Overview

  • Over the past decade, Peru has been one of the region’s fastest-growing economies, with an average growth rate 5.9 percent in a context of low inflation (averaging 2.9 percent). 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 have sharply reduced poverty rates. Moderate poverty (US$4 a day 2005 PPP) fell from 45.5 percent in 2005 to 19.3 percent in 2015. This is equivalent to 6.5 million people getting out of poverty during this period. Extreme poverty (US$2.5 a day 2005 PPP) declined from 27.6 percent to 9 percent over the same period.

    GDP growth continued to accelerate in 2016 on the back of higher mining export volumes as several large mining projects entered into production and/or reached full capacity. The economy is estimated to have grown above potential at 3.9 percent in 2016 due to that temporary peak in mining production. Higher growth in mining export volumes was partially attenuated by lower dynamism in domestic demand, as public spending receded and investment continued to decline. The current account deficit declined significantly from 4.9 to 2.8 percent of GDP in 2016, owing to the surge in export growth and lower imports. Net international reserves stood at the comfortable level of 32 percent of GDP as of February 2017. The average headline inflation amounted to 3.6 percent in 2016, above the upper limit of its target range for a third straight year, as supply-side shocks on food prices offset weak domestic demand. Peru faced a moderate fiscal deficit of 2.6 percent in 2016. The higher deficit stems from a decline in revenues that came with the economic slowdown, the 2014 tax reform, and an increase in recurrent expenditures in recent years, especially for goods and services and wages. However, at 23.8 (8.5) percent of GDP, Peru’s gross (net) public debt remains one of the lowest in the region.

    For 2017, GDP is expected to slow slightly due to the leveling off in the mining sector and still weak private investment- the latter affected by adverse global conditions and the uncertainty related to corruption scandals in projects signed in past years.

    Fiscal policy remains prudent, even as deficits have increased over the last years. The higher deficit stems from a decline in revenues that came with the economic slowdown, the 2014 tax reform and increases in recurrent expenditures in recent years, especially for goods and services, and wages. In the context of supporting the economy as mining production levels off, the authorities are expected to more aggressively increase public investment in 2017, thus maintaining or marginally increasing the 2016 deficit level. The Government expects to phase out current fiscal deficits gradually over the medium term on the back of expenditure measures and plans to improve tax collection.

    Growth projections are vulnerable to external shocks in commodities prices, a further deceleration of China’s growth, capital markets volatility, the speed of monetary policy tightening in the United States. The economy is also exposed to natural risks, including recurrent climatic phenomena such as El Niño. Raising growth requires structural and fiscal reforms to unleash productivity, reduce informality, and improve efficiency of public services.

    Last Updated: Apr 17, 2017

  • The World Bank Systematic Country Diagnostic for Perú has been completed and the Peru Country Partnership Framework (CPF) that will cover the period of FY17-FY21 is currently under preparation.  A series of consultations have taken place with public and private sectors, as well as civil society organizations. The future program CPF is expected to be built around the following pillars: I. Productivity for Growth; II. Services for Citizens across the Territory; III. Natural Resources and Climate Change Risk Management.

    The existing International Bank for Reconstruction and Development (IBRD) portfolio consists of 15 investment projects and a GEF grant totaling US$960 million. In addition, Peru has access to four contingent lines of credit for US$3 billion, including two DPF-DDOs and two Catastrophe Deferred Drawdown Option (CAT-DDO).  IFC outstanding portfolio of US$718 million works with 20 institutions in the country. The Multilateral Investment Guarantee Agency (MIGA) outstanding portfolio includes on contract with a gross exposure of US$6.2 million supporting the concession of Lima’s international airport.

    The World Bank carried out a series of studies, assessments and systematizations, including a feasibility study of the environmental management plan and a report on the social impact of the water and sanitation optimization project on Lima properties. It also published the report “Promoción de la escala y la densidad de las redes de agentes en Perú (Promotion of Scaling up and Density of the Network of Agents in Peru) to contribute to decision making processes for financial inclusion.

    Recent 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 and which would serve as a focal point of sector policies. Also, as part of its Policy Note series 27 short notes were published.

    Last Updated: Apr 17, 2017

    • 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: Apr 17, 2017

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LENDING

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

*Amounts include IBRD and IDA commitments


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Additional Resources

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