(Bloomberg) -- Paraguay’s recent debut into the world of investment grade credit rating could kick off a round of dealmaking as local family-run corporations look to modernize their operations by embracing foreign capital and corporate governance expertise, Finance Minister Carlos Fernandez said in an interview.
The banking sector will probably see the first deals with foreigner investors seeking equity exposure to Paraguay’s fast growing economy, Fernandez said from the capital Asuncion.
“Next year, we could see some Paraguayan companies trying to carry out some sort of operation abroad, that is, opening their capital structure to people who want to invest or even having a presence on international markets,” he said.
Paraguay, a land-locked South American country of 6.1 million people, is having a moment. The government won its first investment grade rating last month when Moody’s raised the country to Baa3 from Ba1 with a positive outlook. International Monetary Fund Managing Director Kristalina Georgieva also visited in July to praise President Santiago Pena, who took office last year, for “strong growth and bright economic prospects.” That’s a stark contrast to neighboring Argentina, mired in recession and facing a $44 billion debt burden with Georgieva’s IMF.
Paraguay is still one notch below investment grade with S&P Global Ratings and Fitch Ratings, which both flagged weak institutions and the rule of law as impediments to a higher rating. Fernandez sees the government’s strategy of prioritizing economic stability and reforms eventually yielding more upgrades.
Pena’s ruling Colorado Party won congressional approval to regulate pension funds, reorganize the central government’s bureaucracy and improve tax collection during his first year in office. The administration plans to sponsor more reforms this year, including legislation to overhaul the civil service and the public-private participation law, Fernandez said.
A potentially contentious bill to address growing deficits in the civil service pension system will probably go to lawmakers in early 2025, he said. Peña’s latest reform push is far from a done deal. Fernandez recognized that the government faces a more challenging economic policy and reform agenda than during its first year.
“This is the start of a new race, a race that is much more demanding than the one before,” he said.
Budget Bill
The 2025 budget bill the Finance Ministry will submit to lawmakers Aug. 30 forecasts 3.8% growth and 4% inflation, Fernandez said. The government sees the fiscal deficit narrowing to 1.9% next year and 1.5% in 2026 even without public sector pension reform, he said.
Fernandez estimated Paraguay will sell around $1 billion of US dollar and local currency global bonds next year to cover the deficit and refinance debt maturing in 2026-27. The government will consider reopening its first Guarani-denominated global bond or issue a new bond, he said.
“We have to consolidate the market for Guarani bonds in New York before,” looking at other funding options like sustainability-linked and green bonds, Fernandez said.
©2024 Bloomberg L.P.
