Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes 2019 Article IV Consultation with Peru







January 14, 2020















On January 8, 2020, the Executive Board of the International monetary Fund
(IMF) concluded the Article IV consultation[1]

with Peru.

Peru continues to be one of the best-performing Latin American economies.
With annual real GDP growth averaging 5.4 percent over the past fifteen
years, Peru has been one of the fastest-growing economies in the region,
which enabled it to make significant progress in reducing poverty. A sound
macroeconomic policy framework has supported growth and helped build and
maintain large policy buffers.

Nonetheless, a less benign external environment and adverse domestic
factors have caused growth to lose momentum in recent years, and
productivity has disappointed. Trade tensions have reduced global growth
and increased uncertainty, international financial markets have become more
volatile, and commodity prices have only partially recovered from the
2011–15 decline. Domestically, the adverse 2017 El Niño weather event
caused significant economic disruption and the findings of the Lava Jato
investigation hampered large investment projects.

Against this backdrop, growth in 2019 has largely underperformed, and is
projected to close at just 2.4 percent. The economy is, however, expected
to gradually recover, with a strengthening of demand from Peru’s trading
partners, higher execution of the public investment budget, and resilient
private consumption and investment all helping to raise GDP growth to 3¼
percent in 2020 and 3¾ in the following years. Inflation is expected to
remain anchored within the central bank’s 1–3 percent target range.


Executive Board Assessment

[2]

Directors commended Peru for continuing to be one of the best‑performing
economies in Latin America, despite the recent growth deceleration. Noting
the country’s strong policy buffers and long track record of prudent
economic policies, Directors indicated that the authorities would be in a
strong position to mitigate the potential impact of any external and
domestic risks to the Peruvian economy. In that context, Directors
encouraged the authorities to provide short‑term policy stimulus to support
the recovery as well as undertake growth‑enhancing structural reforms to
address productivity and infrastructure gaps. They also called for measures
to improve governance, and implementation of social protection policies to
achieve strong and inclusive growth that would help the country converge to
higher income status.

Directors commended the authorities’ strong fiscal position demonstrated by
low and sustainable public debt and ample fiscal buffers. However, given
pro‑cyclical fiscal policy and significant infrastructure gaps, Directors
called for further efforts to address low capital budget execution that
hamper Peru’s productivity and competitiveness. In this context, Directors
welcomed the recently announced relaxation of the deficit ceiling for the
2021‑23 period and the intent to use the extra room for public investment.
Noting that frequent modifications of the fiscal rule could undermine its
credibility, Directors encouraged the authorities to consider introducing
additional flexibility to the fiscal framework rather than relying on
periodic modifications of the deficit ceiling. Over the medium term,
Directors also encouraged enhanced domestic revenue mobilization,
especially in terms of VAT compliance and tax administration, and lower
current spending to create space for much needed infrastructure and social
spending.

Directors welcomed the renewed monetary easing implemented in the second
half of 2019 and suggested that the policy stance should continue to be
data‑driven while remaining vigilant against the emergence of financial
sector vulnerabilities. As dollarization declines, Directors also saw room
for additional exchange rate flexibility to absorb shocks and promote
financial market development while stressing that foreign exchange
interventions should be limited to addressing disorderly market conditions.
Also, the remaining non‑binding capital flow measure should be phased out.

While commending the authorities’ actions to strengthen financial sector
supervision, including through progress in implementing the 2018 FSAP
recommendations, Directors encouraged further efforts to deepen the
legislative and regulatory agenda and improve the effectiveness of the
AML/CFT framework.

Directors welcomed the authorities’ efforts to improve governance and
transparency under the Anti‑Corruption 2018‑21 Plan and called for
continued efforts in this area, including limiting the scope for
corruption, through independent audits, procurement system simplification
and judicial reforms.

Directors welcomed the authorities’ structural reform agenda under the National Plan for Competitiveness and Productivity, to boost
potential growth and achieve sustainable income convergence. Priorities
include reforming the legal system and product markets, addressing labor
market rigidities and enhancing integration of migrant workers, which would
also help address informality and promote more inclusive growth. Directors
also encouraged further efforts to improve social welfare, including
through pension system reforms, to ensure adequate social protection, a
more equitable distribution of natural resource revenues across regions,
and deepening financial development and inclusion.

Peru: Selected and Economic Indicators

Projections

2018

2019

2020

2021

2022

Social Indicators

Poverty rate (total) 1/

20.5

Unemployment rate

6.7

(Annual percentage change; unless otherwise indicated)

Production and prices

Real GDP

4.0

2.4

3.2

3.7

3.7

Real domestic demand

4.2

3.3

3.2

4.0

3.9

Consumer Prices (end of period)

2.2

1.9

2.0

2.0

2.0

External sector

Exports

8.0

-5.4

3.5

4.3

4.8

Imports

8.1

-1.7

2.7

4.8

5.6

External current account balance (% of GDP)

-1.6

-1.8

-1.6

-1.4

-1.3

Gross reserves

In billions of U.S. dollars

60.3

68.1

68.1

68.1

68.1

Percent of short-term external debt

363.5

460.9

465.7

462.2

449.7

Money and credit 2/ 3/

Broad money

9.5

8.3

8.0

8.0

7.8

Net credit to the private sector

10.3

7.3

6.9

7.1

6.6

(In percent of GDP; unless otherwise indicated)

Public sector

NFPS Revenue

24.5

25.1

25.4

25.7

25.7

NFPS Primary Expenditure

25.4

25.4

25.4

25.2

25.2

NFPS Primary Balance

-0.9

-0.3

0.0

0.5

0.5

NFPS Overall Balance

-2.3

-1.7

-1.5

-1.0

-1.0

Debt

Total external debt

34.5

35.4

34.8

33.6

32.5

NFPS Gross debt (including Rep. Certificates)

26.2

26.8

27.0

26.6

26.1

External

8.8

9.6

9.7

9.5

9.1

Domestic

17.3

17.3

17.4

17.2

17.0

Savings and investment

Gross domestic investment

21.5

22.1

22.3

23.1

23.6

National savings

19.9

20.3

20.8

21.7

22.3

Memorandum items

Nominal GDP (S/. billions)

741

774

816

864

916

GDP per capita (in US$)

7,005

7,097

7,292

7,597

7,926

Sources: National authorities; UNDP Human Development
Indicators; and IMF staff estimates/projections.

1/ Defined as the percentage of households with total
spending below the cost of a basic consumption basket.

2/ Corresponds to depository corporations.

3/ Foreign currency stocks are valued at end-of-period
exchange rates.




[1]

Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.


[2]


At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country’s authorities. An
explanation of any qualifiers used in summings up can be found
here:

http://www.imf.org/external/np/sec/misc/qualifiers.htm

.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Maria Candia Romano

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson








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