## ECONOMIC RECOVERY WITH LINGERING POLITICAL UNCERTAINTY

## Source details

**Canonical URL:** [ECONOMIC RECOVERY WITH LINGERING POLITICAL UNCERTAINTY](https://www.imf.org/-/media/files/publications/cr/2025/english/1perea2025001-print-pdf.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2025/english/1perea2025001-print-pdf.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2025/english/1perea2025001-print-pdf.pdf.json)

---

### Political context and risks
- Relative political stability persists, but with the April 2026 elections officially called, political tensions are rising.
- An implicit alliance between the legislative and executive powers has maintained the current relative political stability, but Congress is increasingly challenging the Boluarte administration to improve their political prospects.
- With 43 political parties registered for the election, political uncertainty is high.
- Persistent political fragmentation could continue to impede structural reforms.
- The return of bicameralism in 2026 could foster political stability, but it might also empower Congress to continue approving unfunded fiscal initiatives.

### Macroeconomic policy framework and institutional strength
- Very strong macroeconomic policies and institutional policy frameworks remain in place.
- Inflation is low and inflation expectations are anchored inside the target band.
- Strong supervision and appropriate macroprudential policies have helped preserve financial stability.
- Peru exited a two-year Flexible Credit Line (FCL) arrangement (300 percent of quota) in May 2024.
- Market access on favorable terms evidenced by relatively low and stable EMBI spreads and a stable exchange rate.

### Growth, labor market, and demand
- Economy:
  - Real GDP growth rebounded in 2024 to 3.3 percent after a contraction of -0.4 percent in 2023.
- Recovery drivers:
  - Robust primary sectors, strong public investment, gradual improvement in labor markets, higher consumer confidence, lower inflation, positive real wage growth, and a seventh round of pension withdrawals that led to rising private consumption in the second half of 2024.
- Private investment:
  - Remained subdued amid uneasiness about the next election; looser financial conditions and improved business confidence supported a tepid rebound.
- Labor market indicators (2024 vs 2023):
  - Unemployment rate: 5.5 percent in 2024 (from 6.4 percent in 2023).
  - Adequate employment rate: 59.2 percent in 2024 (from 54.7 percent in 2023).
  - Real wage growth: 1.3 percent y/y in 2024 (from -3.4 percent in 2023).
- Structural notes:
  - Labor force participation and adequate employment rates remain below pre-pandemic levels and informality remains very high.

### Monetary policy normalization and inflation
- BCRP actions:
  - With inflation firmly within the target range, the BCRP proceeded with monetary policy normalization and continued easing.
  - Policy rate lowered by 200 bps since January 2024 to 4.5 percent in May 2025.
- Inflation and expectations (April 2025):
  - Headline: 1.7 percent
  - Core: 1.9 percent
  - Inflation expectations (12-month ahead): 2.3 percent
  - Target range: 1-3 percent

### Fiscal developments, pressures, and outlook
- 2024 fiscal outturn and drivers:
  - NFPS deficit increased from 2.8 percent in 2023 to 3.5 percent of GDP in 2024, above the revised fiscal rule deficit target of 2.8 percent of GDP for 2024.
  - Deterioration driven by lower tax collection (VAT, CIT, and excises) and higher execution of public investment by central and sub-national governments, partly offset by lower spending from expiration of 2023 stimulus programs.
  - An operation to provide financial support to Petroperú increased central government capital spending by 0.6 percent of GDP but did not impact the NFPS deficit.
  - Gross public debt fell slightly to 32.8 percent of GDP in 2024.
  - Total public assets fell to 8.6 percent of GDP (from 10.4 percent in 2023).
- Budget/fiscal snapshot (percent of GDP):
  - Revenues (GG) 2023: 19.6; Budget 2024: 19.5; Outturn 2024: 19.1; Change -0.6
  - Taxes 2023: 15.1; Budget 2024: 14.9; Outturn 2024: 14.7; Change -0.3
  - Primary Expenditure (GG) 2023: 20.9; Budget 2024: 20.5; Outturn 2024: 21.2; Change 0.2
  - Primary Balance (GG) 2024 Outturn: -2.1 (Change -0.8)
  - Overall Balance (NFPS) 2024 Outturn: -3.5 (Change -0.7)
- 2025 budget and medium-term targets:
  - 2025 Budget: NFPS deficit envisaged at 2.2 percent of GDP, aligned with revised fiscal rule path (approved July 2024).
  - Expected revenue gains of about 0.9 percent of GDP underpinning deficit reduction (0.3 percent of GDP one-off factors; remaining from recovery, commodity prices, and digital services taxation).
  - Staff estimate: additional measures of about 0.4 percent of GDP required to comply with the 2025 target.
  - Medium-term fiscal rule targets: deficit target of 1 percent of GDP by 2028; debt ceiling of 30 percent of GDP by 2035.
  - Authorities’ plan: reduce current spending by about 0.4 percent of GDP per year between 2026 and 2028; relies largely on unidentified measures.

### Box — Public support to Petroperú (key findings)
- Petropolitics and fiscal cost:
  - Petroperú has had financial difficulties over the past decade due to problems with the Talara Refinery Modernization Project and related cost overruns.
  - Negative primary balance between 2013 and 2023; operating losses recorded since 2022.
  - Market share fell from 1/2 of domestic fuel sales in 2017 to about 1/4 at end-2024.
  - Government financial support since 2013 totals about 1.8 percent of 2024 GDP (debt guarantees, capital injections, direct loans).
  - September 2024 measures included: access to a short-term credit line of up to US$1 billion (contingent liability), capitalization/debt forgiveness up to US$750 million, and government takeover of maturing debt of US$800 million.
  - September 2024 support increased central government capital spending by about 0.6 percent of GDP, while NFPS overall balance effect was 0.0 percent of GDP due to offsetting recording as capital income for Petroperú.
  - Petroperú’s total outstanding debt remains about 1.8 percent of GDP; consolidated debt at NFPS level at 1.7 percent of GDP at end-2024.
- Policy implication:
  - Recurring support diverts resources and erodes fiscal credibility; addressing structural governance challenges is essential.

### Financial sector soundness and credit conditions
- Soundness and buffers:
  - Banks hold ample capital and liquidity substantially above required levels.
  - Regulatory capital ratio (Dec 2024): 17.2 percent.
  - Liquidity Coverage Ratios (Dec 2024): 161.4 percent in domestic currency and 174.2 percent in foreign currency.
- Asset quality and profitability (Dec 2024):
  - NPL ratio: 4.0 percent in December 2024 (improved from a peak of 4.6 percent in March 2024).
  - NPLs are fully provisioned but remain elevated for small- and medium-sized businesses.
  - Return on equity improved to 14.5 percent in December 2024.
- Credit conditions:
  - Credit-to-GDP gap narrowed from -13.9 percent in 2024Q1 to -11.5 percent in 2024Q4, mainly due to stabilization of corporate credit.
  - Credit dollarization increased slightly compared to the trough in 2022, particularly for small banks.

### External sector, exchange rate, and market volatility
- External balances and reserves:
  - Current account surplus: 2.2 percent of GDP in 2024 (from 0.7 percent of GDP in 2023).
  - Cyclically adjusted current account balance 2024: 1.2 percent of GDP; current account norm (multilateral model): -1.2 percent of GDP; current account gap: 2.4 percent of GDP.
  - International reserves at end-2024: US$79.2 billion or 248 percent of the ARA metric (from US$71.3 billion or 225 percent of the ARA metric at end-2023).
- Trade drivers (2024):
  - Trade balance (TB) increased to 8.2 percent of GDP in 2024 (from 6.6 percent of GDP), highest since 2006, driven by favorable terms of trade.
  - Exports of goods increased by about 12 percent in 2024: volumes up about 4 percent (primarily agriculture and fishing); prices up about 8 percent (primarily gold and copper).
  - Imports of goods increased by 4.5 percent in 2024: volumes up about 7 percent; prices declined by about -2 percent.
  - Wider primary income deficit due to higher foreign repatriation of profits.
- Exchange rate and market volatility:
  - Nominal exchange rate depreciated by about 0.3 percent in 2024.
  - REER appreciated 0.9 percent in 2024, following a 6.2 percent appreciation in 2023; REER stands 6.6 percent above the 2000-24 historical average.
  - Long-term sovereign yields declined to 6.6 percent in 2024Q4 (from 7.2 percent a year earlier).
  - Volatility increased in Q1 2025 due to global policy shocks and US tariff announcements in April 2025; part of the shock reversed after a 90-day pause announcement, yet volatility remains low relative to regional peers.

### External outlook and risks
- Growth projections:
  - 2025: 2.8 percent, supported by private consumption momentum while public investment decelerates but remains elevated.
  - From 2026 onward: converge to estimated potential of about 2.5 percent.
- Current account projection:
  - 2025: surplus of 1.7 percent of GDP, gradually returning to a deficit in the medium term and stabilizing at its norm of about 1.5 percent of GDP.
- Short-term trade policy shock (US tariffs):
  - 10 percent tariff on about 70 percent of Peru’s exports to the US.
  - First-round effects estimated to reduce growth in 2025 by about 0.1 percentage points.
  - Majority impact on agro-industrial sector; mining and manufacturing expected limited or modest impacts.
- Buffers and risks:
  - Buffers: low public debt, abundant international reserves (about 27 percent of GDP), and access to international capital markets on favorable terms.
  - Risks tilted to the downside: elevated external uncertainty, political uncertainty, social unrest, weather shocks, trade policy uncertainty, tighter financial conditions, commodity price volatility.

### Monetary policy guidance and exchange rate flexibility
- BCRP stance:
  - Broadly neutral monetary policy appropriate; real ex-ante policy rate stood at 2.2 percent in May 2025, 20 bps above estimated real neutral rate of 2 percent.
  - Recommendation: remain data dependent given heightened external uncertainty.
- Exchange rate policy:
  - BCRP intervened in spot market in February and May 2024.
  - Stock of derivative positions increased by about US$3.1 billion from January until April 2024, then decreased by about US$2.8 billion through mid-April 2025.
  - Recommendation: allow exchange rate flexibility to cushion external shocks.

### Fiscal policy recommendations (medium-term)
- Measures to meet fiscal rule and restore credibility:
  - Spending side: lower wage bill and discretionary transfers; improve efficiency of public investment.
  - Revenue side: curtail sectoral tax benefits, special regimes, and tax expenditures; strengthen tax administration; promote formalization to expand tax base.
  - Reform Petroperú to significantly reduce costs and enhance transparency and governance.
- Fiscal projections highlights (selected projected ranges and scenarios):
  - Revenues (GG): around 19.9–19.8 percent of GDP across projections.
  - Taxes: around 15.3–15.2 percent of GDP across projections.
  - Primary expenditure (GG): around 19.5–20.6 percent of GDP across 2024–2028 scenarios as presented.
  - Gross public debt projections across 2024–2028 scenarios include 32.8, 33.2, 33.7, 33.3, 34.4, 35.5, 34.1, 35.9 percent of GDP (as presented in tabulated staff calculations).

