## 1perea2020003

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### Executive Summary — context and risks
- Peru’s policy and institutional frameworks described as "very strong" have supported macro outcomes: growth averaged nearly 5¼ percent over the past 15 years.
- Inflation targeting (since 2002) anchors expectations around the BCRP target range "2 +/- 1 percent."
- Fiscal rule framework (since 1999) helped reduce government debt to "under 27 percent of GDP by end-2019."
- Financial sector regulation and supervision characterized as "very strong" (2018 FSSA).
- Poverty has been cut by more than half since the turn of the century.
- End-2019 external debt and gross international reserves were "around 35 and 30 percent of GDP, respectively."
- Growth momentum slowed in recent years; the Covid-19 pandemic constitutes an unprecedented shock pushing the economy into recession.
- Risks:
  - Uncertainty around global growth forecasts has "spiked to unprecedented levels."
  - Prolonged Covid-19 outbreak could significantly affect terms of trade, exports, and foreign direct investment (Peru is "one of the world’s largest mineral exporters").
  - Persistent decline in risk appetite would curtail capital inflows and could place "large pressures on the balance of payments."
- Authorities requested a two-year FCL arrangement of "SDR 8.007 billion (600 percent of quota)" to be treated as precautionary (Date referenced: "May 21, 2020").
- Staff assessment: "Peru meets the qualification criteria for access to Fund resources under an FCL arrangement."

### Recent developments and near-term indicators (selected exact figures)
- Growth: 2019 "2.2 percent"; Jan–Feb 2020 expansion "3.4 percent" (primary sector "4.6 percent"; nonprimary sector "3.1 percent").
- General government investment: increased "33 percent year-on-year" in Jan–Feb 2020.
- 12-month fiscal deficit of the nonfinancial public sector widened to "around 2 percent of GDP" (from "1.6 percent at end-2019").
- Credit growth: financial system credit to private sector "6.9 percent (y-o-y) by end-2019," accelerated to "7.2 and 7.7 percent" in January and February 2020.
- Household credit: "around 11.3 percent"; credit dollarization "26 percent of loans"; deposit dollarization "34 percent of total deposits in February."
- Inflation: "1.9 percent" at end-February; "1.8 percent" in March; "1.7 percent" in April.
- Banking sector (February): NPLs at "3½ percent of gross loans," ROA at "2¼ percent," capital at "approximately 14¼ percent of risk-weighted assets."
- Trade Jan–Feb: exports declined "three percent (y-o-y)"; traditional exports contracted "nearly four percent"; imports declined "about 1½ percent"; trade surplus narrowed by "less than 0.1 percent of GDP."
- Covid-19 shock since mid-March:
  - Lockdown initially two weeks from mid-March, extended until "May 24"; nationwide lockdown lasts 10 weeks (brunt in Q2 with nearly 8 weeks).
  - Electricity production declined "approximately 28 percent" since lockdown start.
  - Monthly GDP indicator declined "about 16¼ percent in March."
- Commodity prices (year-to-date): copper down "over 18 percent"; iron ore and soybeans declines "nearly 10 percent"; oil price decline "nearly 60 percent."
- International bond issuance (April 16): "US$3 billion" (five- and ten-year); demand "almost US$25 billion"; interest rates "2.39 and 2.78 percent."

### Baseline forecast for 2020 and medium-term projections
- 2020 baseline:
  - Real GDP: expected to fall by "6½ percent" in 2020.
  - Global economy projected to contract by "3 percent" in 2020.
  - Fiscal deficit projected to increase to nearly "8¾ percent of GDP" in 2020.
  - Public debt projected to reach "37.7 percent of GDP in 2022" and decline to under "36 percent of GDP by 2025."
  - Non-resident holdings of local currency debt expected to decline by about "10 percent relative to end-2019."
  - FDI expected to contract sharply in 2020.
  - Banks’ asset quality and profitability expected to deteriorate; strong reserves and supportive policies expected to help the sector withstand the shock.
- 2021 and medium-term:
  - Global growth projected to recover by "5¾ percent in 2021."
  - Peru’s economy expected to expand by "over 5¾ percent in 2021."
  - Medium-term growth expected to return to potential of "3½ percent."
  - Fiscal deficit expected to decline to about "3½ percent of GDP in 2021."
  - FX reserves expected to remain ample:
    - Significantly above "150 percent of the ARA metric" when using total gross international reserves.
    - Within the "100-150 percent range" when using the adjusted GIR/ARA metric.
  - Authorities should continue focusing on revenue administration measures—particularly reducing the VAT compliance gap.

### Policy response to Covid-19 (fiscal, monetary, financial measures)
- Containment: National Plan prepared in January; first confirmed case "March 6"; progressively tightened containment including national emergency, travel restrictions, lockdown, self-isolation, curfew.
- Fiscal package:
  - Announced March 29 amounting to about "12 percent of GDP" (later expanded to about "16 percent of GDP").
  - Fiscal Policy Package equivalent to "7 percent of GDP" (increased health spending, temporary payroll subsidies, tax deferrals, means-tested cash transfers, recovery projects, emergency lending to SMEs).
  - Liquidity/credit measures equivalent to about "8 percent of GDP."
  - Steps granting households access to restricted individual accounts equivalent to about "1 percent of GDP."
  - Government guarantee to support lending to some "350,000 SMEs"; guaranteed loans maturity up to "36 months"; Central Bank may provide liquidity through repos of government guaranteed loans.
  - Fiscal rules suspended for "2020-21."
- Monetary and financial measures:
  - Policy rate cut by cumulative "200 bps" in March and April to "0.25 percent" (historic low).
  - Easing of reserve requirements and liquidity injections.
  - FX interventions (selling) moderate; international reserves remain robust.
  - International reserves above "200 percent of the adjusted ARA metric" using gross international reserves and at "131 percent" when adjusting for FX deposits.
  - Superintendence allowed loan term modifications without immediate deterioration in credit classification under specified conditions (modification not beyond six months and loan in good status before modification).
  - Central bank relaxed two capital flow management and macroprudential measures related to reserve requirements on FX derivative transactions.

### Adverse scenario, external shocks, and financing needs
- Adverse scenario summary:
  - Metals prices and world growth shocks generate severe external stress; ESI sharply deteriorates in H1 2020.
  - Adverse scenario assumptions (selected exact values):
    - Copper prices: "-27 (2020), -27 (2021)" (percent change vis-à-vis baseline).
    - Non-copper exports: "-15 (2020), -15 (2021)."
    - Oil prices: "-10 (2020), -10 (2021)."
    - Non-oil imports: "-10 (2020), -10 (2021)."
    - FDI: "-40 (2020), -24 (2021)."
    - Non-resident local currency debt stock: "-31 (2020), -31 (2021)."
    - Resident portfolio flows (change in US$ billion): "-2.5 (2020), -2.5 (2021)."
- Financing gap under adverse scenario for 2020: about "US$18 billion":
  - US$4 billion from a worsening current account.
  - US$14.3 billion from a financial account shock.
  - Assumed reserve drawdown "US$8.3 billion" (US$7.3 billion more than baseline); reserve drawdown corresponds to "43 percent of the total financing needs."
  - Residual financing gap after reserve use: "US$11 billion."
- Composition of export concentration (2019 exports): Copper "31%", Gold "19%", Zinc "5%", Lead "3%", Iron "2%", Tin "1%", Other Minerals "1%", Crude and Petroleum Products "7%", Other "31%."
- Non-resident holdings of domestic currency debt increased (stock increased from "US$7.1 billion to US$17.6 billion between 2016 and 2019").

### FCL request, design, and staff view
- Authorities requested an FCL arrangement: "SDR 8.007 billion (600 percent of quota)" for "24-months," intended as precautionary.
- Staff view: access of "600 percent of quota" is justified to support macro strategy, preserve investor confidence, and provide insurance against extremely adverse risks.
- Authorities intend to reduce access and eventually exit when external risks have sufficiently moderated.
- Key FCL terms (selected):
  - Arrangement period: "twenty-four months."
  - Access amount: "SDR 8.007 billion."
  - Purchases may not be made after "May 27, 2021," until an Executive Board review of qualification is completed (subject to an exception).
  - Peru shall pay a charge for the FCL in accordance with Fund decisions.

### Impact on Fund finances and liquidity (staff assessment and metrics)
- Fund Forward Commitment Capacity (FCC):
  - FCC currently around "SDR 190 billion" (Table shows "190,400 (Millions of SDR)").
  - FCC would decline by about "4 percent" on approval (FCC on approval shown as "182,393 (Millions of SDR)"; change "-4.2 percent").
- If Peru fully drew the FCL:
  - GRA credit to Peru would represent "10.4 percent of total GRA credit outstanding as of May 14, 2020" and "9.4 percent" including Peru's purchase.
  - Peru would be the third largest Fund exposure.
  - Fund credit to Peru would be about "49 percent of the Fund's current precautionary balances."
  - Fund credit to Peru would initially account for "5.7 percent of GDP" and nearly "19 percent of Peru’s gross international reserves" under staff projections.
  - Projected GRA exposure and debt-service figures (SDR millions):
    - GRA credit to Peru: "2020 8,007.0; 2021 8,007.0; 2022 8,007.0; 2023 6,005.3; 2024 2,001.8; 2025 0.0."
    - Debt service due on GRA credit (SDR millions): "2020 129.8; 2021 196.6; 2022 196.6; 2023 2,215.2; 2024 4,119.2; 2025 2,012.0."
- Staff conclusion: proposed FCL would have a manageable impact on the Fund's finances; repayment capacity would remain adequate even under full draw.

