Hidden Bibliographic Details
| Other authors / contributors: | David, Antonio, author, (IMF staff)
Keim, Geoffrey N., author, (IMF staff)
Novta, Natalija, author, (IMF staff)
Santoro, Marika, author, (IMF staff)
International Monetary Fund. publisher.
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| ISBN: | 1475524005
9781475524000
1475528507
9781475528503
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| ISSN: | 1934-7685
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| Notes: | "May 2016."
"April 15, 2016; approved by the Western Hemisphrere Department; prepared by Antonio David, Geoffrey Noah Keim, Natalija Novta, and Marika Santoro (all WHD)"--Page 2 of pdf.
Includes bibliographical references.
Description based on online resource; title from pdf title page (IMF.org website, viewed May 19, 2016).
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| Summary: | Over the first year of Paraguay's fiscal responsibility law (FRL) implementation has proven challenging and a debate has emerged over whether its current design is excessively rigid. The enactment of the Fiscal Responsibility Law in 2013, which came into force in 2015, was a major achievement for the country toward strengthening its fiscal framework and institutionalizing fiscal discipline. In addition to numerical targets, the law has also introduced elements of medium-term budgeting and greater transparency. However, fundamental issues have emerged both with respect to its implementation and design. First, amid legal questions, implementation of the FRL has been complex--with last year's budget exceeding the deficit ceiling by a noticeable margin. Second, there is growing concern that under the current design of the rule with its comparatively low deficit ceiling and limited escape clauses, capital expenditure plans will need to be adjusted to ensure compliance, possibly to the detriment of overall economic development prospects in light of the sizeable infrastructure needs and the relatively low public debt levels. The international experience suggests that excessively rigid fiscal rules tend to be abandoned (Schaechter, A., T. Kinda, N. Budina, and A. Weber, 2012).
Paraguay has experienced rapid credit growth over the past decade. Part of this credit growth reflects improved stability in the banking system, which has been fostering financial deepening and catching up. Nevertheless, more recently credit growth may have shown exuberance--i.e., running ahead of underlying fundamentals--with credit growth peaking at 31 percent (year/year) in August 2015. This can possibly give rise to a tension between rapid loan extension and slowing economic activity. Additionally, adverse external spillovers could materialize in the context of lower prices for agricultural products and a steep contraction in Brazil, Paraguay's main trading partner. These spillovers would transmit through the high dependence of borrowers' capacity to repay on external conditions.
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| Standard no.: | 10.5089/9781475528503.002
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