### Financial stability risks from dollarization (Annex V) — key findings and policy responses
- De-dollarization stalled:
  - Share of foreign currency loans declined to 24.6 percent in 2023 from 46.5 percent in 2010, but credit dollarization has increased from its 2022 trough and remains elevated compared to peers.
  - Corporate loan dollarization remains stubbornly high and has started to increase recently, particularly at small banks.
- Risks and vulnerabilities:
  - Unhedged dollarization concentrated among large- and medium-sized debtors in construction, manufacturing, and commerce; unhedged exposures correlate with higher days overdue and higher risk scores.
  - Aggregate foreign currency asset-liability mismatch contained at around 0.3 percent of total assets; concentration of FX derivative counterparties in foreign financial institutions and the BCRP creates potential fragility.
  - Per BIS (2022), daily average turnover of FX derivatives for Peru is about 0.33 percent of GDP, the lowest among all LA5 countries.
- Policy recommendations and regulatory measures:
  - Higher risk weights targeting debtors with higher unhedged FX exposure (SBS replacing add-ons with higher risk weights).
  - Better identification of hedged/unhedged borrowers; new SBS regulation to introduce a metric to identify unhedged borrowers.
  - Closer monitoring of credit and FX funding with comprehensive solvency/liquidity stress testing.
  - Consider a foreign currency-specific NSFR; NSFR introduced in December 2024 with minimum requirement of 80 percent and to be fully phased in with minimum requirement of 100 percent by 2026.
  - Regulatory note: Resolution S.B.S. no-00774-2025 will be in effect in January 2026 and would roughly double the capital charge for unhedged borrowers.

### Fiscal pressures from legislative initiatives (Box 4) — findings and recommendations
- Constitutional and legislative context:
  - 2022 Constitutional Court ruling effectively granted fiscal initiative to Congress for future fiscal commitments.
  - Since 2021, current legislature proposed and approved 168 initiatives with fiscal impact; costed measures represent less than 1/5 but amount to 5.7 percent of 2024 GDP (0.8 percent of GDP deemed permanent).
  - Share of measures approved by insistence rose to 20 percent in current legislature (from 9 percent over the previous 20 years).
  - Between 2014 and 2024, number of tax bills increased by 190 percent.
- Recent measures with fiscal cost (selected; annual 2024 GDP percentage terms):
  - Reduced VAT extension for tourism sector — Approved — 0.1% GDP/year
  - Special Economic Zones — Approved — N/A; 0% CIT rate for first 5 years; 7.5% until year 10; 10% until year 15; 12.5% until year 20; and 15% until year 25
  - Reduced CIT for large agri-business — Plenary agenda — 0.2% GDP/year
  - CIT and VAT benefits to promote industrial development etc. — Commission debate — 2.9% GDP/year
  - Generalized VAT and other tax reductions — Commission debate — 0.8% GDP/year
  - Deduction on salaries for 18-25 and 55-65 year old workers — Commission debate — 0.6% GDP/year
  - Temporary tax regime for previously undeclared incomes — Approved — 0.3% GDP/year
  - Full waiver for Reactiva Perú beneficiaries — Commission debate — 8% GDP/year
  - Exceptional incentive regime for businesses with tax debt incurred up to 2018 — Commission debate — 7.6% GDP/year
- Implications and recommendations:
  - Legislative activity introduces non-negligible medium-term costs and reduces fiscal transparency due to lack of costing.
  - Recommendation: all legislative initiatives should be accompanied by a technical report from the Ministry of Finance (MEF) with rigorous costing.
  - MEF should retain gatekeeper role on PPPs and works-for-taxes to manage contingent liabilities and fiscal risks.

### Fiscal decentralization (Box 6) — findings and policy implications
- District government role and challenges:
  - Districts receive about 80 percent of funding through central transfers (canon and FONCOMUN) and execute over 40 percent of public investment.
  - Average number of registered projects per district increased to 15.8 over 2006-23; fewer than 40 percent of projects registered before 2010 have been completed (as of August 2024).
  - Only 3 percent of districts have ever completed projects over US$13.4 million.
  - Projects are closely tied to political cycles; average project executed in 16 months and unfinished projects often abandoned with authority turnover.
- Natural resource revenue (NRR) sharing issues:
  - SNG receive 50 percent of income tax receipts (canon) and all mining royalties; share of NRR distributed in Peru is very high and likely exceeds extraction costs.
  - 70 percent of the canon is allocated to only 20 percent of districts.
  - Volatility: canon revenues for the median district fluctuate nearly 30 percent year to year.
- Policy implications:
  - Improve management of natural resource revenues, enhance scale and impact of local public investment, improve coordination across levels of government, redesign NRR-sharing formulas, and consider stabilization mechanisms or moving averages in allocation formulas.

### Sovereign risk and debt sustainability (Annex IV) — assessment and projections
- Overall risk assessment: overall risk of sovereign stress in Peru is low.
- Starting point and baseline dynamics:
  - Public debt starting point: 32.8 percent of GDP in 2024.
  - Baseline medium-term outcome: public debt stabilizes around 36 percent of GDP in the medium term.
  - Long-run target under fiscal rules: 30 percent of GDP.
- Public debt projection (selected series Percent of GDP):
  - Public debt: 2024: 32.8; 2025: 33.7; 2026: 34.7; 2027: 35.5; 2028: 35.9; 2029: 35.9; 2030: 36.0; 2031: 36.0; 2032: 35.9; 2033: 35.8; 2034: 35.7.
  - Primary deficit: 1.9; 0.8; 0.8; 0.4; 0.2; 0.0; -0.2; -0.3; -0.4; -0.4; -0.4.
  - Real GDP growth (percent): 3.3; 2.8; 2.6; 2.5; 2.5; 2.5; 2.5; 2.5; 2.5; 2.5; 2.5.
  - Gross financing needs: 5.7; 3.6; 4.2; 4.2; 4.6; 5.3; 4.6; 6.7; 6.5; 7.1; 7.2.
- Medium-term risk tools:
  - Debt Fanchart Module: Moderate risk signal (Debt fanchart index (DFI): 1.6; Fanchart width: 42.7 percent of GDP; Probability of debt non-stabilization: 56.0 percent).
  - GFN Financeability Module: Low risk signal (Average baseline GFN: 4.4 percent of GDP; GFN financeability index (GFI): 4.4).
  - Final medium-term index: Low risk overall.
- Policy implications:
  - Implement feasible fiscal consolidation in line with revised fiscal rules to gradually meet 30 percent of GDP target and build buffers; maintain strong macroeconomic policy frameworks and institutions.

### Unlocking mining and long-term growth scenarios (Annex VII and scenarios)
- Chancay Mega-port (positive shock):
  - Inaugurated November 2024; initial phase investment US$1.3 billion; capacity 1.5 million containers/year; full project US$3.5 billion to triple capacity.
  - BCRP estimates economic impact between 0.3-0.9 percent of GDP per year starting in 2025.
- Copper scenarios (selected highlights):
  - Total estimated peak annual production from six stalled projects: 1,435,353 metric tons.
  - Total cash cost of copper production: USD 2,580 per metric ton.
  - Baseline potential growth: 2.5 percent.
  - Scenario impacts:
    - Scenario 1 (Higher copper prices): permanent fiscal revenues higher by 0.2 percent of GDP; adds as much as 0.2 percentage points to annual baseline growth at 2035 peak.
    - Scenario 2 (Unlocking stalled mining projects): adds 1.4 million metric tons capacity; annual growth exceeds baseline by 0.5 percentage points at 2035 peak; replenishes Fiscal Stabilization Fund by 2037.
    - Scenario 3 (Productive investments): allocates 45 percent of additional revenues to productive public investments; annual growth exceeds baseline by 0.7 percentage points at 2035 peak.
    - Scenario 4 (Investing fiscal revenues in full): growth exceeds baseline by 0.8 percentage points at 2035 peak and by 0.4 percentage points long term.
    - Scenario 5 (Investing and closing efficiency gap): raises public investment efficiency from 48 to 62 percent over five years; average annual output growth 2025–2035 peaks at 1 percentage point above baseline in 2035 and remains 0.6 percentage point above baseline long term.
- Policy recommendations:
  - Channel additional fiscal revenues into productive public investment (infrastructure, resilience).
  - Address public investment selection, execution, and governance to raise efficiency.
  - Use saving of resource revenues (e.g., sovereign wealth fund) to mitigate Dutch disease and moderate real exchange rate appreciation.

### Implementation progress and capacity development priorities
- Authorities’ actions (selected):
  - BCRP lowered policy rate from 6.5 percent in January 2024 to 4.5 percent in May 2025.
  - Pension reform enacted September 2024 expanding minimum and social pension, automatic enrollment, limiting early withdrawals.
  - New procurement law adopted in April 2025; new spending efficiency measures announced May 2025.
  - Repo and market infrastructure reforms, EGIAP implementation, and efforts to deepen public debt market.
- IMF capacity development priorities:
  - Revenue and customs administration (CRM, VAT compliance, data analytics).
  - Public Financial Management (institutional capacity, fiscal risk management, TSA, digitization, C-PIMA).
  - Tax and expenditure policy TA (mining tax, digital services, pension system analysis).
  - Financial supervision and CBDC support (cybersecurity, fintech, CBDC planning).
  - Statistical improvements (GFSM 2014 migration, environmental accounts, climate indicators).

*Source: IMF staff report — Peru, 2025.*

### 2025. The team comprised Sònia Muñoz (Head), Moya Chin, Enrico

### ECONOMIC RECOVERY WITH LINGERING POLITICAL UNCERTAINTY

### Political context and risks
- Relative political stability persists, but with the April 2026 elections officially called, political tensions are rising.
- An implicit alliance between the legislative and executive powers has maintained the current relative political stability, but Congress is increasingly challenging the Boluarte administration to improve their political prospects.
- With 43 political parties registered for the election, political uncertainty is high.
- Persistent political fragmentation could continue to impede structural reforms.
- The return of bicameralism in 2026 could foster political stability, but it might also empower Congress to continue approving unfunded fiscal initiatives.

### Macroeconomic policy framework and institutional strength
- Very strong macroeconomic policies and institutional policy frameworks remain in place.
- Inflation is low and inflation expectations are anchored inside the target band.
- Strong supervision and appropriate macroprudential policies have helped preserve financial stability.
- Peru exited a two-year Flexible Credit Line (FCL) arrangement (300 percent of quota) in May 2024.
- The country boasts market access on favorable terms, as evidenced by relatively low and stable EMBI spreads and a stable exchange rate.

### Growth, labor market, and demand
- The economy vigorously recovered in 2024 after a contraction of -0.4 percent in 2023, with growth rebounding in the second half of 2024, reaching 3.3 percent.
- Recovery drivers: robust primary sectors, strong public investment, gradual improvement in labor markets, higher consumer confidence, lower inflation, positive real wage growth, and a seventh round of pension withdrawals that led to rising private consumption in the second half of 2024.
- Private investment remained subdued amid uneasiness about the next election, with looser financial conditions and improved business confidence supporting a tepid rebound.
- Labor market indicators:
  - Unemployment rate declined to 5.5 percent in 2024 (from 6.4 percent in 2023).
  - Adequate employment rate increased to 59.2 percent in 2024 (from 54.7 percent in 2023).
  - Real wage growth averaged 1.3 percent y/y in 2024 (from -3.4 percent in 2023).
  - Labor force participation and adequate employment rates remain below pre-pandemic levels and informality remains very high.

### Monetary policy normalization and inflation
- With inflation firmly within the target range, the BCRP proceeded with monetary policy normalization.
- Inflation and expectations (April 2025):
  - Headline: 1.7 percent
  - Core: 1.9 percent
  - Inflation expectations (12-month ahead): 2.3 percent
  - Target range: 1-3 percent
- Policy rate: the BCRP continued its easing cycle, lowering the policy rate by 200 bps since January 2024 to 4.5 percent in May 2025.