### Macroeconomic and debt projections (baseline and with drawing, selected exact figures)
- Baseline Real GDP (annual percent change): "2020 -6.5; 2021 5.8; 2022 4.7; 2023 3.7; 2024 3.7; 2025 3.7."
- Baseline consumer prices (end of period): "1.4 for 2020; 2.0 for 2021–2025."
- Baseline NFPS overall balance (percent of GDP): "-8.7 (2020); -3.5 (2021); -2.6 (2022); -2.0 (2023); -1.4 (2024); -1.0 (2025)."
- Total external debt (percent of GDP) baseline: "39.8 (2020); 38.2 (2021); 36.0 (2022); 34.4 (2023); 32.9 (2024); 31.5 (2025)."
- Under full FCL drawing (selected debt ratios):
  - Total external debt (percent of GDP): "2020 44.1; 2021 42.3; 2022 39.8; 2023 36.7; 2024 32.8; 2025 30.3."
  - Public external debt (percent of GDP): "2020 24.7; 2021 24.2; 2022 23.3; 2023 22.1; 2024 21.2; 2025 16.4."
  - GRA credit to Peru (percent of GDP): "2020 5.7; 2021 5.5; 2022 5.1; 2023 3.6; 2024 1.2; 2025 0.0."
  - Debt service due on GRA credit (percent of GDP): "2020 0.1; 2021 0.1; 2022 0.1; 2023 1.3; 2024 2.4; 2025 1.1."

### Financial sector resilience, supervision, and recommendations
- Financial sector:
  - Statement: "149.1 percent of non-performing loans is high."
  - Liquid assets account for about "21 percent of total assets."
  - Banking system profitable and well-capitalized at present.
  - 2018 FSAP stress tests found profits and countercyclical buffers would help banks withstand a severe GDP shock and a sol depreciation of nearly "20 percent."
- Supervision and reforms:
  - Progress on Basel III implementation; LCR minimum requirements implemented with local tailoring.
  - Authorities working on improved methodologies for countercyclical provisions, capital surcharges for systemic banks, buffers for concentration risk and interest rate risk.
- Staff recommendations for Covid-19 relief measures:
  - Ensure loan loss provisioning and classification reflect sound accounting practices.
  - Supervisors to collect information and maintain close scrutiny over banks’ asset quality and provisioning.
  - Prevent borrowers already unlikely to repay before Covid-19 from unduly benefiting from renegotiations and repayment holidays.
  - Banks should assess credit quality of exposures subject to renegotiation and identify situations where borrowers are unlikely to pay.

### Governance, transparency, and structural policy priorities
- Governance indicators (Worldwide Governance Indicators, scale –2.5 to 2.5):
  - Regulatory quality: point estimate "0.52 (standard error 0.18)."
  - Government effectiveness: point estimate "-0.25 (standard error 0.18)."
  - Control of corruption: point estimate "-0.54 (standard error 0.12)."
- Measures taken:
  - Judicial and political reforms submitted to referendum; three of four approved.
  - Administrative transparency enhanced via sworn declarations of interest published online.
  - Anti-Corruption Plan (2018–21) implemented; Integrity Secretariat created.
  - Comptroller’s Office authorized to conduct concurrent monitoring under the COVID-19 emergency.
- Structural priorities: legal, labor, product-market reforms; improvement of physical infrastructure; National Plan of Infrastructure for Competitiveness; labor market reform measures extended until "2023."

### Staff appraisal and recommendation
- Staff assessment: Peru meets the qualification criteria for an FCL arrangement.
- Recommendation: approve FCL arrangement with access of "600 percent of quota" to be treated as precautionary; staff welcomes authorities’ intention to reduce access and exit when external risks subside.
- Rationale: very strong policy and institutional frameworks, adequate buffers, and a solid track record of prudent policies.
- Caveat: prolonged capital outflows and downside global risks could expose vulnerabilities, including dependence on non-resident financing.

### Annex I & II — external and public debt sustainability (selected table values)
- Annex I baseline external debt profile (percent of GDP): "2019 34.7; 2020 39.8; 2021 38.2; 2022 36.0; 2023 34.4; 2024 32.9; 2025 31.5."
- Annex I gross external financing need (billions US$): "2019 20.4; 2020 15.7; 2021 14.9; 2022 17.3; 2023 17.5; 2024 17.7; 2025 20.0."
- Annex II baseline nominal gross public debt (percent of GDP): "2018 23.6; 2019 26.2; 2020 27.2; 2021 37.2; 2022 37.6; 2023 37.7; 2024 37.6; 2025 36.9; 2025 35.8 (repeated)."
- Annex II key macro assumptions (baseline): Real GDP growth "2019 2.2; 2020 -6.5; 2021 5.8; 2022 4.7; 2023–2025 3.7"; Effective interest rate series and inflation projections presented in Annex II tables.

_Italic: Source — Excerpts from the IMF staff report and annexes on Peru (1perea2020003)._

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- Peru’s policy and institutional frameworks described as "very strong" have supported impressive macroeconomic outcomes and reduced vulnerabilities.
- Growth averaged nearly 5¼ percent over the past 15 years, consistently above the average for the LAC region.
- Inflation targeting (since 2002) anchors expectations around the BCRP target range "2 +/- 1 percent."
- Prudent fiscal management and the fiscal rule framework (since 1999) helped reduce government debt to "under 27 percent of GDP by end-2019."
- Financial sector regulation and supervision are characterized as "very strong" (2018 FSSA), contributing to financial stability and progress on Basel reforms.
- Poverty has been cut by more than half since the turn of the century.
- End-2019 external debt and gross international reserves were "around 35 and 30 percent of GDP, respectively."
- In recent years growth momentum slowed due to external, domestic, and weather-related shocks; the Covid-19 pandemic constitutes an unprecedented shock pushing the economy into recession.

### Risks
- Uncertainty around global growth forecasts has "spiked to unprecedented levels" and external tail risks have increased.
- A prolonged Covid-19 outbreak could significantly affect terms of trade, exports, and foreign direct investment (Peru is "one of the world’s largest mineral exporters").
- A persistent decline in risk appetite would curtail capital inflows, particularly non-resident acquisitions of domestic currency government bonds.
- Investor liquidation under risk aversion and tight financing conditions would place "large pressures on the balance of payments."
- A global flight to safety with large resident outflows could heighten balance of payments pressures.

### Flexible Credit Line (FCL) Request
- Authorities request a two-year FCL arrangement in the amount of "SDR 8.007 billion (600 percent of quota)," intended to be treated as precautionary.
- Authorities view a new FCL arrangement for the requested amount as complementary to existing buffers and policy frameworks and as sufficient insurance against extreme external risks.
- Staff assessment: "Peru meets the qualification criteria for access to Fund resources under an FCL arrangement."
- Authorities intend to reduce access under the FCL and eventually exit the arrangement "when external risks have sufficiently moderated."
- Date referenced: "May 21, 2020."

### Fund Liquidity
- The proposed commitment (SDR 8.007 billion) would have a "limited impact on the Fund’s liquidity position."

### Process
- An informal meeting to consult with the Executive Board on a possible FCL arrangement for Peru was held on "May 8, 2020."

### Recent Developments
- Growth in 2019 was "2.2 percent" and subpar after previous rebounds.
- Early 2020 (January–February) showed signs of recovery: expansion at "3.4 percent" with primary sector growth averaging "4.6 percent" and nonprimary sector at "3.1 percent."
- General government investment increased by "33 percent year-on-year" in Jan–Feb 2020.
- The 12-month fiscal deficit of the nonfinancial public sector widened to "around 2 percent of GDP" (from "1.6 percent at end-2019").
- Projected fiscal deficit ("2 percent of GDP") consistent with gradual return to the fiscal rule ceiling; public debt expected to remain well below the "30 percent of GDP" ceiling.
- Credit growth: financial system credit to private sector slowed to "6.9 percent (y-o-y) by end-2019," accelerated to "7.2 and 7.7 percent" in January and February 2020.
- Credit to households stable at "around 11.3 percent"; credit dollarization declined to "26 percent of loans"; deposit dollarization reached "34 percent of total deposits in February."
- Inflation: "1.9 percent" at end-February; slowed to "1.8 percent" in March and "1.7 percent" in April.
- Banking sector (February): NPLs at "3½ percent of gross loans," ROA at "2¼ percent," capital at "approximately 14¼ percent of risk-weighted assets."
- Trade: Jan–Feb exports declined "three percent (y-o-y)"; traditional exports contracted "nearly four percent"; imports declined "about 1½ percent"; trade surplus narrowed by "less than 0.1 percent of GDP."
- Covid-19 impact since mid-March: nationwide lockdown initially two weeks from mid-March, extended until "May 24"; electricity production declined "approximately 28 percent" since lockdown start; monthly GDP indicator declined "about 16¼ percent in March."
- Commodity prices: copper down "over 18 percent (year-to-date)"; iron ore and soybeans declines "nearly 10 percent"; oil price decline "nearly 60 percent."
- Peru’s international bond issuance on April 16: "US$3 billion" in five- and ten-year bonds; demand "almost US$25 billion"; interest rates "2.39 and 2.78 percent" (five- and ten-year).
- Domestic politics: Constitutional Court affirmed President Vizcarra’s dismissal of Congress and new parliamentary elections held in late January; new Congress seated mid-March and largely supported emergency agenda including granting legislative powers for "45 days"; tensions over proposed law to allow withdrawals of "up to 25 percent" of private pension accounts.

### Outlook and Policies (high-level points from the Executive Summary and CONTENTS structure)
- 2020 growth projections revised from "+3.2 percent in January to -6.5 in the new baseline scenario" reflecting Covid-19 impacts.
- The economic outlook is "highly uncertain" with downside risks if the outbreak is more prolonged or causes persistent economic scarring.
- Policies have been largely countercyclical in recent years with moderate fiscal deficits ("2 percent of GDP on average since 2014") to cushion shocks; exceptions to fiscal rule have been used since 2017.

