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Senior IMF Economist Analyzes the Economic Situation in the Western Hemisphere
Nigel Chalk analyzed the case of Paraguay during the presentation of the latest edition of the IMF’s Economic Outlook for the Americas report
In an interview with Última Hora de Asunción, Nigel Chalk, director of the Western Hemisphere Department of the International Monetary Fund (IMF), highlighted the importance of fiscal consolidation and structural reforms to strengthen resilience and growth potential, especially in a changing global context. The interview coincided with the presentation of the IMF’s Economic Outlook for the Americas report.
Chalk noted that the new economic order faces rising U.S. tariffs and stricter immigration policies. While global uncertainty persists, the global impact on Latin America has been mitigated due to the region’s relatively low trade exposure to the US market, excluding Central America and Mexico. Furthermore, recent volatility has eased, with sovereign debt spreads tightening, regional currencies recovering and commodity prices stabilizing.
Regional growth therefore remained stable in the first half of 2025, driven by international trade and solid consumption. The IMF forecasts regional growth of 2.4% until 2025, with a slight moderation expected in 2026. Convergence towards inflation targets continues, albeit at a slower pace due to rising labor costs and persistent underlying inflation. Regional inflation is expected to stabilize this year and tend to fall to 3.5% in 2026. In this context, Paraguay stands out as a positive case. It was the first country in the region to reach its previous inflation target of 4% and is expected to see an acceleration in growth in 2025, driven by strong domestic demand. The CPI is expected to grow 3.5% in 2026.
Chalk identified the main risks that threaten the region’s prospects, which, taken together, present a downward trend, in a context of lower than expected growth in the main global economies, which could harm exports, tourism and remittances, coupled with disruptions in the supply chain and the increase in trade barriers that could discourage investment. Furthermore, favorable financial conditions could reverse if risks materialize, restricting external financing, especially for highly indebted countries. To strengthen resilience, the most urgent policy challenge is fiscal consolidation to reduce high levels of public debt. This is crucial to restore monetary policy buffers and facilitate inflation convergence, as fiscal policy has remained expansionary since 2022 despite monetary tightening.
In contrast to the regional trend of slow consolidation, Paraguay is successfully implementing a fiscal convergence plan. It is expected that in 2026 it will return to the deficit limit of 1.5% of GDP established by the Fiscal Responsibility Law, for the first time since 2018, which will lead to a decrease in the public debt/GDP ratio.
Chalk emphasized that Paraguay’s fiscal discipline has been combined with monetary policy and has contributed to keeping inflation stable. Paraguay maintains a solid medium-term growth outlook, driven by macroeconomic stability and ongoing structural reforms that are reinforcing the country’s image as an attractive investment destination. The IMF director warned that smuggling and drug trafficking represent a major obstacle to growth, harming investment and productivity. Crime imposes substantial costs on companies and public finances, diverting resources from other priorities. Resolving this problem requires a comprehensive policy response that combines macroeconomic stability, inclusive growth, institutional strengthening and greater regional cooperation. (Source: Última Hora)
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