A Balancing Act: Reform Options for Paraguay’s Fiscal Responsibility Law

Author/Editor:

Antonio David ; Natalija Novta

Publication Date:

November 16, 2016

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Paraguay faces a trade-off between building fiscal credibility and amending the existing fiscal rule to accommodate infrastructure investment and provide space for countercyclical policies. In this paper, we discuss several alternative fiscal rules for Paraguay and present simulations of debt trajectories in each case, assuming a baseline and three deterministic shock scenarios. We provide a supplementary Excel file to replicate debt simulations under different fiscal rules. The results suggest that potential modifications to make the fiscal rules more flexible in Paraguay should be accompanied by a number of safeguards that enhance credibility of the fiscal anchor and preserve sustainability.

Series:

Working Paper No. 2016/226

Subject:

Capital spending Current spending Expenditure Fiscal policy Fiscal rules PFM legal and regulatory frameworks Public financial management (PFM)

English

Publication Date:

November 16, 2016

ISBN/ISSN:

9781475555158/1018-5941

Stock No:

WPIEA2016226

Pages:

33

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