## _cr16234 - 4.25 percent aiming at re-anchoring inflation expectations, which has added to tighter

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### Executive Board assessment — growth, inflation, and risks
- After a sharp deceleration in 2014, economic activity recovered in 2015 driven by additional mining production capacity and a modest acceleration in non-mining activity.
- Activity is expected to accelerate further in 2016 and 2017 as mining exports rise and public investment rebounds.
- Inflation is expected to decline over the medium term.
- Risks to the outlook are balanced:
  - External downside risks: possibly weaker-than-projected growth in China (and softer metal prices), adverse spillovers from other countries in the region, sharp asset price adjustments in advanced and emerging economies, and an even stronger U.S. dollar.
  - Domestic upside risks: stronger-than-expected improvements in business confidence (especially if the incoming government announces productivity-enhancing reforms) and more effective execution of infrastructure projects, potentially lifting growth in 2016–17 and beyond.

### Monetary and exchange rate policy guidance
- BCRP actions and exchange rate movements:
  - The BCRP raised the policy rate since September 2015 by a full percentage point to 4.25 percent aiming at re-anchoring inflation expectations.
  - The authorities allowed the sol to depreciate 14 percent with respect to the U.S. dollar, while volatility was contained.
  - The sol has depreciated 31 percent with respect to the U.S. dollar since its peak in January 2013, but only 3.8 percent in nominal effective terms over the same period.
- Staff recommendation and caveats:
  - Maintain a wait-and-see monetary stance given:
    - declining inflation and medium-term inflation expectations,
    - it is too soon to evaluate the effect of past monetary tightening on activity and inflation,
    - uncertainties about the economy's cyclical position.
  - Caveat: a possibly steeper U.S. interest rate path than currently priced could necessitate further monetary tightening in Peru.
- Exchange rate policy and de-dollarization:
  - Greater exchange rate flexibility in 2015 was welcome and had no noticeable impact on firms’ and banks’ balance sheets.
  - Further exchange rate flexibility would support development of hedging instruments and accelerate credit de-dollarization.
  - De-dollarization progress: share of FX loans in total loans dropped to 27.4 percent in January 2016 from 38.2 percent in December 2014.
  - Expectations of further currency depreciation boosted dollar deposits in commercial banks in 2015 to about 45 percent of total deposits from 40 percent in 2014.
  - BCRP long-run repos and FX operations: Net spot market sales amounted to US$8 billion; FX swaps and FX-linked certificates of deposit accounted for US$3.2 billion; substitution repos constitute 3 percent of the NIR.

### Fiscal policy and public investment
- Recommendation: gradual fiscal consolidation over the next few years to maintain healthy debt dynamics and protect fiscal buffers.
  - With the output gap closing around end 2017, there is no case for loosening fiscal policy.
  - Consolidation is important for pensions sustainability, defense against natural disasters, and contingent liabilities.
- To accommodate higher-than-projected public capital spending:
  - Create fiscal space by containing current spending not complementary to capital expansion and structural reforms (including health and education).
  - Raise low revenue collection through streamlining administration, reducing informality and exemptions, and protecting the tax base from international profit shifting by multinational corporations.
  - Reduce bottlenecks to public investment and improve management to enable full execution of budgeted spending and support private investment.
- Fiscal outcomes and public debt:
  - NFPS Revenue: 24.6 (2015); projections: 24.3 (2016), 24.8 (2017).
  - NFPS Overall Balance: -2.1 (2015); projections: -2.1 (2016), -1.6 (2017).
  - NFPS Gross debt (including Repayment Certificates): 24.0 (2015); projections: 25.9 (2016), 25.8 (2017).
  - Net debt (gross debt excluding government deposits at the central bank and in private banks) increased to 7 percent of GDP.
  - Government revenues fell by about 2 percent of GDP in 2015.