*Prepared by IMF staff and approved by Krishna Srinivasan and Vikram Haksar; report prepared by a team led by Leo Bonato and including Pedro Rodriguez, Frederik Toscani, Salma Khalid, Gohar Minasyan, with support from Patricia Delgado and Danjing Shen.*

### 10.       In the baseline forecast, the economy is expected to contract sharply in 2020, with

### 1perea2020003 - 10.       In the baseline forecast, the economy is expected to contract sharply in 2020, with

### Baseline forecast for 2020
- Peru’s GDP is expected to fall by 6½ percent in 2020.
- The brunt of the impact is in Q2 2020 (with nearly 8 weeks of lockdown); nationwide lockdown lasts 10 weeks.
- Global economy projected to contract by 3 percent in 2020.
- Inflation is expected to remain subdued and below the central bank’s target range despite supply disruptions.
- Contraction in imports is expected to be stronger than that in exports.
- Current account deficit is expected to narrow, largely offsetting a substantial worsening of the financial account.
- FDI is expected to contract sharply.
- Non-resident holdings of local currency debt are expected to decline by about 10 percent relative to end-2019.
- Fiscal deficit projected to increase to nearly 8¾ percent of GDP in 2020 owing to lower revenues and higher expenditures reflecting deteriorating economic conditions and the policy response.
- Public debt projected to reach a high of 37.7 percent of GDP in 2022 and to decline to under 36 percent of GDP by 2025.
- Banks’ asset quality and profitability expected to deteriorate; strong reserves and supportive policies are expected to help the sector withstand the shock.

### 2021 outlook and medium-term projections
- Global growth projected to recover by 5¾ percent in 2021.
- Peru’s economy expected to expand by over 5¾ percent in 2021.
- Economic activity in 2021 is projected to still be below pre-Covid-19 level.
- Inflation projected to increase but remain near the mid-point of the target range.
- Current account deficit expected to widen in 2021.
- Fiscal deficit expected to decline to about 3½ percent of GDP in 2021 as transitory fiscal support is unwound and tax revenues rebound.
- Balance of payments expected to improve in 2021 as FDI rebounds and portfolio flows tick up.
- FX reserves expected to remain ample throughout the forecast horizon:
  - Significantly above 150 percent of the ARA metric when using total gross international reserves.
  - Still comfortably within the 100-150 percent range when using the adjusted GIR/ARA metric.
- Medium-term growth expected to return to potential of 3½ percent.
- Fiscal deficit expected to gradually decline to below the fiscal rule ceiling—one year later than in the pre-Covid-19 path.
- Return to the debt ceiling of 30 percent of GDP may need a longer period; public debt expected to remain low at the end of the projection period and on a downward trajectory.
- Authorities should continue focusing on revenue administration measures—particularly on reducing the VAT compliance gap.

### Policy response to Covid-19
- Containment measures:
  - National Plan for Response and Prevention prepared in January.
  - First confirmed case on March 6; progressively tightened containment measures including declaration of national emergency, severe travel restrictions, national lockdown, mandatory self-isolation, and curfew.
- Fiscal policy:
  - Policy support package announced March 29 amounting to about 12 percent of GDP (later expanded to about 16 percent of GDP) aimed at: (i) addressing the health emergency; (ii) providing economic relief to vulnerable firms and households; and (iii) ensuring a rapid economic recovery.
  - Fiscal package components (text table summary):
    - Fiscal Policy Package equivalent to 7 percent of GDP:
      - Increased spending in health equipment and personnel.
      - Temporary payroll subsidies, tax deferrals, and means-tested cash transfers.
      - Post-lockdown recovery projects.
      - Emergency lending to small and medium-sized enterprises.
    - Efforts to ease liquidity constraints on households; package equivalent to about 8 percent of GDP.
    - Government guarantee to support financial sector lending to some 350,000 SMEs for working capital; guaranteed loans can have a maturity of up to 36 months. Central Bank may provide liquidity through repos of the government guaranteed loans.
    - Steps granting households access to restricted individual accounts (i.e., pensions, severance accounts); package equivalent to about 1 percent of GDP.
  - The package is not fully incorporated in the 2020 baseline; public investment execution expected to continue to face challenges.
  - Government suspended the fiscal rules for 2020-21 in the context of the national emergency.
- Monetary, exchange rate, reserves, and financial sector policies:
  - Policy rate cut by cumulative 200 bps in March and April to an historic low of 0.25 percent (1.25 percent during the GFC).
  - Easing of reserve requirements and liquidity injection to support payment and credit chains.
  - FX interventions (selling) to prevent disorderly market conditions; interventions were moderate and international reserves remain robust.
  - Intervention metrics: international reserves above 200 percent of the adjusted ARA metric when using gross international reserves and at 131 percent when adjusting reserves for FX deposits of the government and commercial banks.
  - Superintendence of banks allowed term modifications for loans affected by new economic conditions without immediate deterioration in credit classification under specified conditions (modification not beyond six months and loan in good status before modification).
  - Central bank relaxed two capital flow management and macroprudential measures related to reserve requirements on FX derivative transactions to enhance FX hedging.
- Additional policy reforms and contingency plans:
  - Government committed to transparent fiscal management despite temporary suspension of fiscal rules.
  - Plans to include assessment of Covid-19 impact on fiscal accounts in Fiscal Responsibility Report for 2020 and 2021 and to provide a plan to return to fiscal rule parameters in the Multiannual Macroeconomic Framework.
  - Additional resources authorized to the Comptrollers Office to enhance monitoring of new expenditures.
  - Continued progress on public financial management and revenue administration reforms, and exploration of measures to improve liquidity/cash management at central and regional levels.
  - Central bank monitoring economic developments and may expand policy support if warranted.

### Risks, exposures, and vulnerabilities
- Covid-19 uncertainty:
  - World Economic Outlook downgraded baseline global growth to -3 percent with “severe risks of a worse outcome”; G-20 Surveillance Note calls the outlook “unusually uncertain.”
  - Uncertainty around path of outbreak and containment measures is extremely large; risks include confidence failure, company failures, massive unemployment, structural shifts, longer-lasting supply chain disruptions, and weak aggregate demand.
- External vulnerabilities:
  - Mineral exports accounted for 65 percent of Peru’s 2019 exports; copper alone represents 26 percent.
  - Peru is the world’s second largest copper exporter.
  - A slowdown in external demand would depress copper and other metal prices, adversely affecting the current account; gold can act as a partial hedge.
  - Non-resident acquisitions of domestic currency government bonds account for about 40 percent of local currency debt.
  - Non-residents’ USD position increased from US$5 billion in 2015 to US$17.6 billion in 2019 (an increase corresponding to 5 percent of GDP).
  - Resident net portfolio investment tends to be negative; in a flight to safety, resident outflows (e.g., change of US$3.5 billion relative to 2008 during the GFC) could put pressure on the balance of payments.
- Market volatility and commodity prices:
  - Volatility implied in copper futures has soared.
  - December 2020 mean copper price forecast at end-March 2020 (Bloomberg and IMF staff calculations) was around 20 percent lower than in January 2020; the one standard deviation confidence interval for 2021 forecast is 35 percent wider than in January 2020.
- External Economic Stress Index (ESI):
  - ESI for Peru is based on metals prices, world GDP, emerging market volatility, and U.S. Treasury yields.
  - ESI shows sharp deterioration in H1 2020 reflecting global contraction and financial market stress.
  - Under the baseline, the ESI is expected to bounce back and return to average levels in subsequent quarters due to rapid global rebound in H2 2020.
  - Under the adverse scenario, the ESI is expected to stay in negative territory over the next 12 months reflecting prolonged Covid-19 effects.

*Source: International Monetary Fund (excerpt).*

### 17.       Staff estimates indicate that financing needs would be substantial if the above

### 1perea2020003 - 17.       Staff estimates indicate that financing needs would be substantial if the above

### Adverse scenario and external shocks
- Adverse scenario: further deterioration in global economic conditions leading to more severe trade and current account movements.
- Import compression from exchange rate depreciation and lower oil prices is outweighed in the short run by falling exports due to low global growth and lower metals prices.
- Heightened global uncertainty and risk aversion would lead to a sharp decline in capital inflows (FDI, portfolio, and loans) and a reduction in the large stock of local currency debt held by non-residents.
- Many risks are correlated and mutually reinforcing, creating the possibility of a highly adverse outcome.

### External exposures (key points)
- Exports highly concentrated in minerals: Copper 31%, Gold 19%, Zinc 5%, Lead 3%, Iron 2%, Tin 1%, Other Minerals 1%, Crude and Petroleum Products 7%, Other 31% (Export Composition, Year of 2019).
- Non-resident holdings of domestic currency debt more than tripled since 2015 (stock increased from US$7.1 billion to US$17.6 billion between 2016 and 2019).
- FDI stock by sector and source country shown; FDI accounts for the majority of financial account flows and since 2000 has never been less than 48 percent of the financial account balance.

### External Economic Stress Index (EESI)
- EESI is based on four variables: (i) weighted average of copper and gold prices; (ii) world GDP growth rate; (iii) emerging market volatility index VXEEM; (iv) change in the 10-year U.S. Treasury yield.
- Weights: commodity prices 0.35; world GDP 0.26; VXEEM -0.22; US government bond -0.17.
- Baseline ESI in 2020Q1 largely unfavorable due to sharp contraction of world GDP and increased emerging market volatility; commodity price component largely neutral in 2020Q1 but expected to contribute negatively in 2020Q2.
- Adverse scenario ESI: metals prices fall by about 15 percent year-on-year in 2020 and continue to fall in 2021; world growth 3 percentage points below baseline throughout the 1-year horizon; VXEEM about 2 standard deviations above baseline.
- For the 12-month average the ESI in the adverse scenario is -1.7, almost twice as negative as during the GFC and worse than the baseline by 1.2 points.