### Fiscal developments and pressures
- The fiscal position weakened in 2024:
  - NFPS deficit increased from 2.8 percent in 2023 to 3.5 percent of GDP in 2024, well above the revised fiscal rule deficit target of 2.8 percent of GDP for 2024.
  - Fiscal deterioration driven by lower tax collection (VAT, CIT, and excises) and higher execution of public investment by central and sub-national governments, partly offset by lower spending from the expiration of 2023 stimulus programs.
  - An operation to provide financial support to Petroperú increased central government capital spending by 0.6 percent of GDP but did not impact the NFPS deficit (see Box on Petroperú).
  - Gross public debt fell slightly to 32.8 percent of GDP in 2024.
  - Total public assets fell to 8.6 percent of GDP (from 10.4 percent in 2023), partly explaining the financing of the deficit.
- Budget/Fiscal table snapshot (percent of GDP):
  - Revenues (GG) 2023: 19.6; Budget 2024: 19.5; Outturn 2024: 19.1; Change -0.6
  - Taxes 2023: 15.1; Budget 2024: 14.9; Outturn 2024: 14.7; Change -0.3
  - Primary Expenditure (GG) 2023: 20.9; Budget 2024: 20.5; Outturn 2024: 21.2; Change 0.2
  - Primary Balance (GG) 2024 Outturn: -2.1 (Change -0.8)
  - Overall Balance (NFPS) 2024 Outturn: -3.5 (Change -0.7)

### Box — Public support to Petroperú (key findings)
- Petroperú has had financial difficulties over the past decade due to problems with the Talara Refinery Modernization Project and related cost overruns.
- The company registered a negative primary balance between 2013 and 2023; operating losses recorded since 2022.
- Market share fell from 1/2 of domestic fuel sales in 2017 to about 1/4 at end-2024.
- Government financial support since 2013 totals about 1.8 percent of 2024 GDP (debt guarantees, capital injections, direct loans).
- September 2024 measures included: access to a short-term credit line of up to US$1 billion (contingent liability), capitalization/debt forgiveness up to US$750 million, and government takeover of maturing debt of US$800 million.
- The September 2024 support increased central government capital spending by about 0.6 percent of GDP, while NFPS overall balance effect was 0.0 percent of GDP due to offsetting recording as capital income for Petroperú.
- Petroperú’s total outstanding debt remains about 1.8 percent of GDP; consolidated debt at NFPS level at 1.7 percent of GDP at end-2024.
- Recurring support diverts resources and erodes fiscal credibility; addressing structural governance challenges is essential.

### Financial sector soundness and credit conditions
- The financial sector is sound with banks holding ample capital and liquidity substantially above required levels.
- Key indicators:
  - NPL ratio: 4.0 percent in December 2024 (improved from a peak of 4.6 percent in March 2024).
  - NPLs are fully provisioned but remain elevated for small- and medium-sized businesses.
  - Return on equity improved to 14.5 percent in December 2024.
  - Credit-to-GDP gap narrowed from -13.9 percent in 2024Q1 to -11.5 percent in 2024Q4, explained mainly by stabilization of corporate credit.
  - Credit dollarization increased slightly compared to the trough in 2022, particularly for small banks.
  - Regulatory capital ratio (Dec 2024): 17.2 percent.
  - Liquidity Coverage Ratios (Dec 2024): 161.4 percent in domestic currency and 174.2 percent in foreign currency.

### External sector and market volatility
- After declining in 2024, financial asset price volatility increased in Q1 2025 due to global policy shocks.
- Nominal exchange rate broadly stable in 2024 amid recovery and high commodity prices, supported by BCRP FX intervention in the first half of 2024.
- Long-term sovereign yields declined to 6.6 percent in 2024Q4 (from 7.2 percent a year earlier) and remain among the lowest in the region.
- From late 2022 to end-2024, stock prices gradually recovered and volatility declined.
- Volatility rose following US tariff announcements in April 2025, causing sharp depreciation of the exchange rate, losses in equity markets, and a rise in long-term sovereign yields; part of this was reversed after the announcement of a 90-day pause.
- Despite recent increases, volatility in Peru remains low among regional peers.

*Source: IMF staff report — Peru, 2025.*

### 9.      Peru’s 2024 external position was stronger than the level implied by medium-term

### Peru’s 2024 external position was stronger than the level implied by medium-term fundamentals and desirable policies

### External position and current account
- The current account surplus improved to 2.2 percent of GDP in 2024 (from 0.7 percent of GDP in 2023).
- The cyclically adjusted current account balance for 2024 was estimated at 1.2 percent of GDP; the current account norm from the multilateral model was -1.2 percent of GDP, yielding a current account gap of 2.4 percent of GDP.  
- Assessment: “stronger than the level implied by medium-term fundamentals and desirable policies.”
- International reserves at end-2024: US$79.2 billion or 248 percent of the ARA metric (from US$71.3 billion or 225 percent of the ARA metric at end-2023).
- Private savings-investment (SI) balance increased due to falling private investment and sluggish private consumption.
- Public SI balance widened (negative) due to higher public consumption and investment.

### Drivers of the current account surplus (Box 2)
- The trade balance (TB) expanded, underpinning the CAB surplus; CAB moved from averaging -1.7 percent of GDP (2000-22) to a surplus in 2023 and further in 2024.
- TB increased from 6.6 percent of GDP to 8.2 percent of GDP in 2024, its highest level since 2006, driven by favorable terms of trade.
- Exports of goods increased by about 12 percent in 2024:
  - Volumes increased by about 4 percent (primarily agriculture and fishing).
  - Prices increased by about 8 percent (primarily gold and copper).
- Imports of goods increased by 4.5 percent in 2024:
  - Volumes increased by about 7 percent.
  - Prices declined by about -2 percent.
- Wider primary income deficit due to higher foreign repatriation of profits.
- Net inflows dominated by FDI liabilities and sovereign bond issuances supported an increase in net international reserves.

### Real effective exchange rate and competitiveness
- Nominal exchange rate: depreciated by about 0.3 percent in 2024.
- Peru’s REER appreciated 0.9 percent in 2024, following a 6.2 percent appreciation in 2023.
- REER stands 6.6 percent above the 2000-24 historical average.
- Note: The REER appreciation in 2024, if sustained, could reduce competitiveness.

### Outlook and external risks
- Real GDP growth projections:
  - 2025: 2.8 percent, supported by favorable momentum in private consumption while public investment decelerates but remains elevated.
  - From 2026 onward: converge to estimated potential of about 2.5 percent (from a 6 percent average potential growth in the previous decade).
- Current account balance projection: surplus of 1.7 percent of GDP in 2025, gradually returning to a deficit in the medium term and stabilizing at its norm of about 1.5 percent of GDP.
- Credit growth expected to rebound modestly, due to limited private investment.
- Inflation: headline inflation would remain within the target band with a closed output gap and firmly anchored inflation expectations.
- Short-term trade policy shock estimate:
  - Following US tariff announcements, Peru faces a 10 percent tariff on about 70 percent of its exports to the US.
  - First-round effects estimated to reduce growth in 2025 by about 0.1 percentage points.
  - The majority of the impact would fall on the agro-industrial sector; mining products and manufacturing exports expected to face limited or modest impacts.
- Risks tilted to the downside: elevated external uncertainty, political uncertainty, social unrest, weather shocks, trade policy uncertainty, tighter financial conditions, commodity price volatility.
- Buffers: low public debt, abundant international reserves (about 27 percent of GDP), and access to international capital markets on favorable terms.

### Potential positive shock: Chancay Mega-port (Box 3)
- Inaugurated November 2024; largest deepwater port in Latin America.
- Ownership: Cosco Shipping Ports 60 percent, Volcan 40 percent.
- Initial phase investment: US$1.3 billion; capacity 1.5 million containers/year.
- Full project: total investment of US$3.5 billion over the next decade to triple capacity.
- BCRP estimates economic impact between 0.3-0.9 percent of GDP per year starting in 2025, depending on displacement from Callao.
- Potential benefits: transit time cut by 30-70 percent to China, market access and competitive gains for mining, forestry, and agricultural products; potential to attract regional trade.
- Implementation caveats: ancillary transport projects not expected before 2032; need to integrate port with surrounding towns lacking basic public services; potential fiscal cost from Special Economic Zone (SEZ) incentives.

### Monetary policy guidance
- BCRP stance: broadly neutral monetary policy appropriate.
  - Real ex-ante policy rate stood at 2.2 percent in May 2025, 20 bps above estimated real neutral rate of 2 percent.
- Policy recommendation: remain data dependent given heightened external uncertainty.
- Exchange rate flexibility:
  - BCRP intervened in spot market in February and May 2024.
  - Stock of derivative positions increased by about US$3.1 billion from January until April 2024, then decreased by about US$2.8 billion through mid-April 2025.
  - Recommendation: allow ER flexibility to cushion external shocks.

### Fiscal outlook and recommendations
- 2025 Budget: NFPS deficit envisaged at 2.2 percent of GDP, aligned with revised fiscal rule deficit target path approved July 2024.
- Expected revenue gains of about 0.9 percent of GDP underpinning deficit reduction:
  - 0.3 percent of GDP from one-off factors.
  - Remaining from economic recovery, elevated commodity prices, and newly introduced taxation of digital services.
- Staff estimate: additional measures of about 0.4 percent of GDP required to comply with the 2025 target.
- Risks in pre-election year: limited political appetite for consolidation; increased spending and tax concession pressures.
- Medium-term fiscal rule targets:
  - Fiscal rule deficit target of 1 percent of GDP by 2028.
  - Debt ceiling of 30 percent of GDP by 2035.
- Authorities’ medium-term plan: reduce current spending by about 0.4 percent of GDP per year between 2026 and 2028; plan relies largely on unidentified measures.
- Policy recommendations for balanced consolidation:
  - Spending side: lower wage bill and discretionary transfers; improve efficiency of public investment.
  - Revenue side: curtail sectoral tax benefits, special regimes, and tax expenditures; strengthen tax administration; promote formalization to expand tax base.
  - Reform Petroperú to significantly reduce costs and enhance transparency and governance.
- Fiscal data highlights (selected):
  - Revenues (GG) around 19.9–19.8 percent of GDP across projections.
  - Taxes around 15.3–15.2 percent of GDP across projections.
  - Primary expenditure (GG) projections around 19.5–20.6 percent of GDP.
  - Gross public debt projections: 32.8, 33.2, 33.7, 33.3, 34.4, 35.5, 34.1, 35.9 percent of GDP across 2024–2028 scenarios (as presented in the tabulated staff calculations).
- Note: Budget figures reflect MEF’s August 2024 multi-annual macroeconomic framework; baseline reflects IMF staff projections.

*International Monetary Fund (IMF) staff analysis as presented in the source content.*

### Box 4. Fiscal Pressures from Legislative Initiatives

### Box 4. Fiscal Pressures from Legislative Initiatives

### Background and constitutional interpretation
- A 2022 ruling from the Constitutional Court effectively granted fiscal initiative to Congress by interpreting that while legislative initiatives cannot affect the current year’s budget, they can affect future fiscal commitments.  
- Article 79 of the 1993 Constitution states that Congress cannot create or augment public spending beyond its own budget and that the approval of tax benefits or exemptions requires a previous technical analysis from the Ministry of Finance.  
- According to the Fiscal Council, since 2021, the current legislature proposed and approved 168 initiatives with fiscal impact. Although less than 1/5 of these initiatives have been costed, they amount to 5.7 percent of 2024 GDP (of which 0.8 percent of GDP is deemed permanent).  
- The share of measures approved by insistence (those with a negative opinion from the Ministry of Finance) in the current legislature rose to 20 percent from only 9 percent over the previous 20 years.  
- Between 2014 and 2024, the number of tax bills increased by 190 percent, mostly seeking to grant preferential tax treatments.