### Structural reform priorities to boost potential growth
- Estimated potential growth absent reforms: 3.5 percent.
- Key structural reform areas:
  - Reduce informality; consider labor market reforms to lower costs of hiring and firing.
  - Spur investment in non-extractive industries through improved competitiveness and infrastructure.
  - Improve the decentralization framework to enable execution of capital expansion and better resource allocation.
  - Continue education reforms to address low quality despite high coverage.
  - Advance financial inclusion efforts (National Financial Inclusion Strategy; private sector-led e-money platform).
  - Use free trade agreements to boost and diversify long-term growth.
- Authorities’ alternative potential growth estimates: 4.0 to 4.5 percent under envisaged structural reforms and higher private non-commodity investment and public capital spending execution.

### Recent developments and macro indicators (selected)
- Growth and demand (Real, percent):
  - Real GDP: 6.5 (2011), 6.0 (2012), 5.9 (2013), 2.4 (2014), 3.3 (2015), projections: 3.7 (2016), 4.1 (2017).
  - Real domestic demand: 7.7 (2011), 7.2 (2012), 7.3 (2013), 2.2 (2014), 2.9 (2015), projections: 2.4 (2016), 3.3 (2017).
- Inflation (Consumer Prices):
  - End of period: 4.7 (2011), 2.6 (2012), 2.9 (2013), 3.2 (2014), 4.4 (2015), projections: 3.2 (2016), 2.5 (2017).
  - Period average: 3.4 (2011), 3.7 (2012), 2.8 (2013), 3.2 (2014), 3.5 (2015), projections: 3.8 (2016), 2.5 (2017).
- External sector:
  - Exports (annual percent change): 29.5 (2011), 2.2 (2012), -9.6 (2013), -7.8 (2014), -13.4 (2015), projections: -1.0 (2016), 7.1 (2017).
  - External current account balance (% of GDP): -1.9 (2011), -2.7 (2012), -4.2 (2013), -4.0 (2014), -4.4 (2015), projections: -3.9 (2016), -3.5 (2017).
  - Gross reserves (US$ millions): 48,859 (2011), 64,049 (2012), 65,710 (2013), 62,353 (2014), 61,537 (2015), projections: 62,230 (2016), 62,930 (2017).
- Labor and social:
  - Unemployment rate: 7.7 (2011), 6.8 (2012), 5.9 (2013), 5.9 (2014), 6.5 (2015).
  - Poverty rate (total): 27.8 (2011), 25.8 (2012), 23.9 (2013), 22.7 (2014), 21.8 (2015).
- Other notable facts:
  - Growth averaged about 2¾ percent over 2014–15 compared to 6 1/5 percent over the previous decade.
  - Growth reached 3.3 percent in 2015; the external current account reached a deficit of 4.4 percent in 2015.

### Exchange rate developments, interventions, and reserves
- 2015 exchange rate and interventions:
  - The sol depreciated 14 percent with respect to the U.S. dollar in 2015, much more than in 2014 but less than other LA5 currencies.
  - Net spot market sales amounted to US$8 billion or about 4 percent of GDP.
  - FX swaps and FX-linked certificates of deposit accounted for US$3.2 billion or about 2 percent of GDP.
  - Net international reserves (NIR) remained high at US$61.5 billion (308 percent of the Assessing Reserve Adequacy (ARA) metric, or 263 percent after augmenting the ARA for commodity buffers).
  - A significant part of NIR consists of domestic FX liabilities, mostly of maturities of 2 years and longer; after adjusting for these liabilities, NIR still remained within the adequacy range.
  - The BCRP has been offering FX repos with maturities of 2 to 5 years to close banks’ open balance-sheet positions in U.S. dollars and support creation of credit in local currency.