### Financing needs and FCL request
- Authorities requested an FCL arrangement with access of 600 percent of quota on a precautionary basis: SDR 8.007 billion (600 percent of quota) for a period of 24-months.
- Staff view: this level of access is justified to support macroeconomic strategy, preserve investor confidence, and provide insurance against extremely adverse risks.
- In the adverse scenario Peru would face a financing gap of about US$18 billion in 2020:
  - US$4 billion from a worsening current account.
  - US$14.3 billion from a financial account shock.
- Assumed in the adverse scenario:
  - A 3-percent depreciation of the exchange rate.
  - A substantial reserve drawdown of US$8.3 billion (US$7.3 billion more than in the 2020 baseline).
  - Reserve drawdown corresponds to 43 percent of the total financing needs, taking the adjusted GIR/ARA metric to about 105 percent.
- Even after reserve use, a residual financing gap of US$11 billion would remain.
- Key contributors to financing gap under adverse scenarios (US$ billion):
  - Current Account Deficit: 4.0 (2020), 4.1 (2021)
  - Financial Account Shock: 14.3 (2020), 14.2 (2021)
  - Reserve drawdown: -7.3 (2020), -7.3 (2021)
  - Remaining gap: 11 (2020), 11 (2021)

### Description of the adverse scenario (Box 3) — key assumptions and shocks
- Global context: configuration of shocks consistent with global growth 3 percentage points below the baseline and heightened emerging market volatility; Peru’s GDP growth over 3 percentage points below baseline; real exchange rate depreciates by an additional 3 percentage points vis-à-vis baseline.
- Current account:
  - Copper exports assumed to fall by 27 percent.
  - Other Peruvian non-fuel exports assumed to fall by 15 percent.
  - Total exports fall by 27 percent relative to the average over 2017-19.
  - Goods imports contract by 10 percent, yielding a 20 percent reduction in imports in 2020 adverse scenario relative to 2017-2019 average.
  - Overall current account worsens by US$4.2 billion in Box 3 description.
- Foreign Direct Investment (FDI):
  - Inward FDI assumed to fall by 40 percent relative to baseline in 2020 (roughly 50 percent relative to average over 2017–19).
  - Historical contractions: inward FDI contracted by 27 percent in 2013 and 60 percent in 2014 year-on-year.
- Foreign-currency denominated debt:
  - Private short-term FX debt rollover rate assumed at 80 percent.
  - Private MLT FX debt: disbursements of 80 percent of baseline assumed (instead of rollover).
  - Public sector: amortization of FX debt very low in 2020 and 2021; authorities issued US$3 billion in global bonds in 2020 and plan more; rollover rates for public debt projected over 200 percent in both baseline and adverse scenario (assumed ability to place amount already issued in Q2 2020, roughly 30 percent less than baseline).
- Local-currency debt:
  - Assumed reduction of 39 percent in the stock of non-resident holdings relative to end-2019 (31 percent reduction relative to baseline).
  - This sell-off corresponds to roughly undoing the increase of non-resident holdings over the previous two years and is somewhat larger than past sell-offs in Peru (-15 percent year-on-year in both 2009 and 2014).
- Resident portfolio outflows:
  - Assumed outflows equivalent to 1.6 standard deviations, with an assumed negative delta of US$2.5 billion (close to that observed in Peru during the GFC).
- Reserve drawdown:
  - Substantial reserve drawdown of US$8.33 billion assumed in the adverse scenario (corresponds to 43 percent of financing needs).
  - Adjusted GIR/ARA metric would drop to about 105 percent.
- Assumptions Underlying the Illustrative Adverse Scenarios (In percent change vis-à-vis baseline, unless otherwise indicated):
  - Copper prices: -27 (2020), -27 (2021)
  - Non-copper exports: -15 (2020), -15 (2021)
  - Oil prices: -10 (2020), -10 (2021)
  - Non-oil imports: -10 (2020), -10 (2021)
  - FDI: -40 (2020), -24 (2021)
  - ST private FX debt (rollover rate): 80 (2020), 80 (2021)
  - MLT private FX debt disbursements: -20 (2020), -20 (2021)
  - MLT public sector disbursement: -30 (2020), -30 (2021)
  - Non-resident local currency debt stock: -31 (2020), -31 (2021)
  - Resident portfolio flows (change in US$ billion): -2.5 (2020), -2.5 (2021)

### Assessment of qualification and macroeconomic fundamentals
- Staff assessment: Peru meets the qualification criteria for an FCL arrangement.
- Policy frameworks and institutions:
  - Monetary policy: credible inflation-targeting framework in the context of a floating exchange rate regime.
  - Fiscal policy: guided by the Fiscal Responsibility and Transparency Law with a ceiling on fiscal deficit and public debt (suspended for 2020–21 due to the national emergency, with transparent objective and plans).
- External position and reserves:
  - External debt relatively low: 34.7 percent of GDP at end-2019 and projected to decline to around 31½ percent of GDP over the medium term.
  - Net foreign assets projected to decline from -37 percent in 2019 to around -38.2 percent of GDP by 2024.
  - Gross international reserves reached US$68.37 billion at end-2019.
  - Adjusted GIR/ARA metric after accounting for FX deposits and commodity buffer: 131 percent in 2019 and average of 118 percent over previous three years.
- Capital account: dominated by private flows; private portfolio inflows and FDI account for about 76 percent of overall inflows in the last 3 years; public inflows about one third of direct, portfolio and other asset and liability inflows on average over last three years.
- Market access and ratings:
  - EMBIG spreads: 145 basis points in 2017, 147 basis points in 2018, 129 basis points in 2019; average spread in 2020 up to March 24 was 159 basis points.
  - External public issuance in 2017, 2018, 2019: US$2.4 billion, US$1.8 billion, US$1.8 billion respectively; cumulatively 330 percent of quota (note: additional US$3 billion placed on April 16, 2020 bringing cumulative issuance for 2018-2020M4 to 360 percent of quota).
  - Major credit rating agencies assign investment grade: Moody’s A3, S&P and Fitch ‘BBB+’ with stable outlook (2019).
- Fiscal and debt projections:
  - Fiscal deficit expected to reach 8.7 percent of GDP in 2020; staff projects return to deficit ceiling of 1 percent of GDP by 2025 (one year later than pre-Covid-19 path) under the baseline.
  - Public debt-to-GDP ratio expected to increase from 27.2 percent of GDP in 2019 to 37.2 percent of GDP in 2020, then decline to 35.8 percent of GDP by 2025.
  - Public debt assessed sustainable with high probability; debt trajectory robust to standard shocks though sensitive to growth, exchange rate, interest rates, and oil prices.
- Inflation and financial system:
  - Headline inflation at 1.8 percent in March 2020; inflation expectations at 2 percent (mid-point of target band).
  - Banking system Tier-1 capital ratio at 11.6 percent as of December 2019; provisioning levels not fully reported in the excerpt.

*Source: IMF staff calculations.*

### 149.1 percent of non-performing loans is high.

### 1perea2020003 - 149.1 percent of non-performing loans is high.

### Financial sector resilience and asset quality
- 149.1 percent of non-performing loans is high.
- Liquid assets account for about 21 percent of total assets.
- The banking system is profitable and well-capitalized at present.
- The central bank has used reserve requirements on foreign currency (and domestic currency) deposits to enhance financial sector stability and stabilize credit conditions in the face of high dollarization, resulting in greater resilience to external shocks such as during the GFC.
- The 2018 FSAP banking sector stress tests found that profits and previously accumulated countercyclical buffers would help the banking sector withstand a severe GDP shock and a sol depreciation of nearly 20 percent.
- Corporate stress tests found the corporate sector capable of withstanding adverse macroeconomic shocks.

### Financial supervision, regulation, and macroprudential measures
- 2018 FSAP conclusion: banking supervision in Peru is robust; the 2019 Article IV highlights continued progress toward adopting FSAP recommendations.
- Peru has made significant progress on implementation of the Basel III regulatory reform agenda and is working on:
  - improved methodologies for countercyclical provisions;
  - capital surcharges for systemic banks;
  - buffers for concentration risk and interest rate risk.
- Liquidity coverage ratio (LCR) minimum requirements have been implemented, with tailoring to local circumstances.
- Authorities have taken steps to strengthen supervision: registration of credit cooperatives and implementation of a broad set of FSAP recommendations across bank and insurance supervision, systemic risks, macroprudential policies, and financial integrity.
- Ongoing efforts: supervise financial institutions for AML/CFT compliance and strengthen risk-based supervision.
- Staff encouragement/recommendations:
  - step up implementation of 2018 FSAP recommendations after the crisis;
  - increase capital surcharges for systemic banks in line with Basel III;
  - increase countercyclical provisioning for smaller banks;
  - ensure any Covid-19 relief measures maintain sound micro-prudential standards, specifically making sure that:
    - (i) loan loss provisioning and the classification of exposures reflect sound accounting practices;
    - (ii) supervisors collect information and maintain close scrutiny over banks’ asset quality and provisioning;
    - (iii) borrowers that were already unlikely to repay before the Covid-19 crisis do not unduly benefit from renegotiations and repayment holidays;
    - (iv) banks assess the credit quality of exposures subject to renegotiation and identify situations in which borrowers are unlikely to pay.

### Data transparency, public debt issues, and statistical treatment
- Peru remains in observance of the Special Data Dissemination Standards (SDDS).
- Issue: government debt issued in the 1960s and 1970s as compensation during land reform—significant legal controversy over valuation due to very high inflation in the 1980s.
- 2013 process to regularize these bonds requires physical authentication owing to lack of an electronic registry:
  - Approximately 13,000 bonds have been submitted to the re-certification procedure by over 600 bondholders.
  - As of August 31, 2019, 88 percent of bonds submitted by bondholders had been verified through the procedure, allowing registration, valuation, and payment to proceed (payment began in 2018 and is ongoing).
  - So far, about 6 million soles (US$1.8 million) have been paid for approximately 300 bonds.
- Statistical treatment:
  - Bonds verified through the verification process have been integrated as general government debt in public debt statistics as of 2018.
  - Bonds not submitted through certification are assigned a value of zero in public debt statistics.
  - Bonds subject to separate arbitration are registered as contingent liabilities.

