IDB contributes to Paraguay's coronavirus response

IDB contributes to Paraguay's coronavirus response

Loans Debt Economy & Policy Coronavirus Paraguay US

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The Inter-American Development Bank (IDB) said on Monday that it arranged $210 million in financing for Paraguay to address the public health and economic crises caused by COVID-19.

The IDB granted a loan for $160 million and added $50 million from the the Korea Infrastructure Development Co-Financing Facility for Latin America and the Caribbean, or KIF, which is managed by the development bank, it said in a press release.

The IDB loan has a 20-year tenor with a 5.5-year grace period and an interest rate based on Libor. The KIF loan, meanwhile, has a 25-year tenor with seven-year grace period and pays a fixed rate of 2.5% per year.

The Paraguayan government will use the money to increase the healthcare spending by 40% and fund temporary cash transfer programs for 300,000 low-income families to buy food, medicine and basic goods. It will also provide subsidies to small businesses and supply liquidity to companies that are struggling in the wake of the coronavirus pandemic.

"The project also aims to help [Paraguay] in economic and fiscal terms in the post-pandemic period by supporting reforms designed to boost the efficiency of the public sector in areas such as public health, education, social protection, fiscal matters and government institutions," the IDB said without providing more details.

Paraguay received $274 million from the International Monetary Fund (IMF) in late April and $400,000 from the Latin American development bank CAF earlier this month to deal with the pandemic. The country also sold $1 billion in cross-border bonds on April 23 to fund its efforts against the outbreak.

The government can borrow up to an addition $1.6 billion this year as part of a COVID-19 emergency financing law that Congress passed in March. Paraguay's balanced budget laws had capped the fiscal deficit at 1.5% of GDP, but Fitch Ratings estimated that the emergency spending plan was worth close to 4% of GDP.

According to the UN Economic Commission for Latin America and the Caribbean, known as CEPAL, Paraguay had one of the lowest debt-to-GDP ratios in the region at the end of last year. But, given the importance of agricultural exports, Paraguay has been severely affected by the economic downturn in China, CEPAL said in a report.