The World Bank In Peru

Peru has made remarkable progress in economic growth and poverty reduction in the two decades prior to the COVID-19 pandemic. Macroeconomic stability, trade openness, and a favorable international environment allowed the country to become an upper middle-income economy, with per capita income rising from US$ 2040 in 2002 to US$ 7126 in 2022. Its strong record of prudent macroeconomic policies and current macroeconomic indicators reflect low public debt, ample international reserves, and a credible central bank. Its financial system is well-capitalized and well positioned to withstand liquidity crises. 

However, the country continues to face significant threats to achieving greater development and prosperity: the impact of climate change, persistent inequalities, and its economic structure dependent on its natural resources. In addition, unaddressed structural constraints limit formal job creation, economic diversification, and the pace of poverty and inequality reduction.

Better quality public services, stronger governance, a conducive business environment and political stability will be key to higher and more inclusive growth that promotes poverty and inequality reduction.  

In detail, during the first six months of 2023, increased exports from Quellaveco, which accounts for more than 10 percent of domestic copper production, drove growth. Likewise, the labor market showed signs of recovery; employment in companies with more than 50 workers increased 4 percent and there was also a slight increase in average real wages.

In the same period (January - June 2023), GDP contracted by 0.5 percent due to political uncertainty, social unrest and the occurrence of disasters. Tighter financial conditions also contributed to depressed private spending and the country showed a slower than expected recovery. Weather events and conflict in the country impeded the execution of public investment, and key sectors such as agriculture, fisheries and tourism showed a lagged recovery.  

In August, annualized government revenues were 1.8 percentage points of GDP lower than in 2022, mainly due to lower corporate income tax and IGV collection. In addition, the annualized public deficit increased to 2.6 percent of GDP, 0.2 percentage points above the modified fiscal target for 2023. Both public debt (34 percent of GDP) and sovereign risk spreads remain among the lowest in the region.

From December 2022 to August 2023, inflation declined from 8.5 to 5.6 percent, but is still above the target range of 1 to 3 percent. Excluding the more volatile food and energy prices, inflation stood at 3.8 percent and inflation expectations fell to 3.4 percent.

Last Updated: Oct 05, 2023

Summary of World Bank Group Program in Peru

• The new Peru Country Partnership Framework has been published for the period 2023 - 2027. 
• The WB has an active portfolio of US$2169m, that includes 13 investment projects and one development policy operation (US$750m) to support policies for a more resilient, greener, and inclusive economic recovery; and to support policies to protect and invest in human capital accumulation. Projects are focused mainly on health, infrastructure (transport, water), justice, urban and environment sectors.
• IFC's own account committed portfolio of US$ 381m works with 9 institutions in the country. IFC's portfolio by industry includes financial institutions (65%); infrastructure (25%); logistics (9%); and telecommunications (1%). IFC´s additional mobilized resources ascend to $64m. The IFC portfolio had declined in recent years (from 21 institutions and $610m in 2017) mainly due to prepayments and exits that were motivated by strong local market conditions. During recent years there has been abundant liquidity in the local banking and pension systems, displacing IFC's resources and limiting its range of action.  However, given the uncertainty of impact of the new administration’s priorities, investment officers have recently noted renewed interest from the private sector to engage IFC financing and advisory services (already reflected in FY22 commitments of $60m to BBVA Continental for green building finance and $100m to MiBanco for financing to women-owned SMEs).
• As of September 2022, MIGA’s outstanding exposure in Peru stood at US$693 million, across two projects in the financial sector. The Agency’s exposure in Peru is the third largest in the LAC region and the ninth in MIGA’s overall portfolio. In June 2022, MIGA issued guarantees of US$351 million, in support of Fondo MiVivienda S.A, the largest provider of affordable housing financing in Peru. The MIGA-guaranteed loan supports increasing access to finance for certified green housing in Peru. The mortgages, aimed primarily at vulnerable and middle-income households, will benefit from reduced interest rates, as well as grants/subsidies that will lower the price of certified green social housing to levels comparable with the price of conventional housing. In addition, in June 2018, MIGA issued guarantees against the risk of expropriation of mandatory reserves of Banco Santander Peru. The aim of the project is to enable Santander Peru to extend more credit in Peru, including credit and other financial instruments to support climate finance and infrastructure investments in the country.