### Real activity and demand composition (selected figures)
- Peru: Real Aggregate Demand Growth (contribution to growth rates, y-o-y, percent)
  - Gross Domestic Product: 2014 = 2.4; 2015 = 3.3; 2016 Q1 = 4.4; 2016 Proj. Year = 3.7
  - Domestic Demand: 2014 = 2.3; 2015 = 3.0; 2016 Q1 = 2.0; 2016 Proj. Year = 2.3
  - Private Consumption: 2014 = 2.5; 2015 = 2.1; 2016 Q1 = 2.3; 2016 Proj. Year = 2.3
  - Domestic Investment: 2014 = -1.4; 2015 = -0.3; 2016 Q1 = -1.7; 2016 Proj. Year = -0.3
  - External Demand contribution: 2014 = 0.1; 2015 = 0.3; 2016 Q1 = 2.5; 2016 Proj. Year = 1.4
  - Exports: 2014 = -0.2; 2015 = 0.9; 2016 Q1 = 1.9; 2016 Proj. Year = 1.6
  - Imports: 2014 = 0.3; 2015 = -0.6; 2016 Q1 = 0.6; 2016 Proj. Year = -0.1
- Early 2016 signals:
  - GDP grew 4.4 percent, y-o-y, in 2016 Q1.
  - Final domestic demand accelerated to 3.6 percent, y-o-y, in 2016 Q1 from 3.3 percent, y-o-y, in 2015 Q4.
  - Inflation declined since end-2015 (3.9 percent, y-o-y, in April 2016) and inflation expectations have fallen within the BCRP’s target range at the 2017 and 2018 horizons.
  - Credit growth: 8.3 percent in April (y-o-y).
  - The sol appreciated since mid-February 2016.

### Banking sector performance and dollarization
- Banking sector performance and measures:
  - Banking sector reported strong results in 2015.
  - Private sector credit grew 9½ percent (y-o-y, in FX adjusted terms).
  - Net profits increased 32 percent in 2015, the highest rate since 2008, while credit risk indicators stabilized.
  - BCRP reduced the average reserve requirement rate on local currency deposits from 20 percent to 6.5 percent from May 2013 through June 2015 to reduce dollarization and encourage local currency intermediation.
  - Share of FX loans in total loans: 27.4 percent in January 2016.
  - Share of FX loans in total credit: 30.1 (2015, Financial Soundness Indicators).
  - Share of foreign currency deposits in total deposits: 49.5 (2015, Financial Soundness Indicators).
  - Stress test calculations by the SBS suggest that only about 11 percent of FX lending poses risks to banks’ capital.
  - Deposit dollarization remained relatively high at around 45 percent in 2015.

### External sector outlook and assessment
- Growth projections and mining outlook:
  - Staff projects 3¾ percent growth in 2016 and 4.1 percent growth in 2017.
  - By 2017, mining production is expected to double from its 2014 level, with smaller increases thereafter.
- Current account and reserves:
  - The current account deficit is projected to approach the norm of 2 percent of GDP by 2021 under current policies.
  - Gross reserves stood at US$61 billion.
- External position assessment (Annex II):
  - CA headline: -4.4 (2015)
  - CA underlying 1/: -3.5 (2015)
  - CA norm: -2.0 (2015)
  - CA gap 2/: -1.5 (2015)
  - RER gap (in percent) 3/: 7.1 (2015)
  - Adjusted figures (for under-reporting in illegal gold exports): CA underlying 1/: -3.1; CA gap 2/: -1.1; RER gap (in percent) 3/: 5.3.

### Outlook, risks, and scenarios
- Downside external risks:
  - (i) Structurally weak growth and disorderly rebalancing in China affecting metal prices.
  - (ii) A stronger-than-expected dollar.
  - (iii) Sharp asset price adjustments and decompression of credit spreads.
- Domestic upside risks:
  - Strengthening of non-primary sectors’ growth observed in Q1 2016.
  - Possibly stronger pickup in sub-national investment.
  - Improvement in TFP.
  - Investor-friendly presidential election outcomes leading to larger-than-projected increases in confidence and investment.
- Policy advice under scenarios:
  - Exchange rate flexibility as first line of defense; use liquidity buffers; ease monetary and prudential policies; accelerate structural reforms.
  - Intervention to smooth excessive volatility while developing hedging markets and avoiding heavy sterilized intervention.