### Governance, institutional frameworks, and policy track record
- Track record: Peru met all relevant core indicators in each of the five most recent years.
- Policy frameworks anchored by:
  - inflation-targeting framework with a very strong, independent central bank;
  - Fiscal Responsibility and Transparency law;
  - effective prudential and regulatory financial supervision.
- Worldwide Governance Indicators (scale –2.5 to 2.5):
  - Regulatory quality: point estimate 0.52 (standard error of 0.18).
  - Government effectiveness: point estimate –0.25 (standard error of 0.18).
  - Control of corruption: point estimate –0.54 (standard error of 0.12).
- Governance measures and reforms:
  - President Vizcarra submitted four political and judicial reforms to referendum; three were approved.
  - Administrative transparency enhanced via decree requiring sworn declarations of interest from all public officials, published online.
  - Institutional strengthening for public investment and PPPs: creation of Invierte.pe and Proinversion.
  - Anti-Corruption Plan (2018–21) implemented; Integrity Secretariat created in the Presidential Council of Ministers, empowering a network of “Integrity Offices” in line ministries.
  - Controls under the COVID-19 emergency reinforced by enabling the Comptroller’s Office to conduct concurrent monitoring (as opposed to just ex-post monitoring); Comptroller adapting deadlines for concurrent control in public purchases related to the emergency.
  - Online eligibility for social support programs enabled; public information system on public works aligned with international good practices (INFOBRAS).

### Structural policies and diversification
- Peru has experienced an agro-exporting boom over the past two decades, moving away from traditional raw-material exports toward higher value-added exports of fresh fruit.
- Agricultural exports: 2.7 percent of GDP in 2019 from 0.4 percent in 2001.
- Reform priorities to enhance productivity and diversification:
  - legal system reforms;
  - labor and product market reforms;
  - improvement of physical infrastructure.
- Infrastructure priorities are reflected in the National Plan of Infrastructure for Competitiveness; labor market reforms (agriculture promotion law) extended until 2023.

### Monetary and fiscal policy frameworks and recent policy moves
- Central bank:
  - independent since 1993 with a constitutional mandate to maintain the currency’s purchasing power;
  - formally adopted an inflation-targeting framework in 2002.
- Multi-instrument policy framework: monetary policy for inflation; exchange rate policy for liability dollarization risks; macroprudential policies for financial stability.
- The Peruvian sol described as the most stable currency in the region due to frequent but limited and broadly symmetric foreign exchange interventions.
- Fiscal framework:
  - anchored in the 2003 Fiscal Responsibility and Transparency Law, revised in 2016;
  - 2016 reform reinstituted the headline fiscal deficit ceiling and introduced a ceiling of 30 percent of GDP on public debt; reintroduced ceilings on non-interest and current expenditures.
  - Fiscal policy largely countercyclical historically; recently expansionary due to a persistent negative output gap and the El Niño-related disaster of 2017.
- Policy rate actions:
  - central bank lowered the policy rate by 175 bps during June 2017–January 2020 to counter external shocks and weak growth;
  - central bank cut the policy rate by a further 200 basis points to counter the effect of the Covid-19 pandemic.

### Flexible Credit Line (FCL) arrangement: design, impact on Fund finances, and scenarios
- Authorities consider FCL access temporary; exit depends on evolution of external risks; intended to be treated as precautionary.
- Proposed arrangement: SDR 8.007 billion or 600 percent of quota.
- Impact on Fund liquidity:
  - Fund’s Forward Commitment Capacity (FCC) currently around SDR 190 billion; would decline by about 4 percent.
  - If Peru drew under the FCL, it would be automatically excluded from the Financial Transaction Plan (FTP) and the FCC would decline by another SDR 1.1 billion.
- If fully drawn, GRA credit exposure to Peru would be a sizable share of Fund’s outstanding credit:
  - Fund credit to Peru would represent 10.4 percent of total GRA credit outstanding as of May 14, 2020, and 9.4 percent of GRA credit outstanding including Peru's purchase.
  - Peru would be the third largest Fund exposure.
  - Concentration of Fund credit among the top five users of GRA resources would decrease marginally to about 74 percent, from 77 percent as of May 14, 2020.
  - Fund credit to Peru would be about 49 percent of the Fund's current precautionary balances.
- Macroeconomic and debt projections if resources fully drawn (staff projections):
  - Peru’s external debt would rise to about 44 percent of GDP this year.
  - Public external debt would rise to about 25 percent of GDP.
  - Peru's outstanding use of GRA resources would account for nearly 13 percent of total external debt, and about 23 percent of public external debt.
  - Fund credit would initially account for 5.7 percent of GDP and nearly 19 percent of Peru’s gross international reserves.
  - External debt service would increase over the medium term but remain manageable under staff projections.
  - Debt service to the Fund would constitute a large share of total public debt service in 2023‒25, but remain small even at its peak (2.4 percent of GDP).
- Safeguards: FCL safeguards procedures underway; authorities authorized central bank’s external auditors to discuss with staff; staff obtained central bank’s audited financial statements and management letter for FY2019.

### Staff appraisal and recommendation
- Staff assessment: Peru meets qualification criteria for access to FCL resources and recommends approval of the FCL request.
- Rationale:
  - Peru has very strong policy and institutional frameworks and economic fundamentals, among the strongest in the region and in the largest group of EMEs;
  - Peru has an impressive track record of prudent policies and able policy management.
- Risk assessment: despite resilience, prolonged capital outflows and downside global risks could expose vulnerabilities, including dependence on non-resident financing.
- Recommendation and intended treatment of arrangement:
  - A new FCL arrangement with access of 600 percent of quota, to be treated as precautionary, would provide temporary insurance to buttress market confidence amid heightened global uncertainties.
  - Staff welcomes authorities’ intention to reduce access and consider exit from the FCL arrangement when exceptional external risks subside; thereafter Peru’s large international reserves and policy buffers would be sufficient to manage risks.

*Source: IMF staff report content (1perea2020003).*

### 29.      Staff’s assessment is that the proposed FCL arrangement would have a manageable

### 1perea2020003 - 29.      Staff’s assessment is that the proposed FCL arrangement would have a manageable impact on the Fund's finances

### Staff assessment of the proposed FCL arrangement
- The Fund’s Forward Commitment Capacity (FCC) is currently around SDR 190 billion.
- The FCC would decline by about 4 percent if the proposed FCL arrangement were approved.
- If Peru were to purchase the full amount available under the proposed FCL arrangement, its capacity to repay to the Fund would remain adequate.
- Risks from the Fund's potential credit exposure to Peru are mitigated by:
  - Peru’s adequate buffers.
  - The country’s very strong policy framework and track record of economic performance.

### Relevant fiscal and external context (selected figures from the unit)
- Gross international reserves (end-2019): 67.4 (billions of U.S. dollars) appears repeatedly across projections for 2020–2025 as 67.4 (billions of U.S. dollars).
- External current account balance (percent of GDP): -0.9 for 2020 and projected -0.9 for 2021; projected -1.5 for 2022–2025.
- Total external debt (percent of GDP): 39.8 for 2020; projected 38.2 for 2021; 36.0 for 2022; 34.4 for 2023; 32.9 for 2024; 31.5 for 2025.
- NFPS overall balance (percent of GDP): -8.7 for 2020; projected -3.5 for 2021; -2.6 for 2022; -2.0 for 2023; -1.4 for 2024; -1.0 for 2025.
- NFPS primary balance (percent of GDP): -7.1 for 2020; projected -1.7 for 2021; -0.8 for 2022; -0.2 for 2023; 0.3 for 2024; 0.7 for 2025.
- Real GDP (annual percent change): -6.5 for 2020; projected 5.8 for 2021; 4.7 for 2022; 3.7 for 2023; 3.7 for 2024; 3.7 for 2025.
- Consumer prices (end of period): 1.4 for 2020; projected 2.0 for 2021–2025.
- Nominal GDP (S/. billions) projections: 895 (2023), 951 (2024), 1,010 (2025).
- Net international reserves (millions of U.S. dollars) shown around 67,346–68,316 in 2019–2025 projections.

### Implications for Fund engagement
- The estimated 4 percent decline in FCC from an FCC base of around SDR 190 billion is judged manageable by staff.
- Peru’s projected fiscal and external indicators (including reserve coverage and external debt metrics) and its policy framework support staff’s conclusion that repayment capacity would remain adequate even in the event of full use of the arrangement.

*Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1perea2020003.pdf*

### Annex I. External Debt Sustainability Analysis

### Annex I. External Debt Sustainability Analysis

### Baseline external debt profile (2017–25)
- Baseline: External debt 35.7 (2017), 34.5 (2018), 34.7 (2019), 39.8 (2020), 38.2 (2021), 36.0 (2022), 34.4 (2023), 32.9 (2024), 31.5 (2025).
- Debt-stabilizing non-interest current account: -2.5.
- Change in external debt: -2.6 (2017), -1.2 (2018), 0.2 (2019), 5.1 (2020), -1.6 (2021), -2.2 (2022), -1.6 (2023), -1.5 (2024), -1.4 (2025).
- Identified external debt-creating flows (4+8+9): -1.7 (2017), -0.8 (2018), -2.7 (2019), 1.9 (2020), -3.1 (2021), -2.2 (2022), -1.9 (2023), -1.8 (2024), -1.9 (2025).

### Current account and trade flows
- Current account deficit, excluding interest payments: -0.1 (2017), 0.2 (2018), 0.0 (2019), -1.1 (2020), -1.0 (2021), -0.3 (2022), -0.2 (2023), -0.1 (2024), 0.0 (2025).
- Deficit in balance of goods and services: -2.4 (2017), -2.0 (2018), -1.7 (2019), -2.1 (2020), -1.9 (2021), -1.3 (2022), -1.3 (2023), -1.3 (2024), -1.3 (2025).
- Exports: 24.6 (2017), 24.9 (2018), 24.0 (2019), 22.9 (2020), 24.4 (2021), 24.2 (2022–2025).
- Imports: 22.2 (2017), 23.0 (2018), 22.3 (2019), 20.8 (2020), 22.5 (2021), 22.9 (2022–2025).

