PARAGUAY: An Introduction

Paraguay enters 2026 in a position that, not long ago, seemed aspirational rather than real: sustained macroeconomic stability, meaningful regulatory reform and, most importantly, international validation of its fiscal discipline.

In 2024, Moody’s granted Paraguay its first-ever investment grade rating (Baa3). In 2025, Standard & Poor’s followed, upgrading the sovereign rating to BBB – with a stable outlook. Securing two investment grade ratings places Paraguay among a relatively small group of Latin American jurisdictions perceived as fiscally reliable and institutionally stable by global institutional investors.

These events should reduce sovereign borrowing costs, improve access to international capital markets and positively influence pricing and availability of financing for private sector projects. For infrastructure, energy and structured finance transactions, this shift materially changes the conversation with lenders and funds.

Macroeconomic Stability and Structural Advantages

Paraguay’s macroeconomic environment in 2025 was strong, as shown in key financial indicators. As inflation remained under control (3.1% for 2025) and economic activity held up, the Central Bank of Paraguay began moderating its policy interest rate, lowering the benchmark from 6% to 5.75% early in 2026, a signal of confidence in underlying stability. At the same time, the Paraguayan guaraní stood out across Latin America for its resilience against the US dollar. The guaraní was among the least depreciated currencies in the region over 2025, supported by solid fundamentals and foreign exchange inflows into local assets.

On the real side of the economy, Paraguay achieved robust GDP growth of approximately 4.5% in 2025, above the regional average, reflecting sustained domestic demand, strong agricultural performance and continued expansion in manufacturing and services.

Paraguay’s recent economic performance has outpaced much of the region, supported by prudent fiscal policy, moderate public debt levels and controlled inflation. Its energy matrix, based predominantly on hydroelectric generation, remains a structural competitive advantage. In a global environment where energy security and sustainability increasingly shape industrial decisions, abundant and renewable electricity is a significant differentiator.

Recent updates to the regulatory and tariff framework applicable to energy-intensive industries have further reinforced this position. Adjustments to pricing schemes and long-term supply conditions for large-scale consumers aim to provide greater predictability and competitiveness, particularly for industrial, manufacturing and emerging high-consumption sectors such as data infrastructure and advanced processing. While tariff policy continues to evolve in response to domestic demand and regional energy dynamics, the underlying objective has been to balance fiscal sustainability with the strategic use of Paraguay’s hydroelectric surplus as a catalyst for industrial development.

While agriculture continues to be a cornerstone of the economy, there has been visible diversification. Manufacturing for export, logistics, real estate development and financial services have expanded steadily, supported by a stable regulatory framework and comparatively predictable economic policy.

Capital Markets Reform

One of the most significant recent legal developments has been the comprehensive reform of the securities and capital markets framework. The new securities law modernises the regulatory regime, integrates financial products under a unified structure and strengthens supervisory oversight under the Central Bank.

The objective is clear: deepen the capital markets, enhance investor confidence and facilitate more sophisticated financing structures and investors (as foreign investors, institutional mainly, may be able to directly invest in the capital market). If market development keeps pace with regulatory reform, Paraguay could gradually shift from a predominantly bank-financed model toward a more diversified capital markets ecosystem.

For domestic and foreign issuers alike, alignment with international standards is a critical factor in expanding cross-border participation.

Tax Incentives and the Maquila Regime

Paraguay’s tax incentive framework remains a central pillar of its investment strategy. Enacted around three decades ago, the maquila system was recently modernised to reflect current trade dynamics, supply chain integration and compliance standards. The updated framework preserves its core advantages – most notably a 1% tax on the value added in Paraguay for export-oriented production – while streamlining procedures, strengthening oversight mechanisms and adapting the regime to contemporary industrial and logistics models.

The regime allows export-oriented manufacturing operations –including services – to benefit from a competitive tax burden, simplified customs procedures and full foreign ownership. In a global context marked by supply chain reconfiguration and nearshoring strategies, Paraguay offers a combination that is difficult to replicate in the region: macroeconomic stability, competitive labour costs and reliable energy supply.

The investment landscape has also been reshaped through the comprehensive update, after more than 35 years in force, of the long-standing Law 60/90. The modernised investment incentives regime maintains known benefits—such as VAT and customs duty exemptions on capital goods – while clarifying eligibility criteria, improving administrative procedures and expanding the range of qualifying sectors. In addition to traditional industrial activities, the updated framework broadens access to incentives for sectors such as tourism, entertainment, services and technology-driven projects, reflecting an effort to diversify Paraguay’s productive base and align its investment policy with evolving global trends.

Taken together, the modernisation of the maquila regime and the reform of Law 60/90 reinforce Paraguay’s positioning as a cost-efficient and legally predictable jurisdiction for productive investment, while signalling a shift from static incentive structures toward a more dynamic and sector-inclusive policy approach.

Data Protection: A New Compliance Landscape

The enactment of Paraguay’s new personal data protection law represents a structural shift in the regulatory environment. The legislation establishes clear principles governing lawful processing, transparency, accountability and security standards, broadly following the standards set out in the GDPR.

Importantly, the law provides for a two-year transitional period before full entry into force, allowing companies time to adapt internal policies and compliance systems. For financial institutions, fintech platforms, digital service providers and multinational groups, the existence of a defined legal framework reduces uncertainty in cross-border operations.

At the same time, implementation will require investment in compliance infrastructure and risk management, particularly for businesses handling significant volumes of sensitive data.

Challenges and Risk Considerations

Despite these advances, structural challenges persist. The effective deepening of capital markets will depend on liquidity, issuer participation and continued regulatory strengthening. Implementation of new regulatory regimes, including data protection, will require institutional co-ordination and enforcement capacity.

Infrastructure development, judicial efficiency and dispute resolution mechanisms also remain areas where continued improvement would further enhance investor confidence. In this regard, 2025 marked a significant institutional milestone with the comprehensive reform of Paraguay’s arbitration law. The updated framework modernises the previous regime, aligns domestic legislation more closely with international standards and reinforces key principles such as party autonomy and the enforceability of arbitral awards. By strengthening procedural clarity and limiting judicial interference in arbitral proceedings, the reform seeks to position arbitration as a more reliable and sophisticated mechanism for resolving complex commercial disputes, including those involving foreign investors and cross-border transactions.

No emerging jurisdiction is risk-free. However, Paraguay’s current risk profile is increasingly defined by manageable institutional development challenges rather than macroeconomic instability.

Outlook 2026–27

Looking ahead, Paraguay combines sound macroeconomic fundamentals, upgraded sovereign credibility and meaningful regulatory modernisation. Energy, infrastructure, export-oriented manufacturing, financial services and real estate linked to urban and logistics expansion appear particularly well positioned.

In a regional landscape often characterised by volatility and fiscal strain, Paraguay offers relative predictability. For investors seeking medium to long-term exposure in Latin America, predictability is not a minor attribute; it is frequently decisive.

The consolidation of investment grade ratings, ongoing regulatory reform and sustained macroeconomic discipline suggest that Paraguay is not merely experiencing a favourable cycle but is gradually strengthening the structural foundations of its investment environment.