Paraguay: Technical Assistance Report-Establishing a Structural Balance Rule and a Public Debt Objective
International Monetary Fund. Fiscal Affairs Dept.
Mar 2017 · International Monetary Fund
Ebook
67
Pages
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About this ebook
The enactment of the Fiscal Responsibility Law in 2013, which came into force in 2015, was a major achievement toward strengthening Paraguay’s fiscal framework. Its implementation has nonetheless been complex, with slippages occurring in the first year of its enactment. Concerns have also emerged about the current design of the nominal balance rule, which is perceived as excessively rigid. Given the high volatility of fiscal revenues, the rule translates into an unstable path of public expenditure and does not provide sufficient space for countercyclical policies. Paraguay’s tight fiscal deficit ceiling may also constrain capital expenditure plans, possibly to the detriment of overall economic development needs. The authorities have decided to replace the nominal balance rule with a structural balance rule, starting in 2019, to achieve a more stable path of public expenditure and better link it to the medium-term objectives of fiscal policy. The government is also considering modifications of the Fiscal Responsibility Law in order to enhance public investment without damaging the credibility of the rule-based framework.
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