### Market classification, equity market liquidity, and measures
- Staff supported authorities’ efforts to keep Peru’s current classification in the MSCI Emerging Market index.
- Liquidity-improving measures (Lima Stock Exchange and SMV initiatives):
  - Temporary exemption of the capital gains tax for 3 years for certain transactions (minimum traded volume of 4 UITs).
  - Strengthen incentives for market makers; exemptions of transaction fees until July 31, 2016.
  - Promote stock lending; exemptions of transaction fees until July 31, 2016; pension funds allowed to act as stock lenders.
  - Implement a new trading platform “Millennium” allowing algorithmic trading, market making, stock lending, and short selling.
  - Note: A "tax unit" (UIT) is a figure set annually by the tax authorities to determine applicable rates and deductions.

### Public investment management (PIM) and decentralization
- Execution and efficiency:
  - Execution rates reached 82 percent in 2015, averaging 75 percent.
  - Under-execution of capital spending, especially at sub-national levels, undermined the authorities’ targeted fiscal impulse.
  - Staff estimates capital spending multipliers in the range 0.5–1.1 and a weighted fiscal impulse impact on the economy in 2015 of a negative 0.3 percent.
- Recommended improvements to PIM:
  - Adopt a multi-year budget to guarantee full execution of multi-year investments.
  - Revisit assignment of natural resource revenues for more transparent transfers.
  - Improve cash flow management and strengthen efficiency of subnational investment through capacity building.
  - Design an Information System to integrate planning, budgeting and investment over the project cycle; monitor major projects and publish external ex-post audits.
  - Consider merging jurisdictions and reallocate resources away from low-capacity districts.
  - Centralize assessment and selection of investment projects and decentralize their execution.

### Financial inclusion and digital payments
- National initiatives:
  - National Financial Inclusion Strategy launched July 2015.
  - Modelo Peru (BiM): more than 30 financial institutions and four telecommunications companies formed a partnership to build an interoperable mobile money platform.
  - BiM targets five million users in five years.
  - As of end-April 2016: nine e-money issuers participating; twenty more expected to join by end-year; three major telecommunications companies have joined; the fourth scheduled to join soon.
- Financial inclusion indicators (Global Findex, presented):
  - Share of adults with an account: Peru 29 (2014).
  - Share of adults who saved at a financial institution: Peru 12 (2014).
  - Targets: increase access to personal accounts to 50 percent by 2018.

### Policy recommendations (concise)
- Monetary: Maintain wait-and-see stance; be prepared to tighten further if external rate developments warrant.
- Exchange rate: Continue allowing greater exchange rate flexibility to aid adjustment and deepen hedging markets.
- Fiscal: Pursue gradual fiscal consolidation; create space for capital spending by containing non-complementary current spending and raising revenue.
- Structural reforms: Prioritize labor market reform, fiscal decentralization, public investment management, education quality improvement, and measures to reduce informality and boost non-extractive investment.
- Tax administration and revenue mobilization:
  - Improve revenue collection while avoiding tax rate cuts.
  - Simplify GST withholding schemes and reduce the stock of fiscal stability agreements.
  - Strengthen international taxation and information exchange to protect the tax base.
  - Increase subnational revenues through property tax reforms and cadastre modernization.