### Fiscal impact and recently approved or proposed measures
- Revenue-reducing measures identified among recent initiatives include:
  - Extending a reduced VAT rate for micro and small businesses in the tourism sector.  
  - A new general framework for special economic zones with reduced corporate income tax (CIT) rates for 25 years.  
  - Waiving tax penalties and interests for tax-amnesty participants.  
  - A reduced CIT rate for agroexporting businesses is being debated.  
- Spending-increasing measures identified include:
  - Revising collective bargaining rules.  
  - Expanding the wage bill by converting temporary workers into tenured public employees, increasing wages, and with new hires.  
  - Creating 20 new universities.  
  - Introducing a bi-cameral congress.  
  - The pension reform (enacted in September 2024) increased the minimum pension, introduced a consumption-based contribution, made enrollment automatic, fostered competition among pension fund managers, and prohibited early withdrawals.

### Selected tax base-reducing initiatives (Legislative status and potential fiscal cost, reported in annual 2024 GDP percentage terms)
- Reduced VAT extension for the tourism sector — Approved — 0.1% GDP/year  
- Special Economic Zones — Approved — N/A; 0% CIT rate for the first 5 years; 7.5% until year 10; 10% until year 15; 12.5% until year 20; and 15% until year 25  
- Reduced CIT for large agri-business — Plenary agenda — 0.2% GDP/year  
- CIT and VAT benefits to promote industrial development, sustainability, renewable energy adoption, digitalization, and the knowledge economy — Commission debate — 2.9% GDP/year  
- Generalized VAT and other tax reductions — Commission debate — 0.8% GDP/year; 10% VAT rate for micro and small businesses, 12% for medium-sized firms, and 15% for all other businesses; suspension of financial transaction taxes until end-2026; drop to 2% tax rate on second-category incomes.  
- Deduction on salaries for 18-25 and 55-65 year old workers — Commission debate — 0.6% GDP/year  
- Dedicated temporary tax regime for incomes earned up to 2022 but previously undeclared, which are now declared, repatriated, or invested — Approved — 0.3% GDP/year  
- Full waiver of fines, surcharges, interest, and all tax debt-related expenses for tax debt owed by Reactiva Perú beneficiaries until initiative’s approval — Commission debate — 8% GDP/year  
- Exceptional incentive regime for businesses with tax debt incurred up to 2018, with tax-debt expense discounts depending on speed of repayment — Commission debate — 7.6% GDP/year  
- Note: The cost of tax amnesty initiatives is intended as one-off foregone collections. Sources: Fiscal Council, MEF, and IMF staff estimates.

### Implications for fiscal credibility, transparency, and policy recommendations
- Legislative activity has introduced non-negligible medium-term costs, affecting fiscal credibility. Lack of costing has reduced fiscal transparency.  
- Recommendation: To ensure transparency and thoroughly assess implications for fiscal sustainability, all legislative initiatives should be accompanied by a technical report from the Ministry of Finance (MEF) with rigorous costing.  
- Risks to the tax base and budget include proposals to establish zero-tax special economic zones, tax benefits for the agricultural sector, and a higher exemption threshold for the temporary net asset tax (ITAN).  
- While PPPs and works-for-taxes can be growth- and efficiency-enhancing, excessive reliance could raise government exposure to contingent liabilities and result in unforeseen budgetary pressures over the medium term. The MEF should retain its critical gatekeeper role in assessing and managing fiscal implications of PPP projects.  
- In April 2025, Congress approved a reform (still to be enacted by the Executive) that would shift the role of governing entity overseeing and managing PPPs from the MEF to ProInversión; this change could undermine the MEF’s ability to provide prior binding opinions on critical issues during the PPP development and approval process and could affect comprehensive investment planning, efficiency, and fiscal risks.

### Interaction with broader fiscal and financial sector context
- Legislative pressures come amid other fiscal challenges discussed in the chapter, including the need to contain contingent liabilities from PPPs and works-for-taxes and to preserve fiscal space for productive public investment.  
- Restoring fiscal credibility and protecting the tax base are highlighted as necessary to support financial sector resilience, revive domestic capital markets, and channel potential mining-related revenues into growth-enhancing public investment.

*Source: Box 4, "Fiscal Pressures from Legislative Initiatives," from the provided IMF chapter content.*

### Box 6. Assessing the Fiscal Decentralization Framework

### Box 6. Assessing the Fiscal Decentralization Framework

### Role of district governments in public investment
- Districts receive about 80 percent of their funding through central government transfers, including resource-based revenues (the canon) and an equalization transfer (FONCOMUN).
- As the lowest administrative level, districts (with a median population under 5,000) execute over 40 percent of public investment.
- Staff analysis of local investment projects registered in the Banco de Inversiones shows that the average number of registered projects per district has increased nearly 10-fold to 15.8 over 2006-23, with nearly all districts currently registering projects.

### Execution constraints, project outcomes, and political cycle effects
- Limited capacity and institutional constraints weigh on the execution and transformative potential of district investments.
- Fewer than 40 percent of projects registered before 2010 have been completed (as of August 2024).
- Because the canon is earmarked for public investment, districts are constrained to spend allocated funds despite limited technical expertise in project design and management, leading to mostly feasible projects that are small, short-horizon, and low impact.
- Only 3 percent of districts have ever completed projects over US$13.4 million.
- Projects are closely tied to political cycles: the average project is executed in 16 months and unfinished projects are often abandoned when new authorities enter office and prioritize new projects.

### Impacts of canon and FONCOMUN transfers on local goods and development
- High canon and high FONCOMUN districts were identified as those in the top quartile of real canon and FONCOMUN transfers per capita between 2002-14.
- Using data from an annual survey of district governments, social conflict reports, and the censuses, the impact on local public goods and development was estimated by comparing relative outcomes using a difference-in-differences specification when feasible.
- Findings on high-transfer (top recipient) districts:
  - They have more public goods, including municipal employees, police officers and stations, and health centers.
  - Mining-related social conflicts are higher in high canon districts.
  - Development outcomes are not consistently better and basic needs gaps mostly persist.
  - Spending efficiency is low: high canon districts do not experience better outcomes than high FONCOMUN districts despite having 40 percent higher revenues per capita.

### Features and consequences of natural resource revenue (NRR) sharing
- In Peru, SNG receive 50 percent of income tax receipts (the canon) and all mining royalties; by contrast, Colombia SNG receive only 25 percent of royalties.
- A FARI model comparison indicates that the share of NRR distributed in Peru is very high and is likely to substantially exceed extraction costs.
- After the mid-2000s commodity price boom, the high fixed share led to substantial resources flowing to small districts and inefficient spending given limited local capacity.
- NRR transfers perpetuate regional inequality: 70 percent of the canon is allocated to only 20 percent of districts.
- Equalization transfers (FONCOR and FONCOMUN) are too small and their formulas are not means-tested to significantly offset the uneven distribution of NRR.
- Distributions to SNG are highly volatile: canon revenues for the median district fluctuate nearly 30 percent year to year.
- Volatility in NRR allocations hinders public investment planning and execution, promotes pro-cyclical fiscal policies at the subnational level, and reduces the capacity of national fiscal policy to respond to adverse shocks.
- Examples of mechanisms to reduce volatility mentioned:
  - Stabilization mechanisms or sovereign wealth funds (used by other resource-rich countries).
  - Using a simple moving average in the allocation formula.

### Implications for policy and fiscal decentralization reform
- Inefficient public spending of natural resource revenues has fueled social conflicts and delayed mining projects.
- Public spending could be made more impactful by:
  - Implementing improvements in the management of natural resource revenues.
  - Enhancing the scale and impact of local public investment projects.
  - Improving coordination between different levels of government.
- Local governments could take advantage of PPP and works-for-taxes opportunities to address urgent public investment needs.
- Updating the fiscal decentralization framework, including redesigning natural resource revenue-sharing formulas, could improve public spending efficiency and generate high-impact public investments so that mining dividends translate into greater development.

*Prepared by Moya Chin, Enrico Di Gregorio, and Jose Torres; Box text as provided in the source.*

### 43.      Staff recommends that the next Article IV consultation take place on the standard

### 43. Staff recommends that the next Article IV consultation take place on the standard 12-month cycle.

### Real sector developments
- Growth in 2024 "vigorously rebounded, after a slight contraction in 2023."
- In 2024, "rising private consumption and strong public investment were key growth drivers."
- Labor market: "Labormarket continues to improve with the unemployment rate below pre-pandemic levels."
- Prices: "Headline and core inflation have converged to the target band."
- Selected headline figures:
  - Real GDP growth in 2024: 3.3 (year-on-year).
  - Consumer prices (end of period) in 2024: 3.2 (percent change, year-on-year).

### Fiscal policy developments
- The fiscal stance was expansionary as the economy recovered from earlier shocks: "resulting in an expansionary fiscal stance as the economy recovered from earlier years' shocks..."
- In 2024, fiscal accounts weakened "due to lower than expected tax revenues and a public investment surge..."
- Risks flagged:
  - Continued expansionary spending could keep the NFPS deficit above fiscal rule limits if not accompanied by revenue measures.
  - High public expenditure growth and public investment surge could put upward pressure on the public debt-to-GDP ratio.
- Selected fiscal figures and indicators (as presented):
  - NFPS revenue, NFPS primary expenditure, primary and overall balances shown across the medium term in figures and tables (see fiscal tables for full series).
  - Table highlights: gross international reserves and fiscal balances reported in subsequent tables support these assessments.

### Macro-financial conditions
- Credit dynamics: "Credit has been weak compared to its trend, but the negative credit-to-GDP gap has begun narrowing..."
- Real credit: "Real credit has stopped declining, but the momentum of growth is weak."
- Capital markets and liquidity: "Volatility declined, and the capital market was stable in 2024."
- Residential property prices: "Residential property prices have been declining."
- Loan spreads: "The loan-deposit spread for loans in LC is around the pre-pandemic level, while the spread for USD loans has been [presented]."
- Selected monetary/financial figures:
  - Mutual Fund, Investment Fund, and Pension Fund AUM and issuance series shown (figures present level and trends).
  - Net foreign asset and credit-to-GDP series illustrated in macro-financial charts.

### External sector developments
- Trade and current account:
  - "Strong exports drove a remarkable trade balance in 2024..."
  - "The current account surplus improved, as a strong trade balance offset a wider deficit in investment income."
- Capital flows: "… and net portfolio outflows continued." and "FDI inflows remained stable amid the relative political stability but subdued private investment..."
- Trade volumes: "Export and import volumes increased, with import volumes reflecting the recovery in domestic demand."
- Selected external figures:
  - Gross international reserves (billions of U.S. dollars): 79.2 (2024).
  - Current account balance improved in 2024 relative to prior years (charted series).

### Exchange rate and FX market developments
- Exchange rate behavior: "Despite the substantial narrowing interest rate differential vis-à-vis the USD, the currency was stable in 2024."
- Central bank FX operations: "The BCRP's FXI operations have been somewhat passive since 2022, with very little spot market operations."
- Dollarization and FX positions: "The dollarization rate has significantly declined since 2010, but since 2022 the momentum has stalled." and "The open FX position of deposit institutions is small."
- FX derivatives: "The FX derivative market turnover of Peru is the lowest among LA5 countries."

