Overview

Peru is one of the region’s fastest growing economies. Between 2002 and 2013, the average growth rate was 6.1% in a context of low inflation (2.6%, on average). A favorable external environment, prudent economic policies and structural reforms in different areas combined to create a scenario of high growth and low inflation. Nevertheless, the country may be entering a challenging period since growth slowed in 2014 as a result of adverse external conditions, a corresponding decline in domestic confidence and fewer investments. However, at 2.4%, the 2014 GDP growth rate remained above the regional average (0.8%) and inflation was only slightly above the target rate for the year (3.2%). 

In the external context, difficulties stem mainly from the decline in raw material prices, largely caused by the economic slowdown in China, one of Peru’s two main trading partners, together with the United States. Additionally, in 2014, adverse climate conditions affected the fishing industry and the public budget could not be fully spent. Consequently, private investment and exports decreased in real terms by 1.6% and 0.3%, respectively. Nevertheless, growth in Peru is expected to remain solid over the next few years at more than 4%. Large mining projects are expected to begin in the next two or three years. Additionally, the country will implement a countercyclical fiscal policy to support aggregate demand and the ongoing application of structural reforms will assure the continued confidence of private investors. On the international front, the U.S. recovery and lower oil prices may partially compensate for the impact that China’s slowdown is having on the Peruvian economy.

The effects of strong growth on employment and income have significantly reduced poverty rates and boosted shared prosperity. Between 2005 and 2013, poverty rates fell by more than half, from approximately 55.6% to 22.7% of the population (INEI). It is estimated that in 2013, nearly half a million people escaped poverty in the country. Additionally, the share of the population living below the official extreme poverty line declined dramatically between 2005 and 2013, from 15.8% to 4.7%. Extreme poverty is highly rural and is concentrated in 8% of the districts in Peru, which are located in the regions of Cajamarca, Piura, La Libertad and Apurímac. A key feature of growth in Peru is its wide base. This is evidenced by the decline in the Gini Index, from 0.49 in 2004 to 0.44 in 2013, although income inequality remains high in the country. The improvement in total inequality hides significant geographical differences. Whereas the Gini Index in rural areas decreased by just 2 points between 2004 and 2013 (from 0.44 to 0.42), urban inequality declined by 5 points (from 0.45 to 0.40).    

Looking ahead, major challenges will include: (1) achieving sustainable economic growth; and (2) further strengthening linkages between growth and equity.  To achieve sustainable, balanced growth, Peru should develop public policies that accelerate decentralized growth, with an emphasis on its mid-sized cities. To ensure economic growth with equity, the focus should be on the segment of the Peruvian population that continues to be vulnerable to economic shocks and that could fall back into poverty, which would reverse the progress made over the past decade. The Government of Peru has identified priority areas to prevent this from occurring. These include closing infrastructure gaps, increasing the quality of basic services such as education and health, and expanding access to markets for the poor and vulnerable segments of the population.

The Government of Peru’s current program aims to expand access to basic services, employment and social security; reduce extreme poverty; prevent social conflicts; improve the surveillance of potential environmental damage; and reconnect with rural Peru through an extensive inclusion agenda.

 

Last Updated: Apr 15, 2015

The 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. 

Peru needs more and better public infrastructure and social services, particularly for those living in poverty. Given its sound fiscal position and access to capital markets, Peru‘s demand for World Bank services is selective and focuses on scaling-up successful experiences of prior Bank strategies in the country.

The goal is to deliver innovative options to improve results in social services and expand knowledge products in areas in which the World Bank can contribute to modernizing public sector institutions and management processes.

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 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. Demand for financing is relatively modest at this stage but flexibility has been built in to respond to potential increased demand. Additionally, there is a demand for implementation support for government programs and projects.

The International Bank for Reconstruction and Development (IBRD) portfolio in Peru has operations totaling US$ 1.9 billion to March 2014. The World Bank Group will continue to work to generate synergies among the International Finance Corporation (IFC), the IBRD and the Multilateral Investment Guarantee Agency (MIGA).

