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 combined to create a scenario of high growth and low inflation.

As a result, the strong growth in employment and income have sharply reduced poverty rates. Moderate poverty (US$4 a day 2005 PPP) fell from 43 percent in 2004 to 20 percent 2014. Extreme poverty (US$2.5 a day 2005 PPP) declined from 27 percent to 9 percent over the same period.

GDP growth slightly recovered to 3.3 percent in 2015, with a 6-year minimum of 2.4 percent in 2014. Growth was driven by a strong accumulation of inventories and a recovery in exports. In contrast, investment continued to decline due to weak external economic conditions and slow execution of infrastructure projects at the local level. Private consumption decelerated due to deteriorating labor market conditions. After reaching a maximum of 4.6 percent at the beginning of the year, headline inflation has declined and stood at 2.9 percent in August 2016, just below the upper limit of its target range. The decline in inflation reflects weaker depreciation pressure of the domestic currency and the normalization of climatic conditions that had put pressure on food prices earlier.

In 2016, economic growth is expected to be similar to 2015 levels, gradually recovering to an average rate of 3.8 percent by 2017-2018. Over the next two or three years, large-scale mining projects are expected to begin production and increased private and public investment in infrastructure projects will support aggregate demand. Additionally, the country will continue to implement structural reforms to ensure confidence of private investors.

In 2016, growth will accelerate somewhat based on higher mining export volumes as several large mining projects have entered into production. Growth is projected to approach 4 percent in 2017 on the back of a recovery of investment driven by the implementation of several large public infrastructure projects. The higher domestic demand will offset the gradual slowdown in export growth as mining production reaches a new plateau.

On the external front, the main challenges that may have an impact on economic growth include:

  • The decline in commodity prices, which is closely related to the global economic slowdown.
  • A possible period of financial volatility associated with the expectation of higher interest rates in the United States.

On the domestic front, GDP estimates are vulnerable to the following:

  • Policy uncertainty as the elected government faces a Parliament dominated by the main opposition party.
  • The impact of El Niño on the real economy.
  • A large share of the population remains vulnerable to shocks and could fall back into poverty.

Looking ahead, reducing this dependency and sustaining high and equitable growth in the medium to long term requires domestic policy reforms that increase the access to quality public services for all citizens and unleash economy-wide productivity gains, which would provide workers’ access to higher quality jobs, reducing informality.

Last Updated: Sep 30, 2016

The World Bank is currently preparing a new Peru Country Partnership Framework (CPF) that will cover the period of FY17-FY21.  In order to inform its framework, a series of consultations will take place with public and private sectors, as well as civil society organizations.

The current World Bank’s Country Partnership Strategy (CPS) for 2012-2016 focuses on supporting the government in improving equity through social services, infrastructure and competitiveness, while preserving macroeconomic stability. 

The CPS is closely aligned with the government’s strategic vision of strong economic growth with greater inclusion. It focuses on areas in which the World Bank Group (WBG) can provide more added value. The CPS has four strategic objectives:

  • Increase access and quality of social services for the poor;
  • Connect the poor to services and markets;
  • Support sustainable growth and productivity; and
  • Promote inclusive governance and public sector performance.

As Peru is becoming a stronger middle-income country, demand for knowledge services is increasing. The government has also requested support for implementation of programs and projects.

The World Bank prepared 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.

The International Bank for Reconstruction and Development (IBRD) portfolio consists of 19 active projects with a commitment of US$3.9 billion in Peru as of September 2016. The WBG will continue to work to generate synergies among the International Finance Corporation (IFC), the IBRD and the Multilateral Investment Guarantee Agency (MIGA).

Last Updated: Sep 30, 2016

  • 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. 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, ultimately leading to a 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.

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.

  • Studies and evaluations

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).

As part of its Policy Note series, the World Bank published: “Perú hacia un sistema Integrado de ciudades: Una nueva visión para crecer” (Peru, toward a System of Integrated Cities: A New Vision for Growth) and “Perú: Siguiendo la senda del éxito. Productividad para impulsar el crecimiento económico” (Peru: Following the Path of Success. Productivity to Stimulate Economic Growth).

 

Last Updated: Sep 30, 2016


LENDING

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

*Amounts include IBRD and IDA commitments