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$ 5.5 a day) fell from 52.2% in 2005 to 26.1% in 2013. This is equivalent to 6.4 million people escaping poverty during that period. Extreme poverty (the population living on US$ 3.2 a day) declined from 30.9% to 11.4% in the same period.

    Between 2014 and 2018, GDP growth slowed to an annual average rate of 3.2%, mainly owing to lower international commodity prices, including copper, the leading Peruvian export commodity. This led to a temporary reduction of private investment, less fiscal income and a slowdown of 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 management of fiscal, monetary, and exchange policies especially during the boom. 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 previous years matured, which increased exports and offset the deceleration in domestic demand.

    In this context, the current account deficit diminished rapidly, from 4.8% of GDP in 2015 to 1.6% in 2018. This external deficit has been financed mainly with long-term capital inflows. Net international reserves remained stable, reaching 31% of GDP by August 2019.

    As part of the adjustment, the fiscal deficit has temporarily increased, reaching a peak of 3.0% 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.  In 2018, an important rebound of fiscal revenues has allowed to the reduction of the fiscal deficit to 2.3% of GDP.

    The process of fiscal consolidation is expected to continue, and the public deficit will reach an estimated 1% of GDP in 2021, in compliance with fiscal regulations. In this context, the gross (net) public debt to June 2019 was 25.8% (10.2%) of GDP. It continues to be one of the lowest in the region.

    In the first semester of 2019, inflation (annualized) remained at 2.3%, within the Central Bank’s target range (1%-3%). This figure is compatible with the recent trend and represents the normalization of the inflation rate following a period of volatility during the past two years due to climate factors that affected the food supply.

    In the medium term, growth is expected to remain above 3% annually, sustained by strong domestic demand and a gradual increase in exports. These 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 escalation of trade protectionism, a deceleration of China o US 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: Oct 11, 2019

  • The 2017-2021 Country Partnership Framework (CPF) of the World Bank Group (WBG) responds to the Government of Peru's agenda and to the priorities identified in the Systematic Country Diagnostic. The CPF focuses on eight key objectives structured in three pillars: (i) Productivity for growth; (ii) Citizen services throughout the country; and (iii) Management of natural resources and climate risk. This framework reflects the commitment of the WBG to provide Peru with comprehensive solutions, combining global knowledge and timely financing based on the country’s need to strengthen its institutions and increase efficiency in the use of public resources.

    The World Bank portfolio includes 13 investment projects totaling USD 1077 million and three contingent lines of credit for USD 2.6 billion, including two operations to finance development policies with a deferred drawdown option and a catastrophe deferred drawdown option. The contingent lines offer important fiscal protection in the case of economic shocks. During the current CPF period, seven new investment project financing loans totaling USD 372.2 million were approved, two in innovation, two in the water sector and projects in environmental management, health and justice. A robust program of Reimbursable Advisory Services (RAS) has been an important tool for providing personalized consultancy and knowledge services. Since 2013, the Government of Peru has signed more than 40 RAS agreements for a total of USD 4 million.

    The International Finance Corporation (IFC) has a current portfolio of USD 216 million, which provides funding to 13 institutions in Peru. The IFC's portfolio includes investments in financial institutions (USD 132.6 million), infrastructure (USD 49.3 million), education (USD 18.2 million), petroleum, gas and mining (USD 6.3 million), logistics (USD 7.6 million) and telecommunications (USD 2 million). The IFC has also mobilized USD 133.3 million in additional resources.

    The Multilateral Investment Guarantee Agency (MIGA) has increased its guarantees in Peru in recent years. MIGA's current program totals USD 253 million and focuses on support infrastructure (Jorge Chavez International Airport) and the financial sector (covering Banco Santander Peru's mandatory reserves with the Central Bank of Peru). Recently, a project for USD 247 million was added to the current CPF. In the future, MIGA will expand its support for the country's private-sector development efforts in accordance with CPF objectives.

    Last Updated: Oct 11, 2019

    • 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: Oct 11, 2019

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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
jcasapiaboero@worldbank.org
USA +1 202 473-1000
1818 H Street NW, Washington, DC 20433
jcasapiaboero@worldbank.org