Overview

  • The Peruvian economy has experienced two distinct phases of economic development since the turn of the century. Between 2002 and 2013, Peru was one of the fastest-growing countries in Latin America, with an average GDP growth rate of 6.1 percent annually. A favorable external environment, prudent macroeconomic policies and structural reforms in different areas created a scenario of high growth and low inflation. The strong growth in employment and income sharply reduced poverty rates. The poverty rate (the percentage of the population living on US$ 5.50 a day) fell from 52.2 percent in 2005 to 26.1 percent in 2013. This is equivalent to 6.4 million people escaping poverty during that period. Extreme poverty (the population living on US$ 3.20 a day) declined from 30.9 percent to 11.4 percent in the same period.

    Between 2014 and 2017, GDP growth slowed to an average rate of 3.1 percent, mainly owing to the decline in international commodity prices, including copper, the leading Peruvian export commodity. This led to lower private investment, less fiscal income and weak consumption. Two factors attenuated the impact of this external shock on GDP, enabling continued growth, albeit at a slower pace. The first was the prudent fiscal policy management in terms of monetary and exchange policies. This enabled the country to endure the decline in fiscal income without drastically adjusting spending and to have international reserves for an ordered adjustment of the exchange rate. Second was the surge in mining production as projects implemented during the boom years matured, which increased exports and offset the deceleration in domestic demand. In this context, the current account deficit diminished rapidly, from 4.8 percent of GDP in 2015 to 1.1 percent in 2017. Net international reserves remained stable at 27 percent of GDP in August 2018. Average headline inflation was 2.8 percent in 2017, within the Central Bank’s target range.

    As part of the adjustment, the fiscal deficit has increased in recent years, reaching 3.1 percent of GDP in 2017. The higher deficit stems from a decline in revenues resulting from lower commodity prices and the economic slowdown, and an increase in recurrent expenditures in recent years, especially for goods and services and wages.  Notwithstanding, at 23.7 percent of GDP, Peru’s (net) gross public debt remains one of the lowest in the region.

    For 2018, GDP growth is expected to accelerate to a rate of approximately 4 percent, driven by a recovery in domestic demand. Additionally, higher commodity prices are leading to stronger investment in mining. Rising business confidence, increased loan placement and increased formal job creation are expected to support private consumption. Public investment is also expected to accelerate in response to increased fiscal spending. In the medium term, growth will remain at around 4 percent annually. In this context, the process of fiscal consolidation will lead to a convergence of the public deficit toward a level of 1 percent GDP in 2021.

    Growth projections are vulnerable to external shocks such as a decline in commodity prices or changes in international financial conditions. Events that could trigger these effects include trade protectionism, a deceleration of China’s growth or increased uncertainty regarding the financial viability of other emerging economies. The economy is also exposed to natural risks, including recurrent weather phenomena such as El Niño. To address these risks, the Peruvian economy has established monetary, exchange-rate and fiscal cushions to mitigate their impact.

    Last Updated: Sep 26, 2018

  • The World Bank Systematic Country Diagnostic for Peru was completed. The Peru Country Partnership Framework (CPF) covering the period FY17-FY21 was also completed, in April 2017.  As part of the CPF preparation process, a series of consultations took place with public and private sectors, as well as with civil society organizations. The CPF is in line with the government program and the priorities identified in the Systematic Country Diagnostic. As such, it is built around the following pillars: I. productivity for growth; II. services for citizens throughout the country; and III. natural resource and climate change risk management.

    The World Bank will support Peru in addressing these areas given its extensive experience acquired through past and current interventions in the country.

    It is likely that the program emphasis will shift from financing to knowledge during the CPF period.

    The existing International Bank for Reconstruction and Development (IBRD) portfolio consists of 15 investment projects totaling US$894 million and five GEF grants for US$17.4 million. Peru also has access to contingent lines of credit for US$2.6 billion.

    The IFC outstanding portfolio of US$458.44 million works with 19 institutions in the country. The Multilateral Investment Guarantee Agency (MIGA) outstanding portfolio includes a contract with a gross exposure of US$6.2 million to support the concession of Lima’s international airport

    The World Bank carried out a series of studies, assessments and systematizations. It published the report Promoción de la escala y la densidad de las redes de agentes en Perú (Promotion of the Scaling up and Density of the Network of Agents in Peru) to contribute to decision-making for social inclusion. It also presented the report Tomando impulso en la agricultura peruana: Oportunidades para aumentar la productividad y mejorar la competitividad del sector (Leveraging Peruvian Agriculture: Opportunities to Improve Sector Productivity and Competitiveness), which summarizes the transformation of agriculture and the food chain and evaluates the recent performance of the agricultural sector through an analysis of productivity and competitiveness.

