Since joining the World Bank's Reserve Advisory and Management Partnership (RAMP) in 2017, the Central Bank of Paraguay has improved its management of international reserves. The collaboration with RAMP has helped diversify its reserve portfolio, modernize investment practices, and strengthen operational frameworks. This has resulted in better long-term profitability, improved liquidity and security of their portfolio, and a stronger financial position for both the Central Bank and the country.
In 2017, when Paraguay joined RAMP, its international reserves were $7.8 billion but relied heavily on bank deposits, which made up over 80% of reserves. Compared to other central banks, this composition lacked adequate exposure to government debt, money market instruments, and bonds from supranational agencies that offer higher returns while maintaining liquidity and security.
To address these issues, RAMP worked with the Central Bank of Paraguay to improve reserve management practices by diversifying the reserve portfolio while adhering to robust risk management standards. This process was supported by RAMP’s advisory services and training programs.
The first step involved revising investment policies and guidelines with RAMP's support. These documents defined strategic objectives, risk tolerance, and eligible asset classes. By 2021, a new investment policy was approved by their board.
A strategic asset allocation framework was developed next with differentiated tranches for working capital, liquidity, and investments tailored to specific needs. Quantitative tools were used to introduce appropriate benchmarks using government bond indices.
Portfolio management involved implementing investment policies along with strategic asset allocation. Training officials to replicate benchmark portfolios enabled active portfolio management. The Central Bank now invests in higher-quality instruments like bonds issued by agencies or sovereign entities with high credit ratings.
Effective risk management is crucial for any investment framework. RAMP trained staff in financial and operational risk management through technical workshops using quantitative metrics.
Operational processes also saw improvements through electronic platforms for trading aligned with international standards enhancing efficiency in reserve management operations.
Looking ahead, the Central Bank aims to continue diversifying its portfolio adopting sophisticated tools for portfolio and risk management with ongoing support from World Bank RAMP ensuring Paraguay remains well-positioned economically.
"The success of this partnership underscores the transformative potential of the World Bank’s asset management," stated an official report based on a chapter published in El Guaraní book detailing 80 years of monetary stability in Paraguay available since December 2023.