The IFC has implemented a successful program of investment and advisory services in Peru, in coordination with the IBRD. The IFC’s US$ 1.237 billion investment program has become one of the 10 largest in terms of single-country exposure. The IFC will continue responding to a growing private-sector demand with innovative, competitive financial and advisory products. The main objective is to promote sustainable economic development and an entrepreneurial and investment climate. Investment will focus on infrastructure for development, clean energy and finance and insurance.

Some examples include support to Financiera Edyficar, a microfinance institution that offers loans to expand the portfolio of rural enterprises in Peru, and the concession agreements signed between APM Terminals Callao and the Government of Peru to develop the northern terminal of the Port of Callao.

Last Updated: Apr 15, 2015

The previous Peru Country Partnership Strategy (CPS) (2006-2011) identified an indicative lending program within a base-lending envelope of up to US$ 3.5 billion. In addition, it provided analytical and advisory assistance as well as non-lending technical assistance to respond to government priorities in a timely manner. 

Economic Growth

Maintaining macroeconomic stability and reducing vulnerabilities

The Fiscal Management & Competitiveness (FM&C) operation and the associated analytical assistance (Policy Notes, Public Financial Management Performance Assessment and other studies) directly contributed to a solid fiscal management.

The Catastrophic Risk Deferred Drawdown Option (DDO) has also helped Peru reduce fiscal vulnerabilities in light of the frequent natural disasters affecting the country.

Accelerating growth and broadening its base

The World Bank will give an additional US$20 million in financial support to the Rural Productive Partnerships of the Sierra (ALIADOS), which will benefit some 31,600 families in the poorest areas of Peru. These resources will enable the extension of the partial subsidy for the preparation and implementation of nearly 700 new rural business plans as well as 375 projects for land development initiatives in 395 districts in central Peru. Infrastructure investment increased, both through public funds and the promotion of private investment.  Projects are being developed in areas such as decentralized transport in the regions, decentralized transport in urban areas, urban transport in Lima, irrigation, water and sanitation and rural electrification, among others.

Transport and rural electrification projects have helped improve the lives of the poorest citizens. Rural roads have reduced travel times by 30%, whereas access to and improvements in electric power services have benefited over 105,000 households and small enterprises, or 450,000 individuals, including some 35,000 indigenous people.

In terms of improving competitiveness and productivity, the Metropolitan Project drastically reduced travel times in the City of Lima by providing a new express bus system and eliminating 790 older, highly polluting buses.

Additionally, initiatives such as the Peru-Strengthening Sustainable Management of the Guano Islands, Isles and Capes National Reserve System Project, which has received grants from the Global Environmental Facility (GEF), supports agricultural innovation, biodiversity and the sustainable management of ecosystems that are a valuable environmental heritage and source of income for thousands of families living along the Peruvian coast.

Social Development

Meeting basic needs

In 2011, the World Bank supported the creation of the new Ministry for Development and Social Inclusion, collaborating on the reform and development of new social-policy approaches and systems to improve targeting, results-based management and coordination.

Additionally, the Bank contributed to crosscutting development areas such as the strategy to fight corruption and to promote gender-related activities, where women have been active participants in road-maintenance enterprises, productive associations and in the administration of water boards.

Support to the sub-regions

During the last quarter of 2013, the first sub-regional loan, to Cusco, was approved, for US$ 35 million. With this loan, more than a million people will benefit from improved tourism services, adequate solid waste management and natural disaster protection and prevention measures in Cusco, Calca and Urubamba. These activities form part of a larger program of the Cusco Regional Government. Additionally, more than 400,000 Cusco inhabitants and tourists will benefit from the US$ 120 million project to improve transportation (METRA), which was approved in 2014.

Studies and Evaluations

The World Bank conducted several studies, analyses and systematizations, including the Diagnostic review for consumer protection and financial literacy. Additionally, with a view to addressing a key dimension of gender equality, the Bank implemented the study, Promoting the capacity to decide and act: a path toward more effective policies. Other efforts in this area included the Peru-technical assistance program in education; Challenging the passage of time: experiences in managing water and sanitation services in four Peruvian towns; and The future of irrigation in Peru: challenges and recommendations.

Last Updated: Apr 15, 2015


LENDING

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

*Amounts include IBRD and IDA commitments