### Financial sector developments
- Capital adequacy and buffers:
  - "The regulatory capital ratio has increased since last year and is well above the required level of Basel III."
  - "The Tier1 capital ratio is well above the minimum required level under Basel III."
- Asset quality and profitability:
  - "The positive contribution from a higher interest margin has been offset by increasing costs and provisions."
  - "The NPL ratio has been elevated, but started to improve in 2024."
- Countercyclical policy: "The counter-cyclical policy rule has resumed in June 2024, but is unlikely to be activated."
- Selected financial soundness indicators are provided in detail in the tables and charts (capital ratios, NPLs, ROA/ROE trends).

### Financial market indicators
- Equity markets and volatility:
  - "Peruvian equities trended upward in 2024 given the economic recovery and relative political stability, but declined in early 2025 amid trade policy uncertainty."
  - "Market conditions indicated higher levels of distress at the end of 2024... similar to that of regional peers."
- Sovereign risk:
  - EMBIG spreads and CDS spreads trended with regional developments; spreads remained relatively stable as external shocks declined.

### Key medium-term and selected macroeconomic figures (selected series presented in tables)
- Real GDP: 3.3 (2024, year-on-year).
- Consumer prices (end of period): 3.2 (2024).
- Gross international reserves (billions of U.S. dollars): 79.2 (2024).
- The report includes extensive medium-term projections for GDP, inflation, public debt, external balances, and financial indicators across 2025–2030 in tabular form.

*Source: IMF staff compilation and figures/tables contained in the provided content unit.*

### Annex I. Recommendations of the 2024 Article IV Consultation

### Annex I. Recommendations of the 2024 Article IV Consultation and Authorities’ Actions

### Fiscal Policy
- Fiscal stance
  - Recommendation: If revenues continue to disappoint, delay the fiscal consolidation by one year (setting a fiscal target for 2024 of 2.5 percent of GDP) to support the growth recovery. The fiscal adjustment path over the medium term to achieve the fiscal target of a deficit of 1 percent of GDP is necessary and should be gradual.
  - Policy action: Partially implemented. The fiscal consolidation was delayed, but the NFPS deficit reached 3.5 percent of GDP in 2024, due to underperforming revenues and high public investment. The authorities remain committed to a gradual fiscal consolidation consistent with the fiscal rule and expect the deficit to reach 1 percent of GDP by 2028.
- Fiscal consolidation measures
  - Recommendation: Revenue mobilization measures including expanding taxes; improving tax administration and compliance; curtailing sectoral tax benefits, special regimes, and tax expenditures; and simplifying the tax system. Spending measures include improving spending efficiency, reducing unfunded spending initiatives, and improving governance at SOEs. Improve fiscal policy guidance to bolster credibility.
  - Policy action: Partially implemented. Government enacted marginal spending control measures in March 2024, capped non-critical expenditures at 2024 levels, implemented several tax administration and policy measures:
    - Special Regime for the recovery of tax debts in October 2024,
    - digital services VAT in December 2024,
    - excise tax on remote gaming and sports betting in January 2025.
    - Adopted in April 2025 a new procurement law; announced new spending efficiency measures in May 2025.
    - Tax administration and compliance (including tax arrears) are improving, but further progress requires additional resources and independence.
    - Recent measures by Congress that reduce the tax base and entail unfunded spending risk complicating future fiscal consolidation efforts.
- Fiscal Council (FC)
  - Recommendation: Include the opinion of the FC (on both the Budget and Mid-term Budget Update) and the Ministry of Finance response as annexes in official documents. FC should have regular hearings before Congress, greater operational independence, and undergo a peer review.
  - Policy action: Partially implemented. The opinion of the FC and the Ministry response are included in the Budget but not in the Mid-term Budget Update. Both institutions would benefit from a more regular and transparent dialogue.
- Pension reform
  - Recommendation: Urgent following large withdrawals from private pension funds. Fine-tune measures including (i) clarifying language limiting early withdrawals from private pension savings accounts; (ii) aligning eligibility criteria for the minimum pension to avoid shrinking the pool of potential beneficiaries; and (iii) improving the targeting mechanism of the non-contributory pension.
  - Policy action: Partially implemented. A pension reform, enacted in September 2024, expands the minimum pension, fosters competition among managers, introduces consumption-based contributions, and prohibits early withdrawals. A comprehensive reform is still required to address very low coverage and inadequate income support for the elderly.

### Monetary and Exchange Rate Policy
- Monetary stance
  - Recommendation: Additional data-dependent monetary policy easing is appropriate.
  - Policy action: Implemented. The BCRP continued its easing cycle, lowering the policy rate from 6.5 percent in January 2024 to 4.5 percent in May 2025.
- Foreign exchange interventions (FXI) and ER flexibility
  - Recommendation: With the interest rate differential against the US expected to narrow, continue to allow for greater ER flexibility and consider targeted measures to support de-dollarization. Remove tax hurdles to foster FX derivative market development and hedging opportunities.
  - Policy action: Partially implemented. Authorities maintain a discretionary approach but intervene more sporadically. There were interventions in February and May 2024 to reduce exchange rate volatility. The BCRP’s stock of derivative positions increased by about US$3.1 billion from January to April 2024. The BCRP decreased its legacy position by about US$2.8 billion through mid-April 2025, supported by rebalancing of foreign assets by private pension funds. SBS is revising the add-on exposure for recalibrating risk weights for foreign exchange credit.

### Financial Policies
- Macroprudential policy
  - Recommendation: Closely monitor and proactively contain financial vulnerabilities from the growth slowdown and maintain liquidity cushions against private pension withdrawals.
  - Policy action: Implemented. Enhanced vigilance was put in place amid slowing growth. A repo facility for private pension funds is ready for use when necessary.
- Regulation and supervision
  - Recommendation: Close key regulatory and supervisory gaps per the 2018 FSAP. Revise activation threshold for counter-cyclical policies given low growth environment.
  - Policy action: In progress. Basel III new capital rules are being phased in, but full implementation of the new requirements was delayed until March 2025. The counter-cyclical framework was reinstated in June 2024, but the activation threshold uses a growth rate much higher than current potential growth estimates.

### Structural Policies
- Productivity and business climate
  - Recommendation: Boost productivity by reforming labor and tax regulations that create barriers to formalizing or growing a business; embrace digital and artificial intelligence by facilitating technological diffusion and job transition; boost the business climate; and reform the civil service.
  - Policy action: Partially implemented. Progress in restarting large infrastructure and mining projects. Government introduced measures to counteract overregulation and excessive red tape.
- Informality
  - Recommendation: Reduce informality.
  - Policy action: Partially implemented. The informality rate declined from levels in 2023 but remains elevated.
- Climate
  - Recommendation: Scale up investments in climate adaptation and resilience.
  - Policy action: Partially implemented. Progress made in enhancing public infrastructure, diversifying the energy matrix, and improving climate change statistics.
- Governance
  - Recommendation: Improve effectiveness of governance institutions to end corruption impunity, prioritize anti-corruption frameworks with adequate resources, enhance independence and effectiveness of judicial bodies, and use AML tools effectively.
  - Policy action: In progress. National Board of Justice remains operational. Recent hiring at the Comptroller General’s Office supports verification of asset declarations. Digitalization efforts ongoing. Judicial reform pending.
- Infrastructure
  - Recommendation: Strengthen capacity to execute public investment to reduce the infrastructure gap.
  - Policy action: Partially implemented. Public investment grew strongly in 2024. Increased awards of PPPs for large projects, raised cap for works-for-taxes to enhance local public investment, and implemented initiatives to improve local government capacity. Infrastructure gap remains large amid capacity challenges.

*Source: Annex I. Recommendations of the 2024 Article IV Consultation and Authorities’ Actions*

### Annex IV. Sovereign Risk and Debt Sustainability Analysis

### Annex IV. Sovereign Risk and Debt Sustainability Analysis

### Overall assessment
- Final assessment: The overall risk of sovereign stress in Peru is low.
- Key factors supporting the assessment:
  - Peru’s history of fiscal discipline.
  - Debt-to-GDP ratio among the lowest in the region.
  - Relatively safe debt composition.
  - Public assets that serve as buffers.
- Shortcoming noted: Public debt is expected to stabilize at a higher level than in 2024 because authorities are expected to delay planned fiscal consolidation.

### Baseline debt dynamics and projections
- Public debt starting point: 32.8 percent of GDP in 2024.
- Baseline medium-term outcome: Public debt ultimately stabilizes around 36 percent of GDP in the medium term.
- Long-run target under fiscal rule implementation: 30 percent of GDP.
- Projection table highlights (Percent of GDP, unless otherwise indicated):
  - Public debt: 2024: 32.8; 2025: 33.7; 2026: 34.7; 2027: 35.5; 2028: 35.9; 2029: 35.9; 2030: 36.0; 2031: 36.0; 2032: 35.9; 2033: 35.8; 2034: 35.7.
  - Change in public debt: -0.2; 0.9; 1.0; 0.7; 0.5; -0.1; 0.1; 0.0; -0.1; -0.1; -0.1 (years aligned with row).
  - Primary deficit: 1.9; 0.8; 0.8; 0.4; 0.2; 0.0; -0.2; -0.3; -0.4; -0.4; -0.4.
  - Noninterest revenues: 22.7; 23.6; 23.0; 23.0; 23.2; 23.3; 23.4; 23.4; 23.5; 23.6; 23.7.
  - Noninterest expenditures: 24.5; 24.4; 23.9; 23.5; 23.3; 23.2; 23.2; 23.2; 23.1; 23.2; 23.3.
  - Automatic debt dynamics (real interest rate and relative inflation combined): -0.8; 0.4; 0.3; 0.4; 0.4; 0.3; 0.4; 0.4; 0.4; 0.4; 0.4.
  - Real interest rate (percent): 0.3; 1.3; 1.1; 1.2; 1.2; 1.2; 1.2; 1.2; 1.3; 1.3; 1.2.
  - Real GDP growth (percent): 3.3; 2.8; 2.6; 2.5; 2.5; 2.5; 2.5; 2.5; 2.5; 2.5; 2.5.
  - Gross financing needs: 5.7; 3.6; 4.2; 4.2; 4.6; 5.3; 4.6; 6.7; 6.5; 7.1; 7.2.
  - Of which: debt service: 3.9; 2.8; 3.5; 3.9; 4.4; 5.4; 4.8; 7.0; 7.0; 7.5; 7.6.
  - Local currency component of GFN: 3.0; 1.1; 1.7; 1.7; 2.8; 3.6; 2.7; 4.7; 5.1; 5.4; 5.7.
  - Foreign currency component of GFN: 0.9; 1.7; 1.7; 2.1; 1.7; 1.7; 2.1; 2.3; 1.9; 2.1; 1.9.
- Memo indicators:
  - Inflation (GDP deflator; percent): 2.4; 1.7; 1.9; 2.0; 2.0; 2.0; 2.0; 2.0; 2.0; 2.0; 2.0.
  - Nominal GDP growth (percent): 8.4; 4.7; 4.6; 4.6; 4.6; 4.7; 4.6; 4.6; 4.5; 4.6; 4.5.
  - Effective interest rate (percent): 3.2; 5.8; 5.4; 5.6; 5.6; 5.5; 5.6; 5.6; 5.6; 5.6; 5.5.
- Commentary: Public debt stabilizes in the medium term at a level higher than in 2024 owing to delays in implementing the fiscal consolidation envisioned in the revised fiscal rules.

### Debt coverage and structure
- Statistical coverage: Non-Financial Public Sector (NFPS).
- Subsector inclusion in baseline:
  - Budgetary central government: Yes.
  - Extra-budgetary funds (EBFs): Yes.
  - Social security funds (SSFs): Yes.
  - State governments: Yes.
  - Local governments: Yes.
  - Public nonfinancial corporations: Yes.
  - Central bank: No.
  - Other public financial corporations: No.
- Debt composition and structure highlights:
  - The lion’s share of public debt is marketable.
  - Residual maturity of public debt: 12.3 years.
  - The investor base is well diversified.
  - Governing law of debt is equally distributed between local and foreign.
  - The share of domestic and foreign-currency denominated public debt is expected to remain broadly stable over the forecast horizon.

