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Overview

Peru has solid macroeconomic fundamentals, including a relatively low public debt to GDP ratio, considerable international reserves, and a solid central bank. Peru´s economy rebounded strongly in 2021, but poverty reduction was slowed by structural rigidities in the labor market and inflation. GDP growth is expected to return to its pre-pandemic trend of around 3 percent annually in 2022, as the boost from favorable export prices compensates for political uncertainty. However, poverty is expected to remain well above its 2019 level.

After a strong recession in 2020, real GDP grew 13.3 percent in 2021, reaching its pre-pandemic level. The recovery was led by domestic demand, supported by the expansion of both public and private expenditure. While employment levels have almost returned to the pre-crisis levels, this was largely driven by low quality jobs in the informal sector. In fact, formal employment in urban areas is still more than 20 percent below pre-pandemic levels. Lower quality of employment has led to a reduction of household income, and by the end of the year, the average wage was still 13 percent below that registered in 2019. Mainly driven by the rebound in GDP, poverty declined by an estimated 4.6 percentage points in 2021, reaching 28.3 percent, still well above its level in 2019.

The public deficit decreased from 8.9 percent in 2020 to 2.6 percent in 2021, one of the fastest fiscal consolidations in the region. This reduction was mainly driven by a 40 percent real increase in public revenues, as a result of higher tax collection from mining companies, the effect of some administrative measures, and prepayment of some tax fines. Public debt reached 36 percent of GDP, just slightly above its 2020 levels.

The economy is expected to expand about 3.4 percent in 2022, mainly driven by higher export volumes, while domestic demand will gradually decelerate. Exports will be supported by the entry into operation of important copper mines. Capital spending on mining will continue to support private investment due to the continuation of some large investment projects, offsetting the effect of low business confidence. In addition, the recovery of the formal labor market, and the gradual normalization of activities, is expected to support an increase in private consumption. The current account deficit is expected to decline after 2022, mainly reflecting the combined effect of increasing exports and the slowdown in imports, in a context of a moderation in domestic demand.

The challenge for the Peruvian economy lies in accelerating GDP growth, promoting shared prosperity, and providing citizens with protection against shocks, both generalized and individual. To this end, the government must strengthen provision of public services and regulatory quality, generate protection plans, provide improved connectivity infrastructure and formulate policies to reduce rigidities in factor and product markets.

Last Updated: Apr 12, 2022

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

*Amounts include IBRD and IDA commitments
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PERU +51 1 622-2300
Avenida Álvarez Calderón 185, San Isidro - Lima
USA +1 202 473-1000
1818 H Street NW, Washington, DC 20433