### Capital inflows and financing needs
- Net non-debt creating capital inflows (negative): -2.1 (2017), -1.1 (2018), -3.4 (2019), -1.5 (2020), -1.8 (2021), -2.0 (2022), -2.1 (2023), -2.1 (2024), -2.2 (2025).
- Net foreign direct investment, equity: 3.0 (2017), 2.9 (2018), 3.5 (2019), 2.7 (2020), 3.0 (2021), 3.1 (2022–2024), 3.2 (2025).
- Net portfolio investment, equity: -0.8 (2017), -1.8 (2018), -0.1 (2019), -1.2 (2020), -1.2 (2021), -1.1 (2022), -1.0 (2023), -1.0 (2024), -0.9 (2025).
- External debt-to-exports ratio (in percent): 145.2 (2017), 138.5 (2018), 144.7 (2019), 173.8 (2020), 156.3 (2021), 148.8 (2022), 142.1 (2023), 135.7 (2024), 130.1 (2025).
- Gross external financing need (in billions of U.S. dollars): 22.8 (2017), 19.5 (2018), 20.4 (2019), 15.7 (2020), 14.9 (2021), 17.3 (2022), 17.5 (2023), 17.7 (2024), 20.0 (2025).
- Gross external financing need in percent of GDP: 10.7 (2017), 8.7 (2018), 8.9 (2019), 7.5 (2020), 6.9 (2021), 7.5 (2022), 7.1 (2023), 6.8 (2024), 7.2 (2025).

### Automatic debt dynamics and residuals
- Automatic debt dynamics (contribution): 0.5 (2017), 0.1 (2018), 0.6 (2019), 4.5 (2020), -0.3 (2021), 0.1 (2022), 0.4 (2023), 0.4 (2024), 0.4 (2025).
- Denominator factor 1+g+r+gr: 1.1 (2017), 1.1 (2018), 1.0 (2019), 0.9 (2020), 1.0 (2021), 1.1 (2022–2025).
- Contribution from nominal interest rate: 1.4 (2017), 1.5 (2018), 1.4 (2019), 1.9 (2020), 1.9 (2021), 1.8 (2022), 1.7 (2023), 1.6 (2024), 1.6 (2025).
- Contribution from real GDP growth: -0.9 (2017), -1.3 (2018), -0.7 (2019), 2.5 (2020), -2.2 (2021), -1.7 (2022), -1.3 (2023), -1.2 (2024), -1.1 (2025).
- Residual, incl. change in gross foreign assets (2-3): -0.9 (2017), -0.4 (2018), 2.9 (2019), 3.2 (2020), 1.5 (2021), 0.1 (2022), 0.2 (2023), 0.3 (2024), 0.5 (2025).

### Scenario with key variables at historical averages
- Debt ratio under historical-averages scenario: 34.5 (2017), 34.7 (2018), 33.8 (2019), 32.0 (2020), 30.1 (2021), 28.3 (2022), 26.7 (2023), 25.2 (2024), -3.9 (2025). [Note: table lists "25.2-3.9" in final cell.]

### Key macroeconomic assumptions underlying baseline
- Real GDP growth (in percent): 2.5 (2017), 4.0 (2018), 2.2 (2019), -6.5 (2020), 5.8 (2021), 4.7 (2022), 3.7 (2023), 3.7 (2024), 3.7 (2025).
- GDP deflator in U.S. dollars (change in percent): 7.5 (2017), 1.2 (2018), 0.1 (2019), -3.3 (2020), -1.4 (2021), 1.8 (2022), 1.9 (2023), 2.1 (2024), 2.3 (2025).
- Nominal external interest rate (in percent): 4.0 (2017), 4.3 (2018), 4.0 (2019), 5.1 (2020), 4.9 (2021), 5.0 (2022), 5.0 (2023), 4.9 (2024), 5.0 (2025).
- Growth of exports (U.S. dollar terms, in percent): 21.3 (2017), 6.6 (2018), -1.6 (2019), -13.7 (2020), 11.3 (2021), 5.7 (2022), 5.8 (2023), 6.0 (2024), 5.9 (2025).
- Growth of imports (U.S. dollar terms, in percent): 9.3 (2017), 8.8 (2018), -0.7 (2019), -15.6 (2020), 13.0 (2021), 8.1 (2022), 6.0 (2023), 5.9 (2024), 5.9 (2025).
- Current account balance, excluding interest payments: 0.1 (2017), -0.2 (2018), 0.0 (2019), 1.1 (2020), 1.0 (2021), 0.3 (2022), 0.2 (2023), 0.1 (2024), 0.0 (2025).
- Net non-debt creating capital inflows: 2.1 (2017), 1.1 (2018), 3.4 (2019), 1.5 (2020), 1.8 (2021), 2.0 (2022), 2.1 (2023), 2.1 (2024), 2.2 (2025).

### Bound and sensitivity tests (Figure summary)
- Individual permanent one-half standard deviation shocks applied; additional tests include permanent 1/4 standard deviation shocks to real interest rate, growth rate, and current account balance.
- Scenarios illustrated: Interest Rate Shock, Current Account Shock, Combined Shock, Real Depreciation Shock (one-time real depreciation of 30 percent in 2019), Growth Shock, Historical scenarios using ten-year averages.
- Baseline and scenario average projections noted in figures: Baseline average value 31; examples of scenario box values include 32, 36, 37, 44, 33 depending on shock and panel.

*Source: National authorities and Fund staff calculations.*

---

### Annex II. Public Debt Sustainability Analysis

### Baseline public-debt indicators (As of May 06, 2020)
- Nominal gross public debt: 23.6 (2018), 26.2 (2019), 27.2 (2020), 37.2 (2021), 37.6 (2022), 37.7 (2023), 37.6 (2024), 36.9 (2025), 35.8 (2025 repeated).
- Public gross financing needs: 2.3 (2018), 3.8 (2019), 2.3 (2020), 9.2 (2021), 3.9 (2022), 4.0 (2023), 4.4 (2024), 4.8 (2025), 4.0 (2025 repeated).
- Sovereign spreads: EMBIG (bp) 236; 5Y CDS (bp) 102.

### Macroeconomic and market assumptions (baseline)
- Real GDP growth (in percent): 4.4 (2018), 4.0 (2019), 2.2 (2020), -6.5 (2020), 5.8 (2021), 4.7 (2022), 3.7 (2023), 3.7 (2024), 3.7 (2025).
- Inflation (GDP deflator, in percent): 3.1 (2018), 1.3 (2019), 2.1 (2020), 1.6 (2021), 1.7 (2022), 2.0 (2023), 2.0 (2024), 2.0 (2025).
- Nominal GDP growth (in percent): 7.8 (2018), 6.0 (2019), 3.8 (2020), -5.6 (2020), 8.2 (2021), 7.3 (2022), 6.3 (2023), 6.3 (2024), 6.2 (2025).
- Effective interest rate (in percent): 5.2 (2018), 5.6 (2019), 5.5 (2020), 5.4 (2021), 5.3 (2022), 5.3 (2023), 5.1 (2024), 5.1 (2025), 5.0 (2025 repeated).
- Ratings: Moody's A3/A3; S&Ps BBB+/A-; Fitch BBB+/A-.

### Contribution to change in gross public sector debt (2018–25)
- Change in gross public sector debt: -0.3 (2018), 0.8 (2019), 1.0 (2020), 10.1 (2021), 0.4 (2022), 0.1 (2023), -0.1 (2024), -0.7 (2025), -1.1 (2025 cumulative), 8.6 (cumulative stated).
- Identified debt-creating flows: -1.2 (2018), 1.5 (2019), 0.5 (2020), 9.2 (2021), 0.6 (2022), 0.3 (2023), 0.1 (2024), -0.5 (2025), -0.9 (2025 cumulative), 8.8 (cumulative stated).
- Primary deficit: -0.5 (2018), 1.0 (2019), 0.3 (2020), 7.2 (2021), 1.8 (2022), 0.9 (2023), 0.3 (2024), -0.3 (2025), -0.6 (2025 cumulative), 9.4 (cumulative stated).
- Primary (noninterest) revenue and grants: 25.7 (2018), 24.4 (2019), 24.7 (2020), 22.5 (2021), 25.2 (2022), 25.3 (2023–2025), 25.3 (2025 cumulative), 148.8 (cumulative).
- Primary (noninterest) expenditure: 25.2 (2018), 25.4 (2019), 25.1 (2020), 29.7 (2021), 27.0 (2022), 26.2 (2023), 25.6 (2024), 25.0 (2025), 24.7 (2025 cumulative), 158.2 (cumulative).

### Automatic debt dynamics and other flows
- Automatic debt dynamics: -0.6 (2018), 0.4 (2019), 0.2 (2020), 3.0 (2021), -0.8 (2022), -0.5 (2023), -0.2 (2024), -0.2 (2025), -0.3 (cumulative), 0.9 (cumulative stated).
- Interest rate/growth differential: -0.5 (2018), 0.1 (2019), 0.3 (2020), 3.0 (2021), -0.8 (2022), -0.5 (2023), -0.2 (2024), -0.2 (2025), -0.3 (cumulative), 0.9 (cumulative stated).
  - Of which: real interest rate: 0.5 (2018), 1.0 (2019), 0.8 (2020), 1.1 (2021), 1.2 (2022–2025), 6.6 (cumulative).
  - Of which: real GDP growth: -1.0 (2018), -1.0 (2019), -0.5 (2020), 1.9 (2021), -2.0 (2022), -1.7 (2023), -1.3 (2024), -1.3 (2025), -1.3 (cumulative), -5.7 (cumulative).
- Exchange rate depreciation contribution: -0.1 (2018), 0.4 (2019), -0.1 (2020).
- Other identified debt-creating flows: 0.0 (2018–2019), 0.0 (2020), -1.0 (2021), -0.4 (2022), 0.0 (2023–2025), -1.5 (cumulative).
- Use of Stabilization Fund: 0.0 (2018–2020), -1.0 (2021), -0.4 (2022), 0.0 (2023–2025), -1.5 (cumulative).
- Residual, including asset changes: 0.9 (2018), -0.7 (2019), 0.5 (2020), 0.9 (2021), -0.2 (2022), -0.2 (2023), -0.2 (2024), -0.2 (2025), -0.2 (cumulative).