### Feasibility and realism analysis
- Feasibility analysis:
  - Does not currently point to major concerns.
  - Track record for forecasting main debt drivers does not highlight any systematic bias.
  - Projected fiscal consolidation is within norms.
  - Baseline real GDP growth forecast is consistent with reasonable estimates of the fiscal multiplier and converges to potential GDP growth over the forecast horizon.
- Realism indicators and commentary:
  - Forecast track record: no systematic bias for main drivers.
  - Fiscal consolidation projected is within historical norms.
  - Real GDP growth path consistent with multipliers (multiple multiplier scenarios presented: 0.5, 1, 1.5).

### Medium-term risk assessment
- Medium-term tools results:
  - Debt Fanchart Module: Moderate risk signal.
    - Debt fanchart index (DFI): 1.6.
    - Fanchart width: 42.7 (percent of GDP).
    - Probability of debt non-stabilization: 56.0 (percent).
    - Terminal debt-to-GDP x institutions index: 22.2.
  - GFN Financeability Module: Low risk signal.
    - Average baseline GFN: 4.4 (percent of GDP).
    - GFN financeability index (GFI): 4.4.
  - Final medium-term index: Low risk overall (combining modules).
- Probabilities for 2025-2030:
  - Prob. of missed crisis, if stress not predicted: 9.1 pct.
  - Prob. of false alarms, if stress predicted: 48.9 pct.
- Commentary: Even under stress scenarios featuring adverse commodity price and natural disaster conditions, gross financing needs are expected to stay below or at levels comparable to those experienced during 2020.

### Long-term risk assessment and scenario analysis
- Long-term risks: Staff assesses long-term risks to be low.
- Large amortization analysis:
  - Long-run amortizations are higher relative to Peru’s own history but remain manageable in GDP terms.
  - Average GFN ratios over the next 25 years are below the 30th percentile of the 2024 distribution across market access countries.
- Climate change: Adaptation scenarios:
  - Debt and GFN in the long run are expected to remain sustainable under climate adaptation (standardized and customized scenarios based on World Bank CC DR model assumptions).
  - Consolidation in line with fiscal rules would help secure fiscal buffers and prevent debt growth.
- Natural resources scenarios:
  - Debt in the long run remains sustainable in light of natural resource discovery and depletion risks.
  - Consolidation in line with the fiscal rules would further help to secure fiscal buffers and prevent debt growth.

### Stress tests and contingencies
- Triggered modules and tests:
  - Debt Fanchart points to moderate medium-term risks.
  - GFN Financeability Module robustly indicates low risk supported by low gross financing needs.
- Contingent liabilities and other flows:
  - Contingent liabilities and interest revenues reported as negligible in baseline flows (0.00 figures where indicated).
  - Other identified flows contribute to small negative amounts in near years (e.g., -2.1; -0.1 entries in the projection table).

### Policy implications and recommendations
- Implement feasible fiscal consolidation as envisioned in the revised fiscal rules to:
  - Gradually meet the long-run debt target of 30 percent of GDP.
  - Safeguard fiscal discipline and build fiscal buffers against moderate financing pressures from adverse risk scenarios.
- Maintain strength of macroeconomic policy frameworks and institutions to preserve low medium-term liquidity risks and favorable investor perceptions.
- Monitor gross financing needs and amortization profiles to ensure continued manageability in GDP terms, especially under climate adaptation and natural resource scenarios.

*Source: Fund staff.*

### Annex V. Financial Stability Risks from Dollarization

### Annex V. Financial Stability Risks from Dollarization

### A. Stalled De-Dollarization
- The de-dollarization momentum has stalled: the share of foreign currency loans declined to 24.6 percent in 2023 from 46.5 percent in 2010.
- Policy measures noted as effective in earlier years include repo operations and higher reserve requirements for foreign currency (effective after 2013); SBS exposure add-ons of 8 percent to FX credit when calculating risk assets; and LCR regulation targeting FX liquidity.
- More recently, credit dollarization has been above trend, increased from its 2022 trough, and remains high compared to other Latin American countries.
- Corporate loan dollarization remains stubbornly high: most past de-dollarization reflected pesification of mortgages, while corporate loan dollarization has remained broadly stable and has started to increase recently, particularly at small banks.
- Some dollar debtors are hedged (derivatives or natural dollar income/deposits), while others are only partially hedged and thus exposed to currency mismatch.
- Supervisory data source and scope:
  - Data: SBS supervisory tabulations, cross-tabulated by type of credit (corporate categories, mortgage, consumer), industry, collateral, and NPL status, covering 2015–2023.
  - Borrower characteristics: income-to-debt ratio, total assets, risk score.
  - Lender characteristics: total assets, capital ratio, deposits in foreign currency, deposit rates.
  - Classification: borrowers labeled hedged or unhedged based on lender and SBS assessments; unhedged defined as sum of exposures classified as exposed and highly exposed (SBS scenario analysis assumes exchange rate fluctuations of 10–20 percent).

### B. Riskiness of Dollarized Credit
- Sectoral concentration: unhedged dollarization is concentrated among large- and medium-sized debtors; natural USD-hedged large debtors include mining, fishing, and agriculture, whereas construction, manufacturing, and commerce tend to be unhedged.
- Vulnerability channels:
  - Firms in construction, manufacturing, and commerce with unhedged dollar liabilities face high currency mismatch in income/expenditure and assets/liabilities; depreciation would increase nominal debt and could impair repayment capacity.
- Empirical associations with risk:
  - Unhedged dollarized loans are riskier: debtors with higher unhedged dollarization rates tend to have more days of loans overdue; corporates and medium-sized enterprises show particularly longer days overdue.
  - SBS riskiness scores corroborate that highly dollarized credits are deemed riskier.
  - NPLs have increased substantially since the pandemic.
- Deposit funding and FX mismatch:
  - Deposit dollarization has been elevated and has provided funding for dollar credit. Past deposit de-dollarization was mostly due to a decline in saving deposits; more recently saving deposits have increased (notably in small banks), surpassing pre-pandemic levels—potentially related to withdrawals from private pensions and a narrowing interest rate differential vis-à-vis USD.
  - Aggregate foreign currency asset-liability mismatch is contained at around 0.3 percent of total assets.
  - SBS requires the gap to be lower than 10 percent of regulatory capital and monitors aggregate and individual gaps daily.
  - Some financial institutions close open net positions using FX derivatives (forwards and swaps), with reliance up to about 90 percent of capital in some cases.
  - FX derivative counterparties are highly concentrated in foreign financial institutions and the BCRP; FX derivative market shallowness implies funding could become unstable during stress without BCRP liquidity support.
  - Per BIS (2022), daily average turnover of FX derivatives for Peru is about 0.33 percent of GDP, the lowest among all LA5 countries.

### C. Drivers of Dollarization — Cross-Country and Domestic Evidence
- Cross-country panel (LA6: Argentina, Brazil, Chile, Colombia, Mexico, Peru; 2001Q2–2023Q4):
  - Dependent variable: credit dollarization rate (FX adjusted, Financial Soundness Indicator).
  - Regressors included: past dollarization rate; PEN-USD interest rate differential; current account balance to GDP; exchange rate volatility; global growth (Haver); rule of law (World Governance Index).
  - Results: interest rate differential and FX volatility are significant determinants — borrowers tend to borrow in dollars when the domestic interest rate is relatively higher and when ER volatility is lower. Rule of law is not a clear determinant.
- Granular supervisory regression (Peru-specific):
  - Regressand: share of unhedged foreign currency credit.
  - Regressors: lender size, lender capital ratio, lender profitability, loan interest rate spread against local currency, share of FX deposit funding; controls included past unhedged share and fixed effects for credit type, industry, collateral, NPL status.
  - Key lender-characteristic findings:
    - The unhedged dollarization rate decreases for banks with lower capital adequacy (stricter regulatory FX treatment makes higher dollarization costly for low-capital banks, leading to more restrictive lending to unhedged credit).
    - The unhedged dollarization rate increases for banks with higher foreign currency deposits (higher deposit dollarization can provide funding for dollar credit, partially allocated to BCRP reserve accounts but also to foreign currency assets including credit).

### D. Policy Responses and Recommendations
- Focused macroprudential policies recommended to mitigate vulnerabilities from remaining unhedged dollarized credit concentrated in some sectors. Suggested measures include:
  - Higher risk weights targeting debtors with higher unhedged FX exposure. (SBS is implementing new regulation to replace add-ons with higher risk weights on unhedged FX credit.)
  - Better identification of hedged/unhedged borrowers. (The new SBS regulation will introduce a metric to identify unhedged borrowers; identification in large corporates could be improved by including coverage of derivative positions.)
  - Closer monitoring of credit and FX funding. (More comprehensive solvency/liquidity stress testing to identify transmission of risk from FX credit; stress scenarios could assume loss of foreign counterparts in FX derivatives markets or absence of BCRP liquidity support.)
  - Introduction of foreign currency-specific NSFR. (NSFR introduced in December 2024 with a minimum requirement of 80 percent and to be fully phased in with a minimum requirement of 100 percent by 2026; current NSFR is not currency-specific. SBS could consider a foreign currency-specific NSFR to strengthen funding stability for foreign currency assets.)
- Regulatory note:
  - Resolution S.B.S. no-00774-2025 will be in effect in January 2026 and would roughly double the capital charge for unhedged borrowers, according to the SBS.
  - The new regulation includes metrics for evaluating unhedged exposure based on the coverage ratio (EBITDA divided by the sum of long-term debt plus interest expenses).

*Annex V. Financial Stability Risks from Dollarization, 1perea2025001-print-pdf*

### 3.      The authorities have made significant progress on the recommendations from the

### 3.      The authorities have made significant progress on the recommendations from the

### Summary of overall progress
- Countercyclical provisions and capital surcharges fully aligned with the Basel III framework are in effect.
- Recovery plans for domestic systemically important banks (D-SIBs) have been received and are under review, but a comprehensive assessment and expansion to financial groups for resolution planning remain incomplete.
- The deposit insurance system for cooperatives started providing coverage from 2025 for cooperatives that have complied with 24 contributions (2 years of premiums).
- The SBS has enhanced monitoring of off-balance-sheet exposures and implemented additional tools for monitoring systemic risks.
- Further progress noted on consolidating supervisory authority, risk-based insurance supervision, crisis preparedness, and strengthening money markets.
- Notable areas of non-compliance: completing assessment of recovery plans to expand to financial groups and initiating resolution planning; strengthening legal protection for SBS staff remains pending Congressional approval of draft law amendments.

### Systemic risk and macroprudential policy — key updates and measures
- New regulations issued in June 2024 for countercyclical provisions and capital surcharges in line with Basel III.
- SBS established a new methodology for determining buffers for concentration (single debtor, economic sector, and geographic area).
- A more risk sensitive provisioning scheme requires higher countercyclical provisions for SME portfolio.
- March 2022: General Law changed to align composition of regulatory capital to Basel III; related regulation issued December 2022 and active as of January 2023.
- Systemic risk buffers to be completely phased in 2024 and conservation buffers in 2026.
- SBS monitors off-balance-sheet exposures; 2023 rules issued for a standardized report of credit commitments.
- An 8-percent increase in capital surcharges is currently applied to exposures subject to credit ER risk; SBS has calibrated risk weights for foreign exchange credit exposure and will announce changes by end-2025.
- Growth-at-risk methodology and a granular risk model for corporate debtors incorporated in stress test model.
- BCRP and SBS hold quarterly meetings for information sharing; a systemic risk monitoring framework implemented.

