By Faruk Miguel Liriano and Cesar Arias
Paraguay is leading reforms to attract foreign investment to its local capital markets. On December 26, 2024, the Central Bank of Paraguay (BCP) overhauled the rules for the issuance, custody, and trading of public debt securities and expanded the limits for foreign exchange and hedging transactions for foreign investors in government bonds issued in guaranies.
Why is Internationalizing capital markets Important for Paraguay?
Paraguay’s sovereign debt rating has reached investment-grade status, aligning with economies in the region such as Chile, Mexico, Panama, Peru and Uruguay. The credit rating upgrade facilitates access to financing at lower costs and longer terms for Paraguayan households, businesses, and financial intermediaries. It enables the government to increase investment in infrastructure and attract private capital into sectors that foster employment and social development, such as forestry, light manufacturing, and renewable energy.
With support of the World Bank, the Central Securities Depository of the BCP updated regulations to facilitate access for local and international investment funds to the government bond market in a safe, competitive and efficient environment. The reforms promote the development of local capital markets, financial innovation, and adequate risk management. Regulatory reforms adhered to international standards and market best practices applicable to global custody activities, and referenced other central banks in the region such as those of Brazil, Chile and Colombia.
Boosting investor diversification, market liquidity and risk management
Foreign funds increased their investment in Paraguay’s local currency government bonds from 1.7 percent in 2023 to 5.0 percent in 2024. This is due to solid economic growth, improvements in sovereign credit ratings, and the government’s strategy to increase bond issuances in guaranies to mitigate exposure to currency risks. However, the participation of international investors in the Paraguayan local public debt market (5%) remains significantly lower than the average in emerging countries (14%) (Chart 1).
In this context, the BCP advanced the following financial and foreign exchange regulatory reforms to facilitate access of new international investment to the domestic debt market:
- Foreign investors will be able to buy local currency government bonds through global custodian banks, and qualified institutional investors will be able to directly contract services of regulated local custodians such as banks, financial institutions, and brokerage firms.
- Financial institutions will be able to provide hedging and foreign exchange risk management instruments to investors in government bonds, thanks to the expanded limits on the purchase and sale of foreign currency on spot and future derivative markets.
- Domestic and foreign holders of government bonds will be able to trade directly, both through stock exchange platforms and over-the-counter markets, contributing to the development of a more liquid and dynamic capital market.
- The new regulations establish the rights and obligations of local custodians and guarantee standardized and competitive rules for access to and negotiation of public debt securities among market participants.
Market infrastructure modernization strengthens the impact of regulatory reforms
In November 2024, the Caja de Valores de Paraguay (CAVAPY) began a technological modernization initiative to improve the provision of registration, custody and administration services for private corporate debt instruments, shares and mutual funds in Paraguay. A dedicated portal for investors will give them greater control and transparency in the management of their financial assets. In addition, the Asunción Stock Exchange will adopt a new technological trading platform that will support agile and secure settlement of transactions in the primary and secondary securities markets.
Lessons learned and next steps
Paraguay’s experience provides valuable recommendations and lessons learned for other emerging and developing economies in the process of internationalizing their local capital markets.
Despite the cost of the reforms, the benefits are greater. Attracting foreign investment requires regulatory adjustments to the public debt and foreign exchange markets, modernization of the technological and financial infrastructure for transaction settlement, and the development of a reliable local custody activity aligned with strict global asset management standards. However, the benefits in terms of diversifying financing sources, mitigating exchange rate risks, and developing the capital markets outweigh the costs and challenges of the reforms.
Inter-agency coordination is key to the success of reforms. Coordination between the BCP and Paraguay’s ministry of economy and finance has been key to linking the trading systems of the central public debt depository and the stock exchange, and fostering constructive dialogue between regulators, custodians, financial intermediaries, and local and foreign investors. These efforts were crucial factors in implementing regulatory reforms and enhancing their impact on the development and internationalization of local capital markets.
The modernization of local capital markets in Paraguay is an ongoing process. In addition to updating financial and foreign exchange regulations, the BCP is analyzing initiatives that contribute to financial inclusion and strengthen the liquidity, transparency and efficiency of the Paraguayan financial market. This includes the implementation of a specialized depository for the issuance and custody of Electronic Deposit Savings Certificates (CDA-e), adding dynamism to digital transactions and significantly reducing operational, credit, and counterparty risks.
Paraguay successfully returned to international capital markets in February 2025, demonstrating that its economic and financial reforms continue to generate benefits for the country. For the first time, the government issued global bonds denominated in guaranies, with a 10-year maturity, and at a competitive interest rate of 8.50 percent. It also placed global bonds in US dollars, with a 30-year maturity, and at a historically low yield of 6.65 percent. Paraguay is the sixth Latin American sovereign issuer – after Brazil, Chile, Mexico, the Dominican Republic and Uruguay – to access markets on favorable terms in the first two months of 2025, signaling optimism and resilience in the region amid a volatile and challenging global financial context.
This blog post has been written in collaboration with Diego Legal, Deputy General Manager of Financial Operations of Central Bank of Paraguay.
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