    With respect to human development, the World Bank presented “Dando la Talla: El éxito del Perú en la lucha contra la desnutrición” (Measuring Up: Peru’s Success in Combating Malnutrition), which recounts how, in under 10 years, Peru reduced its high rate of stunting among children under age five years, from 28 percent in 2008 to 13 percent in 2016.

    Knowledge products include “Perú: Siguiendo la senda del éxito. Productividad para impulsar el crecimiento económico” (Peru: Following the Path of Success. Productivity to Stimulate Economic Growth) and the policy note “Perú hacia un sistema integrado de ciudades: Una nueva visión para crecer” (Peru, toward a System of Integrated Cities: A New Vision for Growth). It is hoped that this paper will stimulate discussion on the development of an integrated system of cities for Peru as a government vision in the medium-term, which would serve as a focal point of sector policies. The World Bank also published 27 short notes as part of its Policy Notes series.

    Last Updated: Sep 26, 2018

    • Increase access to and quality of social services for the poor

    Significant advances have been made in this pillar, particularly in areas associated with safety nets, education and basic health, as well as justice administration services. Coverage of safety net programs, such as the conditional cash transfer program Juntos, increased from 700 to 900 districts and now includes the poorest districts in the country, reaching 284, 357 additional beneficiaries from the baseline of 474,064. In education, the World Bank supported the implementation of an evaluation system based on students’ learning, teaching internships and school leadership in basic education (kindergarten through Grade 11). Access to justice administration services has also improved through the establishment of legal aid centers in densely populated peri-urban districts, which is reflected in the increase in the number of consultations, from 100,000 in 2011 to 149,000 in 2014.

    • Connecting the poor to services and markets

     The coverage and quality of water and sanitation services have improved in both urban and rural areas, as evidenced by the increase in daily hours of water service, from 16 in 2011 to 19.2 in 2013 in Lima, as well as by the decrease in the incidence of blocked sewer lines.

    The Decentralized Rural Transport Program rehabilitated 3,277 kilometers of rural roads, which has reduced travel time to schools by 24.2 percent which triggered 19.2% increase in school enrolment rates among children aged 12 to 18.  

    The government incorporated a rural electrification model implemented in a Bank-financed project for the continued development of the sector. This model uses distribution firms to develop, build and co-finance rural electrification sub-projects. The Rural Electrification project provided conventional grid connections and renewable energy systems to over 105,000 new connections, servicing an estimated 450,000 persons.

    Finally, thanks to a US$300 million loan approved in September 2015, the Lima Metro Line 2 Project will drastically reduce travel times in Lima by providing a new transport system that will alleviate city traffic and pollution.

    • Sustainable growth and productivity

    The World Bank has been working to increase assets and improve economic conditions of rural families. The first phase of the Development of the Rural Highlands Project supported approximately 35,000 families (nearly 10% of rural families) to increase the net value of their domestic production by 42% in selected areas of Apurímac, Ayacucho, Huancavelica, Junín, Huánuco and Pasco.

    Initiatives such as the Project to Strengthen the Sustainable Management of the Guano Islands, Isles and Capes National Reserve System as well as the Dedicated Mechanism for Indigenous People and Saweto Local Communities, which have received grants from the Global Environmental Facility (GEF) and the Strategic Climate Fund, respectively, support agricultural innovation, biodiversity and the sustainable management of ecosystems.

    • Inclusive governance and performance of the public administration

    Support from the WBG has focused on strengthening fiscal management and public investments at the national and local levels. Initial results have been encouraging. The WBG has also been working with the Ministry of the Economy and Finance to define a strategy for analyzing the sub-national investment cycle and making recommendations to reduce obstacles and transnational costs, with a view to improving the efficiency of public investments.

    The World Bank, through the Boosting Human Capital and Productivity Development Policy Financing with a Deferred Drawdown Option project, for US$1.25 billion, supports the Government of Peru in its efforts to strengthen the quality of public education and improve the business environment for enterprises by reducing market entrance, operation and exit costs. It also supports government measures to create a simplified customs system that facilitates exports and access to international markets, among other actions.

    The Public Expenditure and Fiscal Risk Management with a Deferred Drawdown Option project, for US$1.25 billion, supports government efforts to improve public expenditure management in sub-national governments in order to promote fiscal responsibility and improve their administration, efficiency and transparency. The project also supports improvements in the planning and evaluation processes of public-private partnerships.

     

    Last Updated: Sep 26, 2018

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LENDING

Peru: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments


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Country Office Contacts

PERU +51 1 622-2300
Avenida Álvarez Calderón 185, San Isidro - Lima
sarzubiaga@worldbank.org
USA +1 202 473-1000
1818 H Street NW, Washington, DC 20433
sarzubiaga@worldbank.org