### Alternative scenarios and stress tests (figure summary)
- Alternative scenarios presented: Baseline, Historical, Constant Primary Balance.
  - Baseline underlying assumptions: Real GDP growth -6.5 (2020), 5.8 (2021), 4.7 (2022), 3.7 (2023–2025); Inflation 1.6 (2020), 1.7 (2021), 2.0 (2022–2025); Primary Balance -7.2 (2020), -1.8 (2021), -0.9 (2022), -0.3 (2023), 0.3 (2024), 0.6 (2025); Effective interest rate 5.4 (2020), 5.3 (2021–2023), 5.1 (2024), 5.0 (2025).
  - Historical scenario assumptions: Real GDP growth -6.5 (2020), 4.5 (2021–2025); Inflation 1.6 (2020), 1.7 (2021), 2.0 (2022–2025); Primary Balance -7.2 (2020), 0.4 (2021–2025); Effective interest rate 5.4 (2020), 5.3 (2021–2025).
  - Constant Primary Balance scenario assumes primary balance -7.2 (2020–2025) and effective interest rate 5.4 (2020), 5.3 (2021), 5.2 (2022), 4.9 (2023–2025).
- Stress tests include: Primary Balance Shock, Real GDP Growth Shock, Real Interest Rate Shock, Real Exchange Rate Shock, Combined Shock.
  - Example combined-shock assumptions: Real GDP growth -6.5 (2020), 3.7 (2021), 2.6 (2022), 3.7 (2023–2025); Inflation 1.6 (2020), 1.2 (2021), 1.5 (2022), 2.0 (2023–2025); Primary balance -7.2 (2020), -4.5 (2021), -2.3 (2022), -0.6 (2023), 0.0 (2024), 0.4 (2025); Effective interest rate 5.4 (2020), 5.6 (2021), 5.5 (2022), 5.6 (2023), 5.8 (2024), 6.0 (2025).

*Source: IMF staff calculations.*

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### Twenty-Four Month Flexible Credit Line Arrangement (FCL)

### Key terms granted to Peru
- Arrangement period: twenty-four months from date of approval.
- Access amount: SDR 8.007 billion.
- Purchases may not be made after May 27, 2021, until an Executive Board review of Peru’s continued qualification has been completed, subject to an exception that does not increase the Fund’s holdings of Peru’s currency subject to repurchase beyond 25 percent of quota.
- Purchases prohibited during periods when Peru: (i) has an overdue financial obligation to the Fund, or is failing to meet a repurchase expectation in respect of a noncomplying purchase pursuant to Decision No. 7842-(84/165); or (ii) is failing to meet a repayment obligation to the PRG Trust or a repayment expectation pursuant to Appendix I to the PRG Trust Instrument.
- Suspension of rights to engage in transactions under the FCL can occur only with respect to requests received after (a) a formal declaration of ineligibility to use the Fund’s resources pursuant to Articles V, Section 5, VI, Section 1(a), and XXVI, Section 2(a) of the Fund’s Articles of Agreement, or (b) a decision of the Executive Board to suspend transactions under Article XXVII or to consider a proposal to suppress or limit Peru’s eligibility.
- Purchases shall be made in currencies of other members selected under Fund policies and procedures, unless Peru requests SDRs at the time of purchase.
- Peru shall pay a charge for the FCL in accordance with Fund decisions.
- Repurchases of currency resulting from purchases shall follow the Articles of Agreement and Fund decisions, including those relating to repurchases as Peru’s balance of payments and reserve position improves.
- Reductions in Peru’s currency held by the Fund shall reduce amounts subject to repurchase in accordance with Fund principles.
- Peru shall provide information necessary for assessment of qualification for the FCL and will consult with the Fund while outstanding purchases in the upper credit tranches remain.

*Source: IMF decision text excerpt.*

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### Appendix I — Written Communication (summary points from letter dated May 11, 2020)
- Request: Peru requests an FCL arrangement of SDR 8.007 billion (600 percent of quota) for 24 months, intended as precautionary with intent to reduce access as global conditions improve.
- Rationale:
  - Global tail risks could impact Peru via a slowdown in external demand, steep drop in metal prices, reduced foreign direct investment, and potential disruptions to financial flows due to nonresident investor participation.
  - Peru’s strong macroeconomic policies and institutions underpin preparedness: inflation targeting by BCRP with a 1-3 percent target; comfortable reserve coverage; low public debt enabling countercyclical fiscal policy; low inflation and prudent monetary policy allowing easing of monetary conditions.
  - Recent sovereign bond issuance (April 16, 2020): US$3 billion in five- and ten-year bonds; demand almost US$25 billion; interest rates 2.39 and 2.78 percent.
  - Banks have high capital ratios and appropriate liquidity buffers; ongoing dedollarization reduces vulnerabilities from financial dollarization.
- Commitments:
  - BCRP will provide IMF staff all needed information and send requested authorizations to external auditors per safeguards policy for the FCL.
- Signatories: /s/ Maria Antonieta Alva (Minister of Economy and Finance) and /s/ Julio Velarde (Governor, Central Reserve Bank).

*Source: Written communication from Peruvian authorities and IMF staff materials.*

*Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1perea2020003.pdf*

### INTRODUCTION __________________________________________________________________________ 2

### INTRODUCTION

### Overview
- Purpose: Assess the impact of the proposed Flexible Credit Line (FCL) arrangement for Peru on the Fund’s finances and liquidity position, in accordance with the policy on FCL arrangements.
- Proposed arrangement: 24-month period with access in an amount of SDR 8,007 million (600 percent of quota).
- Authorities’ intent: Treat the arrangement as precautionary; use it to complement existing buffers against elevated external risks, including a more protracted economic fallout of a wider outbreak of the Covid-19 pandemic. Authorities plan to reduce access as external risks subside.

### Key context and rationale
- The FCL is viewed as insurance; drawings would be expected only if macroeconomic conditions notably worsen vis-à-vis the baseline projections.
- Assessment is conducted in the context of a downside (adverse) scenario reflecting prolonged Covid-19 effects.

### Dates and identification
- Document date: May 21, 2020
- Jurisdiction: PERU

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### BACKGROUND

- Peru’s past Fund arrangements: Several arrangements in the 1980s and 1990s; since June 1999 one EFF and four Stand-By Arrangements, but no drawings. Last arrangement expired in 2009; Peru has no outstanding credit to the Fund (Annex 1).
- Macroeconomic performance and policy frameworks:
  - Growth averaged nearly 5¼ percent over the past 15 years.
  - Inflation targeting in place since 2002: target range 2 +/- 1 percent.
  - Fiscal rule framework since 1999; government debt reduced to less than 27 percent of GDP by end-2019.
  - Financial sector: strong supervision; progress on Basel regulatory reform agenda.
- Covid-19 shock as of May 11, 2020:
  - Almost seventy thousand confirmed cases.
  - Nationwide lockdowns started mid-March.
  - Copper price: down by over 18 percent (year-to-date).
  - Significant financial market volatility and declines in valuations.
  - Government response supported by large buffers and a very strong policy package.
- Debt levels and projections:
  - External debt broadly stable around 35–38 percent of GDP over the past 5 years.
  - External public debt about 17 percent of GDP in 2019.
  - Public sector debt between 24 and 27 percent of GDP in 2015–2019; nearly one third denominated in foreign currency in 2019.
  - Public debt projected to reach 37. 2 percent of GDP in 2020 (temporary Covid-19-related deficit increase).
  - Public debt expected to decline under 36 percent of GDP by 2025.
  - Debt sustainability analyses: external and public debt remain manageable under a range of standardized scenarios.

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### THE NEW FLEXIBLE CREDIT LINE ARRANGEMENT—IMPACT ON THE FUND'S FINANCES AND LIQUIDITY POSITION

#### Scenario framing
- Assessment uses an adverse scenario capturing external risks from prolonged Covid-19 effects.
- Adverse scenario summary (comparison with baseline):
  - Global economy: deeper decline of about three percentage points vis-à-vis the April 2020 WEO baseline.
  - Peruvian exports of goods and services: nearly 16 percent decline vis-à-vis the 2020 baseline, primarily driven by a 27 percent decline in copper exports.
  - Peruvian GDP growth: reduction of slightly over three percentage points vis-à-vis the 2020 baseline; adverse scenario shows Real GDP growth of -9.6 percent in 2020 vs Baseline -6.5 percent.
  - Real exchange rate: depreciation of about 3 percent vis-à-vis the baseline.
  - Current and financial accounts worsen in 2020 by about $4 billion and $14 billion vis-à-vis the baseline (around 2 and 7¼ percent of GDP, respectively).
  - Nearly 40 percent of emerging financing needs financed through international reserves (decline by over $8 billion).
  - Economic rebound expected in 2021; real GDP returns to pre-shock level by end-2022.

- Macroeconomic projections (selected values reproduced exactly from Table 2):
  - Baseline Real GDP growth: 2019 2.2; 2020 -6.5; 2021 5.8; 2022 4.7; 2023 3.7; 2024 3.7; 2025 3.7.
  - Adverse Real GDP growth: 2019 2.2; 2020 -9.6; 2021 5.8; 2022 4.7; 2023 3.7; 2024 3.7; 2025 3.7.
  - Baseline Nominal GDP: 2020 208,235; 2021 217,325; 2022 231,673; 2023 244,996; 2024 259,457; 2025 275,238.
  - Adverse Nominal GDP: 2020 212,124; 2021 253,479; 2022 291,392; 2023 313,656; 2024 334,631; 2025 355,311.
  - Baseline Gross international reserves: 2020 67,400 (and same through 2025). Adverse: 2020 59,040 (and same through 2025).
  - Baseline Exports of goods and services: 2020 47,670; Adverse: 2020 40,119.
  - Total external debt (percent of GDP) Baseline 2020 39.8; Adverse 2020 44.1.
  - Public external debt (percent of GDP) Baseline 2020 20.9; Adverse 2020 24.7.

