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

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  • Mr. Antonio David
  • Natalija Novta

Abstract

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.

Suggested Citation

  • Mr. Antonio David & Natalija Novta, 2016. "A Balancing Act: Reform Options for Paraguay’s Fiscal Responsibility Law," IMF Working Papers 2016/226, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2016/226
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    References listed on IDEAS

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    6. Julio Escolano, 2010. "A Practical Guide to Public Debt Dynamics, Fiscal Sustainability, and Cyclical Adjustment of Budgetary Aggregates," IMF Technical Notes and Manuals 10/02, International Monetary Fund.
    7. Till Cordes & Mr. Tidiane Kinda & Ms. Priscilla S Muthoora & Miss Anke Weber, 2015. "Expenditure Rules: Effective Tools for Sound Fiscal Policy?," IMF Working Papers 2015/029, International Monetary Fund.
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