Paraguay Garners Economic Praise and Signs Historic EU Trade Deal

ASUNCIÓN, 28 January 2026 – Paraguay is experiencing a moment of significant international recognition and economic momentum. The landlocked South American nation has received a credit rating upgrade, successfully concluded a major free trade agreement with the European Union, and secured fresh funding from the International Monetary Fund, painting an optimistic picture for its development trajectory in the coming year.

Economic Resilience Rewarded

International financial institutions are signalling strong confidence in Paraguay’s economic management. S&P Global Ratings upgraded the Republic of Paraguay to ‘BBB-/A-3’, citing improved policy effectiveness and stronger economic resilience. This positive assessment is echoed by the International Monetary Fund (IMF), which has completed its sixth review under a reform programme and authorised a disbursement of approximately $117 million USD to support the country’s budgetary needs. The World Bank estimates Paraguay’s economy grew by 4.7% in 2023, with a projected 3.8% expansion for 2024, driven largely by a recovery in agricultural exports after drought conditions eased.

Historic EU-Mercosur Pact Signed

In a landmark development for regional trade, the European Union and the Mercosur bloc—comprising Argentina, Brazil, Paraguay, and Uruguay—have formally signed a long-awaited free trade agreement. The deal, over two decades in the making, aims to create one of the world’s largest free-trade zones. For Paraguay, a major agricultural exporter, the agreement promises improved market access for key commodities like soybeans and beef. The signing follows political delays within the EU, where farmer protests had temporarily stalled the process.

Leveraging Energy for a Digital Future

Paraguay’s economic strategy is increasingly tied to its unique energy advantage. The nation generates nearly all its electricity from renewable hydropower, primarily from the massive Itaipu Dam, a binational project with Brazil. Officials are now planning to leverage this cheap, clean energy to fuel a technological transformation. A proposed AI data centre project aims to use Itaipu’s power to export digital services globally, potentially allowing Paraguay to trade “energy for technology” and establish itself as a regional tech hub.

Key Facts at a Glance

Diplomatic Moves and International Alignment

Paraguay’s foreign policy has also been active. The government made headlines by expelling a Chinese envoy after he urged the country to sever its longstanding diplomatic ties with Taiwan, a move that reaffirms Paraguay’s position as one of the few nations maintaining official relations with Taipei. Furthermore, reports indicate Paraguay is among a group of nations, including Kazakhstan and Hungary, being courted by the United States to participate in a proposed international “Peace Council”, suggested as an alternative forum to the United Nations.

Frequently Asked Questions

What does the S&P credit rating upgrade mean for Paraguay?

The upgrade to ‘BBB-‘ signifies Paraguay’s debt is considered to have adequate capacity to meet financial commitments. It reflects international confidence in the country’s economic policies and resilience, which can lower borrowing costs and attract more foreign investment.

Why is the EU-Mercosur deal important for Paraguay?

As a landlocked country heavily reliant on agricultural exports, Paraguay stands to benefit significantly from reduced tariffs and quotas in the massive EU market. The deal provides long-term stability and growth potential for its key farming sector.

How does the Itaipu Dam power Paraguay’s economy?

The Itaipu Dam provides Paraguay with an abundance of low-cost, renewable electricity. This not only powers homes and industries at very low rates but also creates a unique competitive advantage for energy-intensive projects, like the proposed AI data centres, allowing Paraguay to export digital services instead of just raw power.