernandez, who previously served as the central bank's head from 2013 to 2018, will take charge of Paraguay's $43 billion economy when Peña begins his term on August 15th. While the economy is forecasted to grow around 4.5% this year and 4% in 2024, Fernandez faces the challenge of reducing a fiscal deficit that has been expanded due to pandemic stimulus measures, while also increasing spending on social services and public works. Paraguay currently has one of the lowest tax-to-GDP ratios in Latin America.
To address these challenges, Fernandez aims to attract more investment by convincing businesses to invest through repairing public finances without raising taxes. He stated that no tax increases are being considered, as Paraguay's competitive advantage lies in its favorable tax environment. Fernandez plans to increase revenue through a tax reform approved in 2019 and a centralized tax collection agency. Additionally, he intends to cut wasteful spending to free up more funds.
Fernandez's goal is to gradually reduce the fiscal deficit to 1.5% of GDP by the end of 2026, while avoiding any harm to the economy. This year, the deficit is expected to be around 3% due to the Peña administration's plan to pay off $500 million in debts owed to drug companies, construction firms, and other government contractors by March next year. Fernandez believes that with the economy recovering, it is essential for all sectors to be in good shape, and therefore, it is crucial to address the financial distress faced by these companies.
Overall, Fernandez is committed to implementing strategies that will improve Paraguay's economic outlook, achieve consistent growth, and create job opportunities.