Last Updated: Oct 10, 2023

Environment, Natural Resources, and the Blue Economy

The World Bank supported transformative projects focused on the precious natural resources of the Peruvian Amazon, aiming to improve forest management practices, the legal protection and recognition of indigenous communities, and the security of land tenure. 58 communities spanning over 230,000 hectares were empowered through land plating and titling initiatives.

The project also contributed to the recognition of 253 indigenous communities and the financing of 44 community production subprojects --including 16 initiatives led by women-- that promoted sustainable forest management, increased food security and income generation activities in 119 indigenous communities of the Peruvian Amazon.

People and Justice

Free legal assistance can be life-changing for the most vulnerable people. In Peru, ALEGRA Centers are assisting thousands of people, especially women, many of whom seek help for child support or who are victims of domestic violence. Between 2017 and 2022, the 45 ALEGRA centers across Peru handled more than 900,000 consultations,

In the last year, 32 400 cases have received legal assistance and sponsorship through the ALEGRA centers and they are now being expanded to reach remote indigenous communities through an itinerant justice initiative

Water and sanitation services in key urban areas

The World Bank supported projects such as the improvement of the sewage system in Lima, which substantially improved the efficiency, continuity, and reliability of water supply services for 64,878 households in northern Lima. Non-revenue water losses decreased from 40 percent to 25 percent in the project intervention area.

Connectivity in critical corridors of the territory  

Urban transport, rural highways and telecommunications projects are critical for Peru’s development. Progress was made on the extension of the Lima Metropolitana bus system, the Cusco METRA express lane, and the subnational transportation program. Regarding the telecommunications industry, the World Bank supported regulatory reforms to promote private investment and competition, which will eliminate barriers and facilitate infrastructure development.

Absorption of skills and technologies

The World Bank successfully contributed to the acquisition of new skills and technology in the fields of agriculture, artisanal fishing, and aquaculture and in higher education. A total of 31,634 agricultural producers adopted new technologies and 78 percent of beneficiaries of artisanal fishing and aquaculture projects agreed to implement an innovation project. The World Bank has supported the STI system in the country through CONCYTEC and PROCIENCIA strengthening the system to improve research skills: 449 active researchers, 34 percent of which were women, under six PhD programs in strategic areas of innovation.

Progress towards a balanced engagement, on both supply and demand sides of the STI system, has been remarkable. CONCYTEC, with support of the World Bank, mobilized USD 1.5 million in private capital, including USD 221,436 from startup firms participating in the “Go-to-Market” program and USD 1,280,858 from private universities that benefitted from research grants.

At the sector level, innovations in fisheries were developed through adaptive and applied research, along with 194 innovations in aquaculture also developed.

Environment for sustainable private sector investments

The World Bank provided policy program support to enhance the private sector environment. The program helped new helped new firms register online, reduced excessive regulations, simplified the sales tax system, and introduced e-auctions. Emergency cash transfers were expanded to reach 2.5 million households, especially poor and informal workers, digital payment network facilitated these transfers.

The World Bank also supported companies facing severe and sudden demand crises through Reactiva Perú, an innovative credit guarantee mechanism. This program mobilized the equivalent of 8.5 percent of GDP in private liquid funds to grant loans to small and medium-sized enterprises. The competitive liquidity allocation system resulted in significant private sector credit inflows, supporting USD 16.5 billion in liquidity, and achieving historically low interest rates for end-borrowers. Half of formal workers are employed in firms that benefited from the Reactiva Perú program.

Disaster risk management and financial management

The World Bank provided assistance to the Government of Peru in the development of a comprehensive strategy for financial protection against natural disasters. It issued the Pacific Alliance Joint Catastrophe Bond for USD 200 million in February 2018 to protect against earthquakes over a three-year period. The bond provided coverage of USD 65 million when an earthquake affected the country in 2019. These bonds complemented Peru's staged financing strategy with traditional and non-traditional financial instruments.

The Bank also supported government efforts to improve the financial protection of public-private partnerships against disasters. In 2019, the Ministry of Economy and Finance included a chapter on insurance in its guidelines for the design of public-private partnership contracts. It also helped strengthen the risk and insurance databases of Peru and other Pacific Alliance countries. Additionally, the World Bank assisted the Banking and Insurance Authority (SBS) in strengthening the legal framework regulating the insurance industry.

Last Updated: Oct 05, 2023