### Financial sector oversight — banks, insurance, cooperatives
- Consolidated supervision:
  - A draft law amendment for holding companies to grant SBS powers for full consolidated supervision has been prepared and needs approval by Congress.
  - SBS requires and assesses detailed group-wide risk management reports and capitalization plans; liquidity stress tests and contingency plans at group level are required.
  - The SBS leads consolidated supervision in practice through the “lead firm” mechanism; internal classification process of D-SIBs includes an overview of the financial group.
- Recovery and resolution planning:
  - SBS received D-SIB recovery plans (approved by Boards) and conducted a general review, but a comprehensive review with feedback has not yet been carried out.
  - Requirements for resolution planning remain in progress.
- Legal protection for SBS staff:
  - A draft law amendment including SBS staff legal protection has been prepared and needs Congressional approval.
- Internal governance and controls:
  - Internal Control Committee functions expanded; Ethics Tribunal conformed; governance model with authority, responsibility, accountability, and control mechanisms established.
- Capital requirements and buffers:
  - Regulatory changes completed on systemic risk capital requirement, reduction of trigger activating countercyclical provisioning and capital requirement, and capital requirements for additional risks.
  - Capital conservation buffer (CCoB) implemented in 2023 with adjustment schedule aiming to reach 2.5 percent by December 2026.
  - A review of the cyclical rule based on the credit-to-GDP gap indicator is in place.

- Insurance sector:
  - Risk-based supervision model for insurance companies applied since 2019-2020.
  - Trial for brokers in 2022; final model approved February 2024 and applied since then.

- Cooperatives and deposit insurance:
  - Regulation for a deposit-insurance system approved; premiums began to be collected.
  - Insurance provided coverage starting January 2025 to cooperatives with 24 contributions (2 years of premiums).

### Crisis management and liquidity frameworks
- Cross-border crisis simulation exercise participated by BCRP and SBS (7 countries of the Americas) led by FSI BIS to test resolution framework effectiveness.
- In 2025, expected coordination with MEF and BCRP to develop a draft on resolution coordination.
- Evaluation in progress to establish formal information-sharing channels between SBS and FSD; coordination meeting held on 2025Q1.
- FSD payouts are usually carried out within 48 hours in practice.
- A draft law amendment to enhance resolution framework including legal protection for all staff involved has been prepared and needs Congressional approval.
- ELA framework and BCRP liquidity operations:
  - Eligibility and collateral requirements for CRM and repo operations specified in corresponding Circular.
  - Coordination between BCRP and supervisory authority not required to provide liquidity through CRM, but BCRP shares information with the supervisory authority.
  - BCRP can offer liquidity using repos; eligible instruments are announced.
  - SBS considers accessibility of BCRP ELA and repo facilities in liquidity stress tests.

### Financial integrity and AML/CFT
- Draft law amendment to increase cap on fines prepared and under internal SBS review; expected to be submitted to Congress during the first half of 2025.
- FIU consolidated risk-based supervisory resources to cover more reporting entities.
- Amendment to regulation on politically exposed persons (PEPs) updates and specifies list of functions and positions subject to enhanced due diligence.
- FIU implemented a new risk-based prioritization model for suspicious transaction reports in September 2024.
- Technical assistance project (Swiss State Secretariat for Economic Affairs) supporting FIU to identify high-impact ML/TF cases.
- New regulation for virtual asset service providers (VASPs) issued in August 2024, establishing legal definition and key AML/CFT obligations, including appointment of compliance officer and future provisions for FATF’s Travel Rule.
- AML/CFT supervision of VASPs expected to begin in mid-2025.
- Authorities conducted a 2024 study on economic activities of VASPs and are carrying out AML/CFT workshops for VASPs.

### Financial deepening and pension reform
- Repo markets and settlement:
  - Work ongoing to improve Repurchase Agreements to give greater dynamism to public debt market and improve settlement procedures.
  - Regulations for these operations approved; a framework contract is being prepared.
  - A collateral management system is being developed to facilitate securities loans.
  - EGIAP (Strategy for Global Asset and Liability Management) aims to strengthen public debt market in national currency with medium and long-term maturities and achieve interconnection with Euroclear.
  - Implementation of phase 2 “Secondary Market Link” would allow all bonds to be euro-clearable and registered and settled in local ICLV.
- Pension reform:
  - September 2024: a pension reform proposal approved by Congress including expanding minimum and social pension, automatic enrollment, limiting early withdrawals from private pension accounts, and periodic assessment of parameters.

### Annex VII — Leveraging critical mineral exports for sustainable growth: findings and scenarios
- Long-run demand and Peru’s position:
  - IEA identifies five critical minerals: copper, lithium, nickel, graphite, and rare earths.
  - Demand expected to substantially outpace projected mining supply; copper and lithium face the most drastic supply-demand mismatches.
  - By 2040 annual extraction could fall 19 million metric tons short of future demand or equivalently about 73 percent of the current market size.
  - Peru holds the world’s second-largest copper reserves and a well-established mining industry.
- Opportunity to ramp up production:
  - Unlocking stalled mining projects could increase annual copper production by up to 1.4 million metric tons.
  - Reforms needed to cut red tape and reform fiscal decentralization to alleviate anti-mining sentiments.
- Windfall revenue dynamics:
  - Forecasted copper supply-demand imbalances could lead to higher copper prices; example cited: sevenfold increase in lithium prices during 2022-2023.
- Modeling approach:
  - IMF’s DIGNAR-19 model used to explore policies; model features public investment affecting productivity in non-traded and traded non-resource sectors, exogenous natural-resource sector paying royalties and corporate income tax, and allows simulation of public investment efficiency and Dutch Disease effects.
- Illustrative scenarios (five considered; two summarized below):
  - Scenario 1: Higher copper price
    - Copper production remains at baseline levels; prices begin to rise after 2030.
    - By 2035, prices increase by 10 percent and stabilize through 2040 (price per kilogram increases from US$8.2 to $9 over five years).
    - Fiscal revenue allocation assumptions in this scenario:
      - 45 percent of additional fiscal revenues from the mining sector are used to fund unproductive public investment projects;
      - 55 percent are saved in the Fiscal Stabilization Fund until it reaches a ceiling of 4 percent of GDP;
      - The residual is distributed to low-income households via direct transfers.
  - Scenario 2: Unlocking delayed mining projects
    - Copper production gradually increases, adding 1.4 million metric tons of copper (the productive capacity of the six main copper mining ...)

*International Monetary Fund*

### 37.3 percent, based on estimates from the Fiscal Affairs Department. The total cash cost of copper production is set

### 1perea2025001-print-pdf - 37.3 percent, based on estimates from the Fiscal Affairs Department. The total cash cost of copper production is set

### Scenarios for copper revenues and public investment
- Scenario 1: Higher copper prices
  - Copper price assumed at $8.2 through the entire horizon.
  - Raises national income and domestic demand, leading to real exchange rate appreciation.
  - Annual output growth accelerates in 2031-2035, adding as much as 0.2 percentage points to annual baseline growth at the 2035 peak.
  - Fiscal revenues remain 0.2 percent of GDP higher on a permanent basis.
  - Dutch Disease effects erode traded sector competitiveness and crowd out traded production.

- Scenario 2: Unlocking stalled mining projects
  - Operationalizes stalled projects: El Galeno, Rio Blanco, Los Chancas, Michiquillay, La Granja, and Haquira.
  - Annual output growth accelerates in 2025-2035, with annual growth exceeding the baseline by 0.5 percentage points at the 2035 peak.
  - Once ramp-up is complete, output growth returns to its initial path.
  - Permanently higher fiscal revenues would enable Peru to replenish its Fiscal Stabilization Fund by 2037.

- Scenario 3: Productive investments
  - Builds on Scenario 2 but assumes 45 percent of the additional revenues are allocated towards productive public investments instead of unproductive projects.
  - Productive investments increase marginal products of labor and private capital inputs.
  - Annual output growth in 2025-2035 is higher on average, exceeding the baseline by 0.7 percentage points at the 2035 peak.
  - As copper production stabilizes, annual output growth slows but remains 0.2 percentage points above the baseline.

- Scenario 4: Investing fiscal revenues in full
  - Builds on Scenario 3 but assumes additional fiscal revenues from mining are allocated to productive public investments only.
  - Growth exceeds the baseline by 0.8 percentage points at the 2035 peak and by 0.4 percentage points in the long term.
  - Entails delaying replenishment of the Fiscal Stabilization Fund, as the non-resource tax base takes time to grow.

- Scenario 5: Investing and closing the efficiency gap
  - Builds on Scenario 3, with structural reforms that raise public investment efficiency from 48 to 62 percent.
  - Reform process begins in 2025 and is fully implemented over a five-year period; public investment efficiency improves gradually, increasing linearly from 48 to 62 percent.
  - Average annual output growth from 2025 to 2035 peaks at 1 percentage point above the baseline in 2035 and remains 0.6 percentage point above the baseline.

### Empirical and model assumptions, and project capacities
- Total cash cost of copper production is set at USD 2,580 per metric ton.
- Baseline potential growth rate estimated at 2.5 percent.
- Table: Capacity of Stalled Copper Projects (source: Ministerio de Energía y Minas)
  - El Galeno: Life of mine, 20.4 years; Estimated peak annual production, 144,353 metric tons
  - Rio Blanco: Life of mine, 20 years; Estimated peak annual production, 200,000 metric tons
  - Los Chancas: Life of mine, 18 years; Estimated peak annual production, 130,000 metric tons
  - Michiquillay: Life of mine, 25 years; Estimated peak annual production, 225,000 metric tons
  - La Granja: Life of mine, 40 years; Estimated peak annual production, 500,000 metric tons
  - Haquira: Life of mine, 20 years; Estimated peak annual production, 36,000 metric tons
  - Total estimated peak annual production: 1,435,353 metric tons

### Macro-fiscal implications and channels
- Dutch Disease channels:
  - Spending effect: nominal exchange rate appreciation erodes international competitiveness of domestically produced traded goods.
  - Resource movement effect: reallocation of labor and capital from non-resource traded sector toward resource and non-traded sectors due to higher national income and relative prices of non-traded goods.
- Higher copper prices or unlocking projects produce temporary boosts to potential growth driven by higher national income, domestic demand, and mining output growth; long-run growth returns to baseline absent productive investment and efficiency gains.
- Fiscal implications:
  - Fiscal revenues can remain permanently higher (example: 0.2 percent of GDP in Scenario 1) even when GDP growth returns to baseline.
  - Under Scenario 2, fiscal revenues enable replenishment of the Fiscal Stabilization Fund by 2037.

### Policy recommendations and risks
- Channel additional fiscal revenues into productive public investment projects to preserve and extend growth dividends.
  - Targeted investments include closing infrastructure gaps and enhancing resilience to future El Niño events.
  - Productive public capital raises returns on private investments across all sectors and supports non-resource sector growth.
- Address poor public investment selection and execution, institutional challenges, and governance weaknesses to maximize growth dividend.
  - Raising public investment efficiency from 48 percent to 62 percent substantially amplifies growth outcomes.
- Manage scale-up of public investment to avoid absorptive capacity constraints:
  - Rapid investment increases can trigger supply bottlenecks, higher costs, and increased inefficiencies.
  - Combine gradual investment increases with higher public savings when necessary.
- Use saving of resource revenues to mitigate Dutch disease:
  - Saving abroad (e.g., sovereign wealth fund) can moderate demand-driven pressures and limit real exchange rate appreciation.
  - Domestic accumulation of savings is less effective but can still help contain demand pressures.