#### Capacity to repay and debt-service implications (summary of Table 3 and narrative)
- If full FCL purchase in downside scenario, capacity to repay remains adequate.
- Key projected indicators if full drawing assumed:
  - GRA credit to Peru (Exposure and Repayments, in SDR millions): 2020 8,007.0; 2021 8,007.0; 2022 8,007.0; 2023 6,005.3; 2024 2,001.8; 2025 0.0.
  - Charges due on GRA credit (SDR millions): 2020 129.8; 2021 196.6; 2022 196.6; 2023 213.4; 2024 115.7; 2025 10.3.
  - Debt service due on GRA credit (SDR millions): 2020 129.8; 2021 196.6; 2022 196.6; 2023 2,215.2; 2024 4,119.2; 2025 2,012.0.
- Debt ratios under full drawing (selected exact figures):
  - Total external debt (percent of GDP): 2020 44.1; 2021 42.3; 2022 39.8; 2023 36.7; 2024 32.8; 2025 30.3.
  - Public external debt (percent of GDP): 2020 24.7; 2021 24.2; 2022 23.3; 2023 22.1; 2024 21.2; 2025 16.4.
  - GRA credit to Peru (percent of GDP): 2020 5.7; 2021 5.5; 2022 5.1; 2023 3.6; 2024 1.2; 2025 0.0.
  - Debt service due on GRA credit (percent of GDP): 2020 0.1; 2021 0.1; 2022 0.1; 2023 1.3; 2024 2.4; 2025 1.1.
- Relative position vs recent exceptional access cases:
  - These ratios would be close or below the median of other exceptional access cases approved since 2008 (Figures referenced in the source).
  - Peak Fund exposure relative to different metrics would be below or close to the median of recent exceptional access arrangements.
  - Projected outstanding Fund credit in percent of quota around the peak would also be below that of recent exceptional access cases and close or below that expected in other recent FCL arrangements in the event of full drawdown.

#### Impact on Fund liquidity and concentration (summary of Table 4 and narrative)
- Forward Commitment Capacity (FCC):
  - FCC before approval: 190,400 (Millions of SDR).
  - FCC on approval (current FCC minus access under the proposed arrangement): 182,393 (Millions of SDR).
  - Change in percent: -4.2 percent.
- If Peru were to draw under the FCL, it would be automatically excluded from the Financial Transaction Plan (FTP) and the FCC (currently only based on quota resources) would decline by another SDR 1.1 billion.
- Prudential and concentration effects assuming full drawing:
  - Fund GRA commitment to Peru in percent of current precautionary balances: 48.5.
  - Fund GRA commitment to Peru in percent of total GRA credit outstanding: 10.4.
  - Fund GRA credit outstanding to top five borrowers in percent of total GRA credit outstanding: 77.0 (current); 73.8 (including Peru's assumed full drawing).
  - Peru's projected annual GRA charges for 2020 in percent of the Fund's residual burden sharing capacity: 1,179.
  - Fund's precautionary balances (FY20) memorandum item: 16,516.
  - Fund's Residual Burden Sharing Capacity as of 05/14/2020 memorandum item: 11.0.
- Regional and facility concentration:
  - Western Hemisphere currently accounts for about 62 percent of GRA credit and undrawn balances (including precautionary arrangements). With proposed FCL for Peru, that share would rise to 64 percent.
  - Commitments under FCLs stood at SDR 52.4 billion in mid-May 14, 2020, or 49 percent of total GRA commitments. With proposed FCL for Peru, share of commitments from FCL arrangements would increase to 53 percent.
  - If fully drawn, Peru would be the third largest Fund exposure.

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### ASSESSMENT

- Overall impact on Fund finances and liquidity:
  - The proposed FCL arrangement would have a manageable impact on the Fund's finances.
  - On approval, Fund's liquidity position (FCC) would decline by about 4 percent.
  - Fund's overall liquidity position expected to remain adequate after approval, but close monitoring warranted due to highly elevated global risks and large uncertainty about potential new demand for Fund resources.
- If fully drawn:
  - GRA credit exposure to Peru would be about 9 percent of the Fund’s outstanding credit.
  - Peru would represent 10.4 percent of total GRA credit outstanding as of May 14, 2020, and 9.4 percent including Peru's purchase.
  - Concentration among top five users of GRA resources would decrease marginally to about 74 percent from 77 percent as of May 14, 2020.
  - Fund credit to Peru would be nearly 49 percent of the Fund's current precautionary balances.
- Country capacity and risk mitigation:
  - If Peru purchased the full amount available under the proposed FCL arrangement, its capacity to repay to the Fund would remain adequate.
  - Risks from Fund's potential credit exposure to Peru are mitigated by Peru’s adequate buffers, and the country’s very strong policy framework and track record of economic performance.
  - While external debt and debt service ratios would deteriorate in a downside scenario assuming full drawing, they would remain close to the median of recent exceptional access cases.

*May 21, 2020 — PERU, INTERNATIONAL MONETARY FUND*

### 14.      The authorities consider access to the FCL to be temporary with exit dependent on the

### 14. The authorities consider access to the FCL to be temporary with exit dependent on the evolution of external risks

### Purpose and rationale for FCL access
- The requested level of access is meant to provide insurance against a wider range of adverse external shocks, preserve investor confidence, and support the authorities’ macroeconomic strategy.
- The authorities consider use of the facility, and the eventual exit from it, as depending on the evolution of risks; as external risks subside, the authorities plan to reduce access under the arrangement.
- The authorities intend to treat the two-year FCL with access of 600 percent of quota as precautionary.
- A gradual normalization of global conditions would make it appropriate to lower the access size at the time of the mid-term review, as part of a gradual exit strategy, conditional on the evolution of external risks.

### Macroeconomic policy stance and crisis response (Covid-19)
- Fiscal rule suspended for the period 2020-21 because of the emergency.
- Sovereign bond issuance: US$3 billion raised with eight times oversubscription at the time of issuance.
- Central bank monetary actions:
  - Policy rate cut by 200 basis points to a record low 0.25 percent.
  - Reserve requirements lowered for domestic and foreign currency liabilities.
  - Repo maturities extended; expanded list of acceptable collateral.
  - Central bank swap auctions have helped contain exchange rate volatility.
  - Central bank provided liquidity to the new government-guaranteed credit line through loan-portfolio repos at a rate determined through an auction, currently slightly above one percent on average.
- Financial sector measures:
  - Superintendency of banks allowed modifications in loan terms for companies affected by the pandemic without modifying the loan classification.
- Public health and emergency outcomes reported in the text:
  - More than 100 thousand cases and three thousand deaths as of last weekend (as reported).
- Economic activity and capacity:
  - Economy operating at 44 percent of its capacity because of containment measures internally and worldwide.
- Emergency fiscal and social measures:
  - Emergency health assistance covering health institutions, education sector, and public transportation.
  - Economic support measures: temporary economic support to households and firms, delays in tax obligations, temporary tariff reductions for health-related imports, payroll subsidies, allowances to use part of social security funds, government-guaranteed credit.
  - Measures to mitigate decline in activity and prevent payment chain disruptions.

### Governance, transparency, and public financial management
- Measures to ensure appropriate use of resources:
  - Inclusion of an assessment of the fiscal impact of Covid-19 in the Fiscal Responsibility Report.
  - Additional resources authorized to the Comptrollers Office to conduct early concurrent assessments of delivery of new expenditures and government services associated with the national emergency.
  - Continuous assessment of improvements to public financial management for more transparent and efficient budget process; upgrades to revenue administration practices to enhance revenue mobilization and prevent leakages.
- Anti-corruption and judicial reform:
  - Anti-Corruption Plan 2018-2021 fully in place with a network of “integrity offices” in line ministries strengthening internal controls and following up on complaints.
  - Council for Judicial Reform (established in 2019) continues coordinating and monitoring judiciary reform initiatives.

### Medium-term commitments and structural reforms
- Commitment to improve revenue mobilization and the budget process.
- Commitment to allow the exchange rate to be determined by fundamentals, keeping foreign exchange interventions circumscribed to periods of disorderly market conditions.
- Plans to upgrade the Banking Law to incorporate provisions for consolidated supervision and enhance anti-money laundering framework.
- Acceleration of the National Plan of Competitiveness and Productivity as the crisis recedes to:
  - Strengthen human capital.
  - Promote faster technological innovation.
  - Integrate informal workers and firms into the formal economy.
  - Upgrade the business environment.
- Implementation of the National Infrastructure Plan for Competitiveness to narrow infrastructure gaps by better planning and monitoring of projects at different government levels.

### IMF exposure and illustrative notes (figures and annex context)
- The Figure notes state: For illustrative purposes it is assumed that Peru's FCL is fully drawn down at the time of Board approval.
- Annex I highlights Peru’s IMF arrangement history and past performance, noting key amounts in the historical table (selected entries):
  - 1993 EFF: SDR 1,018 million approved; purchases totaling SDR 0.6 billion; outstanding credit at end-1993 SDR 642.7 million (138 percent of quota).
  - Recent post-1999 arrangements listed with amounts such as SDR 383 million (June 24, 1999 EFF), SDR 128 million (March 12, 2001 SBA), SDR 255 million (February 1, 2002 SBA), SDR 287 million (June 9, 2004 SBA), and SDR 172 million (January 26, 2007 SBA).
- IMF lending concentration and commitments (as reported):
  - Commitments under current GRA arrangements (SDR billion, as of May 14, 2020) shown with and without Peru’s FCL:
    - SDR 161.8 billions of SDRs with Peru's FCL.
    - SDR 153.8 billions of SDRs without Peru's FCL.
  - Commitments under current GRA arrangements by instrument (SDR billion, as of May 14, 2020):
    - SBA: 41.0 (39% share in one presentation; 36% in another depending on inclusion of Peru’s FCL).
    - FCL: 52.4 (49%) in one presentation; 60.4 (53%) with Peru's FCL in another.
    - EFF: 12.4 (12% or 11% depending on presentation).
  - SDR totals cited:
    - SDR 105.8bn without Peru's FCL (one presentation).
    - SDR 113.8bn with Peru's FCL (one presentation).

_Italic: Source — Excerpts from the IMF staff report and annexes on Peru (as provided in the supplied content)._

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1perea2020003.pdf_