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Overview

Peru´s macroeconomic fundamentals remain solid, including a relatively low public debt to GDP ratio, considerable international reserves, and a credible central bank. Peru´s economy is expected to grow somewhat below its 3 percent pre-pandemic pace in the medium term, supported by higher exports, while domestic demand is projected to slow down in a context of low business confidence, lower growth of trading partners and volatile energy prices. Poverty is forecast to remain above pre-pandemic levels in the next two years, hampered by a lower average quality of employment.

After a post-pandemic rebound of 13.3% in 2021, GDP grew by 3.5 percent y-o-y in the first half of 2022, led by manufacturing, construction, and services, supported by considerably fewer restrictions than the previous year’s first semester. Inflation accelerated since last year, mainly reflecting the global rise in commodity prices and the domestic demand stimulus to support the recovery after the COVID-19 crisis. To curb inflation, the Central Bank tightened its monetary policy by elevating the reference policy rate by 650 basis points since August 2021 to 6.75 percent, while the Government launched a one-time cash transfer to be distributed in the second half of 2022 to alleviate food insecurity. The improvement in poverty has been slow, due to the sluggishness of real wages, still 12 percent below their 2019 level, and the lower average quality of jobs, with underemployment and informality rates higher by 4 p.p. compared to their pre-pandemic levels.

Fiscal policy stabilized quickly, after the significant Covid-related stimulus. The annual fiscal deficit continued trending downwards and stood at 1.2 percent of GDP by July 2022, compared to the 2.5 percent in December 2021. The reduction was mainly driven by the increase in fiscal revenues, associated with the higher collection of corporate income tax in the context of high mineral prices. Public debt stood at 34 percent of GDP by June 2022, two percentage points below its level in December 2021. The current account deficit reached 5.6 percent of GDP during the first semester of 2022, mainly driven by higher outflows to remunerate foreign capital, in the context of record mineral prices and higher profits of mining companies. These additional outflows markedly surpassed the increase in mining exports and the surplus trade balance.

GDP is expected to grow 2.7 percent in 2022, remaining below its pre-pandemic trend. Activity is expected to be supported by higher mining exports but suffer from a gradual slowdown in domestic demand. Private investment is likely to be stagnant as business confidence is low due to political and institutional instability. The recovery of high-quality jobs, more dependent on private investment, will likely be slow, limiting both workers´ income and productivity gains.

The public deficit is projected to increase slightly next year, driven by an anticipated reduction in fiscal revenues, given the recent correction in mining prices. However, the trajectory of the deficit should remain in line with fiscal rules, with a gradual reduction to 1 percent by 2026. This consolidation would entail a moderate effort on expenditures, especially those related with extraordinary transfers. In line with this trajectory, public debt is projected to remain stable in 2022-24, at around 35 percent.

Important structural challenges for the Peruvian economy include reducing the relative size of the informal sector, which employs three-quarters of workers in low productivity jobs, and improving the quality of government services, including education, health and water. Overcoming these challenges is critical to boost Peru`s long-term growth and poverty reduction.

Last Updated: Sep 28, 2022

kilometers of rural roads were recovered generating 6000 jobs in 500 small enterprises.

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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