Paraguay Bonds Rise on S&P Upgrade to BBB- as Investment Grade Consensus Builds

The move signals growing investor confidence in Paraguay, with the nation's dollar bonds rising across the curve following the news. Analysts noted that the upgrade, along with Moody's earlier action, positions Paraguay as a more attractive investment destination in Latin America. The upgrade also highlights the country's efforts to diversify its economy and strengthen its export base.

S&P also revised its GDP growth forecast for Paraguay upward, projecting 5.4% growth for the year. The agency emphasized that political consensus on economic policies has improved governance and bolstered long-term stability. With continued private-sector investment, Paraguay is expected to remain one of the region's most dynamic economies through 2027 according to economic analysis.

Economic Resilience and Fiscal Policy

Paraguay's economic resilience is a key factor behind the rating upgrade.

S&P noted that the country has maintained fiscal flexibility while running moderate deficits. The government's conservative approach is expected to reduce general government deficits to 1.5% by 2026, supporting long-term fiscal sustainability.

The agency also highlighted the role of foreign direct investment (FDI) in Paraguay's economic outlook. Strong FDI inflows are expected to diversify the economy and broaden its export base, further enhancing resilience to external shocks. S&P projects that investment will grow significantly over the next few years, reaching 27% of GDP by 2026-2028.

Market Reactions and Outlook

The bond market responded positively to the S&P upgrade, with Paraguay's dollar-denominated bonds rising across the curve. Notes due in 2033 saw prices edge higher to 88.5 cents on the dollar, according to Bloomberg data.

Moody's had previously upgraded Paraguay to investment grade in 2024, while Fitch still rates the country at BB+ with a positive outlook. The divergent ratings highlight varying assessments of risk, but the consensus is moving toward recognizing Paraguay's progress.

S&P's stable outlook indicates that the agency does not expect significant changes in the near term. However, the rating firm warned that fiscal or external shocks could lead to a downgrade within 12 to 18 months. On the other hand, continued policy reforms and strong growth could lead to a further upgrade.

Risks to the Outlook

Despite the positive developments, Paraguay faces several risks. Over 80% of the government's debt is denominated in U.S. dollars, making it vulnerable to exchange rate movements. This exposure could strain fiscal buffers if the local currency weakens significantly.

Another concern is the country's current account deficits, which S&P expects to remain moderate in the next two years. While these deficits are manageable, they could become a risk if import pressures persist after major investment projects are completed according to economic analysis.

Political developments also remain a wildcard. While economic policies have enjoyed broad support, future shifts in governance could impact the sustainability of reforms. S&P emphasized that continued reforms are essential to maintaining the current growth trajectory.

What This Means for Investors

For investors, the S&P upgrade signals an improved risk profile for Paraguay. The nation's ability to attract FDI and maintain fiscal discipline is likely to enhance its appeal as a regional investment destination. The upgrade also aligns with broader trends in Latin America, where several countries are working to strengthen their economic fundamentals.

Analysts suggest that Paraguay's improved ratings could lead to increased access to international capital markets. This could lower borrowing costs for the government and private sector, supporting further investment and growth. However, investors should remain cautious about external risks, particularly those related to currency and global commodity markets according to market analysis.

The upgrade follows similar actions by Moody's and reflects a broader shift in how rating agencies assess Latin American economies. As Paraguay continues to implement reforms and attract investment, it could see further improvements in its credit profile and economic performance according to economic research.