### Capacity development and technical assistance priorities
- IMF CD delivery combines on-the-ground TA, online meetings, and long-term expert (LTX) engagement.
- Key areas of Fund CD:
  - Revenue and Customs Administration
    - SECO-led FAD project (December 2022 start) objectives include improving SUNAT organizational arrangements, strengthening corporate and Compliance Risk Management (CRM), developing a VAT compliance control model, improving data analytics, streamlining customs clearance, enhancing post-clearance audit, and adopting new technologies.
    - CRM emphasis to address compliance risks in key economic sectors, taxes, and taxpayer segments.
  - Public Financial Management (PFM)
    - 2022-2025 SECO project builds on prior work since 2012; focuses on institutional capacity, fiscal risk management, Treasury asset and liability management (TSA, digitization, cash and debt management), mainstreaming climate in PFM (C-PIMA), governance, and performance budgeting.
    - Long-term PFM expert deployed in February 2024 for 1.5 years.
  - Tax and Expenditure Policies
    - TA on mining tax policy, capital gains, small taxpayers, special economic zones, international taxation, taxation of digital services.
    - Support on expenditure policy including public wage bill and pension system analysis; pension reform adopted in September 2024.
  - Fiscal Policy Frameworks
    - FAD remote assistance in summer 2024 on internal consistency of new fiscal rule targets and suggestions to strengthen fiscal framework credibility.
  - Financial Supervision, Central Bank Operations, and Financial Market Development
    - MCM TA on fintech, cyber-risk management, and CBDC design.
    - 2024 mission advised SBS on cybersecurity strategy; follow-up mission planned for FY26.
    - CBDC work included a white paper in March 2023 and stakeholder workshop in June 2023; prior feasibility work in 2021–2022.
  - Real Sector and Climate Statistics
    - STA TA in 2021–2022 supported CPI methodology revision; INEI rebased and updated CPI with new weights from January 2022 and introduced web scraping and scanner data.
    - Work to improve climate and environmental statistics integration with national accounts and develop a work plan under IMF’s Environment and Climate Change Statistics Capacity Development Program.
  - Government Finance Statistics
    - STA support to transition to GFSM 2014, concurrent IPSAS adoption, and to improve integrated financial management information system and public sector debt statistics (PSDS) compilation.

- CD priorities going forward:
  - Continue CRM focus for revenue administration.
  - PFM assistance: institutional capacity, fiscal risk management, asset and liability management, mainstreaming climate, digitization.
  - Tax and expenditure CD: fuel and alcohol excises; sustainable management of public wage bill.
  - Monetary and financial CD: support BCRP on CBDC development and implementation planning.
  - Statistical CD: GFSM 2014, PSDS compilation, development of environmental accounts and macro-relevant climate indicators.

*Source: IMF staff calculations and IMF chapter content.*

### Annex IX. Data Issues

### Annex IX. Data Issues

### A. Data Adequacy Assessment for Surveillance
- Data Adequacy Assessment Rating: B
- Questionnaire Results — Median Rating: A B B B B B B
- Detailed questionnaire results (Data Quality Characteristics):
  - Coverage: B B B A B
  - Granularity: A (top cell for Government Finance Statistics); A B B (other cells)
    - Note: Top cell for "Granularity" of Government Finance Statistics shows staff's assessment of the granularity of the reported government operations data, while the bottom cell shows that of public debt statistics. Top/bottom cell distinction similarly applies to Monetary and Financial Statistics (granularity of MFS and Financial Soundness indicators).
  - Consistency: B B B
  - Frequency and Timeliness: A A A A A

- Rationale for staff assessment:
  - "Data provided to the Fund for surveillance are timely, comprehensive, and adequate for macroeconomic and financial analysis."
  - "Data coverage, frequency, and timeliness are generally in line with expectations and requirements set in the IMF Data Standards Initiatives."
  - Improvements that would strengthen adequacy: increase granularity and coverage of government finance statistics, public debt statistics, and financial soundness indicators.

- Changes since the last Article IV consultation:
  - "There have been no major changes since the last Article IV Consultation."

- Corrective actions and capacity development priorities:
  - "Government finance statistics should be migrated to the GFSM 2014 Manual."
  - "Efforts should continue to harmonize data between the Ministry of Finance and BCRP."
  - "Financial soundness indicator should provide data on Liquidity Coverage Ratio and related indicators (e.g., HQLA) to evaluate the regulatory compliance to recently implemented Basel III based rules."
  - "Climate-related statistical infrastructure should be improved, including integrating statistics with existing national accounts and closing data gaps under the IMF’s Environment and Climate Change Statistics Capacity Development Program."
  - "Coordination among agencies that compile official statistics should be enhanced to avoid duplication of efforts and enhance consistency of data across sectors."

- Use of data in Article IV consultations:
  - "Staff do not use data and/or estimates different from official statistics."

- Other data gaps:
  - "Coverage and timeliness of statistics of the informal sector could be improved."
  - "Foreign exchange intervention (FXI) data is published daily, but could include average maturity of derivative positions."
  - "Data related to climate change, particularly related to natural disasters, could be provided."

### B. Data Standards Initiatives
- "Peru subscribes to the Special Data Dissemination Standard (SDDS) since August 1996 and publishes the data on its National Summary Data Page."
- "The timeliness of some key macroeconomic data improves upon SDDS requirements."
- "The latest SDDS Annual Observance Report is available on the Dissemination Standards Bulletin Board (https://dsbb.imf.org/)."

### Table 1. Peru: Table of Common Indicators Required for Surveillance (As of April 25, 2025)
- Data Provision to the Fund / Publication under the Data Standards Initiatives — selected entries:
  - Exchange Rates
    - Date of Latest Observation: 3/2025
    - Date Received: 4/2025
    - Frequency of Data: M
    - Frequency of Reporting: M
    - Expected Frequency: D
    - Peru Expected Timeliness: D
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities(1)
    - Date of Latest Observation: 3/2025
    - Date Received: 4/2025
    - Frequency of Data: M
    - Frequency of Reporting: M
    - Expected Frequency: M
    - Peru Expected Timeliness: W
    - Peru: 1W
  - Reserve/Base Money
    - Date of Latest Observation: 3/2025
    - Date Received: 4/2025
    - Frequency of Data: M
    - Frequency of Reporting: M
    - Expected Frequency: M
    - Peru Expected Timeliness: W
    - Peru: 2W 1W
  - Broad Money
    - Date of Latest Observation: 12/2024
    - Date Received: 1/2025
    - Frequency of Data: M
    - Frequency of Reporting: M
    - Expected Frequency: M
    - Peru Expected Timeliness: M
    - Peru: 1M NLT 3-4W
  - Central Bank Balance Sheet
    - Date of Latest Observation: 3/2025
    - Date Received: 4/2025
    - Frequency of Data: M
    - Frequency of Reporting: M
    - Expected Frequency: M
    - Peru Expected Timeliness: W
    - Peru: 2W 1W
  - Consolidated Balance Sheet of the Banking System
    - Date of Latest Observation: 3/2025
    - Date Received: 4/2025
    - Frequency of Data: M
    - Frequency of Reporting: M
    - Expected Frequency: M
    - Peru Expected Timeliness: M
    - Peru: 1M NLT 3-4W
  - Interest Rates(2)
    - Date of Latest Observation: 3/2025
    - Date Received: 4/2025
    - Frequency of Data: M
    - Frequency of Reporting: M
    - Expected Frequency: D
    - Peru Expected Timeliness: D
    - Peru: 1D
  - Consumer Price Index
    - Date of Latest Observation: 3/2025
    - Date Received: 4/2025
    - Frequency of Data: M
    - Frequency of Reporting: M
    - Expected Frequency: M
    - Peru Expected Timeliness: M
    - Peru: 1M 1D
  - Revenue, Expenditure, Balance and Composition of Financing — General Government(3–4)
    - Date of Latest Observation: Q1/2025
    - Date Received: 4/2025
    - Frequency of Data: Q
    - Frequency of Reporting: Q
    - Expected Frequency: A
    - Peru Expected Timeliness: Q
    - Peru: 2Q 8W
  - Revenue, Expenditure, Balance and Composition of Financing — Central Government(3)
    - Date of Latest Observation: 3/2025
    - Date Received: 4/2025
    - Frequency of Data: M
    - Frequency of Reporting: M
    - Expected Frequency: M
    - Peru Expected Timeliness: M
    - Peru: 1M 4W
  - Stocks of Central Government and Central Government-Guaranteed Debt(5)
    - Date of Latest Observation: Q4/2024
    - Date Received: 2/2025
    - Frequency of Data: Q
    - Frequency of Reporting: Q
    - Expected Frequency: Q
    - Peru Expected Timeliness: Q
    - Peru: 1Q NLT 8W
  - External Current Account Balance
    - Date of Latest Observation: Q4/2024
    - Date Received: 2/2025
    - Frequency of Data: Q
    - Frequency of Reporting: Q
    - Expected Frequency: Q
    - Peru Expected Timeliness: Q
    - Peru: 1Q 8W
  - Exports and Imports of Goods and Services
    - Date of Latest Observation: Q4/2024
    - Date Received: 2/2025
    - Frequency of Data: Q
    - Frequency of Reporting: Q
    - Expected Frequency: M
    - Peru Expected Timeliness: M
    - Peru: 8W 5-6W
  - GDP/GNP
    - Date of Latest Observation: Q4/2024
    - Date Received: 2/2025
    - Frequency of Data: Q
    - Frequency of Reporting: Q
    - Expected Frequency: Q
    - Peru Expected Timeliness: Q
    - Peru: 1Q 8W
  - Gross External Debt
    - Date of Latest Observation: Q4/2024
    - Date Received: 2/2025
    - Frequency of Data: Q
    - Frequency of Reporting: Q
    - Expected Frequency: Q
    - Peru Expected Timeliness: Q
    - Peru: 1Q 8W
  - International Investment Position
    - Date of Latest Observation: Q4/2024
    - Date Received: 2/2025
    - Frequency of Data: Q
    - Frequency of Reporting: Q
    - Expected Frequency: Q
    - Peru Expected Timeliness: Q
    - Peru: 1Q 8W

- Footnotes included in the table:
  - (1) "Includes reserve assets pledged or otherwise encumbered, as well as net derivative positions."
  - (2) "Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds."
  - (3) "Foreign, domestic bank, and domestic nonbank financing."
  - (4) "The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments."
  - (5) "Including currency and maturity composition."
  - (6) Frequency and timeliness codes: “D” daily; “W” weekly or with a lag of no more than one week after the reference date; “M” monthly or with lag of no more than one month after the reference date; “Q” quarterly or with lag of no more than one quarter after the reference date; “A” annual; "SA" semiannual; "I" irregular; "NA" not available or not applicable; and "NLT" not later than.
  - (7) "Encouraged frequency of data and timeliness of reporting under the e-GDDS and required frequency of data and timeliness of reporting under the SDDS and SDDS Plus. Any flexibility options or transition plans used under the SDDS or SDDS Plus are not reflected."
  - (8) "Based on the information from the Summary of Observance for SDDS and SDDS Plus participants, and the Summary of Dissemination Practices for e-GDDS participants, available from the IMF Dissemination Standards Bulletin Board (https://dsbb.imf.org/)."

*Source: Annex IX. Data Issues (As of April 25, 2025).*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1perea2025001-print-pdf.pdf_