Paraguay: Guarani vs USD

Investment Instruments - Sovereign Bonds, Deposits & FX - May 2026 • Banco Central del Paraguay data • S&P / Moody's / Fitch ratings Key Figures at a Glance: PYG/USD 12-month gain: +29.2% • Sovereign PYG bond (10Y): 8.50% • S&P / Moody's: BBB− (Investment Grade)1. Macroeconomic Context

1. Macroeconomic Context

Paraguay has emerged as one of Latin America's most stable economies in the mid-2020s. Its strictly territorial tax system, prudent fiscal policy (deficit cap of 1.5% of GDP), and consistent GDP growth have underpinned a material re-rating of its sovereign credit, from sub-investment grade to dual investment-grade status in the space of 18 months.

1.1 GDP Growth

S&P projects GDP growth of around 4% over 2026-2028, following an average of 3.9% between 2022 and 2025. Strong private investment and domestic consumption are the primary drivers. Investment is projected to grow by 17% in 2025 and reach 27% of GDP during 2026-2028.

1.2 Inflation

Paraguay's inflation picture has improved markedly. Annual CPI stood at 2.3% year-on-year in February 2026, down from 2.7% in January and the lowest level since 2020, according to BCP data. Core inflation also declined to 2.6% in the same month. This compares favourably against: the Latin America 10-year average of 10.8%, and Paraguay's own 10-year average of 4.3%. The BCP's official target band is 4.0% (±2pp). The current rate is well below the floor of that band, giving the central bank room to maintain accommodative but credible policy. Source: Banco Central del Paraguay (BCP), countryeconomy.com, Trading Economics. Data as of March 2026.

1.3 Inflation vs. Instrument Yields - The Real Return Case

With headline inflation at 2.3% and Guarani fixed deposits offering approximately 9.5%, the implied real yield is roughly +7.2 percentage points - exceptional by any global benchmark. Even against the BCP’s 4.0% target ceiling, a 9.5% deposit yields a real return of ~5.5%. This spread is the structural core of the investment case for PYG-denominated instruments. Real return context: Paraguayan Guaraní fixed deposits currently offer around 9.5% interest while local inflation is only about 2.3%, meaning investors are still earning strong real returns after inflation. By comparison, US Treasury bonds offer much lower real returns once inflation is taken into account. The difference is significant, although currency movements still need to be considered.