*PERU — STAFF REPORT FOR THE 2016 ARTICLE IV CONSULTATION*

### 4.25 percent aiming at re-anchoring inflation expectations, which has added to tighter

### _cr16234 - 4.25 percent aiming at re-anchoring inflation expectations, which has added to tighter

### Executive Board assessment — growth, inflation, and risks
- After a sharp deceleration in 2014, economic activity recovered in 2015 driven by additional mining production capacity and a modest acceleration in non-mining activity.
- Activity is expected to accelerate further in 2016 and 2017 as mining exports rise and public investment rebounds.
- Inflation is expected to decline over the medium term.
- Risks to the outlook are balanced:
  - External downside risks: possibly weaker-than-projected growth in China (and softer metal prices), adverse spillovers from other countries in the region, sharp asset price adjustments in advanced and emerging economies, and an even stronger U.S. dollar.
  - Domestic upside risks: stronger-than-expected improvements in business confidence (especially if the incoming government announces productivity-enhancing reforms) and more effective execution of infrastructure projects, potentially lifting growth in 2016–17 and beyond.

### Monetary and exchange rate policy guidance
- The BCRP raised the policy rate since September 2015 by a full percentage point to 4.25 percent aiming at re-anchoring inflation expectations.
- The authorities allowed the sol to depreciate 14 percent with respect to the U.S. dollar, while volatility was contained.
- Staff recommendation: maintain a wait-and-see monetary stance given:
  - declining inflation and medium-term inflation expectations,
  - it is too soon to evaluate the effect of past monetary tightening on activity and inflation,
  - uncertainties about the economy's cyclical position.
- Caveat: a possibly steeper U.S. interest rate path than currently priced could necessitate further monetary tightening in Peru.
- Exchange rate policy:
  - Greater exchange rate flexibility in 2015 was welcome and had no noticeable impact on firms’ and banks’ balance sheets.
  - Further exchange rate flexibility would support development of hedging instruments and accelerate credit de-dollarization.
- Financial sector: banks’ balance sheets remain healthy and profitable; progress has been achieved in credit de-dollarization due to BCRP measures.
- Recent measures to deepen Peru’s equity market are welcome.

### Fiscal policy and public investment
- Recommendation: gradual fiscal consolidation over the next few years to maintain healthy debt dynamics and protect fiscal buffers.
  - With the output gap closing around end 2017, there is no case for loosening fiscal policy.
  - Consolidation is important for pensions sustainability, defense against natural disasters, and contingent liabilities.
- To accommodate higher-than-projected public capital spending:
  - Create fiscal space by containing current spending not complementary to capital expansion and structural reforms (including health and education).
  - Raise low revenue collection through streamlining administration, reducing informality and exemptions, and protecting the tax base from international profit shifting by multinational corporations.
  - Reduce bottlenecks to public investment and improve management to enable full execution of budgeted spending and support private investment.

### Structural reform priorities to boost potential growth
- With the end of commodity-driven growth, further structural reforms are higher priority to raise potential growth and reduce poverty.
- Potential growth absent reforms is estimated at 3.5 percent.
- Key areas:
  - Reduce informality; consider labor market reforms to lower costs of hiring and firing.
  - Spur investment in non-extractive industries through improved competitiveness and infrastructure.
  - Improve the decentralization framework to enable execution of capital expansion and better resource allocation.
  - Continue education reforms to address low quality despite high coverage.
  - Advance financial inclusion efforts (National Financial Inclusion Strategy; private sector-led e-money platform).
  - Use free trade agreements to boost and diversify long-term growth.

### Recent developments and macro indicators (selected)
- Growth and demand:
  - Real GDP: 6.5 (2011), 6.0 (2012), 5.9 (2013), 2.4 (2014), 3.3 (2015), projections: 3.7 (2016), 4.1 (2017).
  - Real domestic demand: 7.7 (2011), 7.2 (2012), 7.3 (2013), 2.2 (2014), 2.9 (2015), projections: 2.4 (2016), 3.3 (2017).
- Inflation:
  - Consumer Prices (end of period): 4.7 (2011), 2.6 (2012), 2.9 (2013), 3.2 (2014), 4.4 (2015), projections: 3.2 (2016), 2.5 (2017).
  - Consumer Prices (period average): 3.4 (2011), 3.7 (2012), 2.8 (2013), 3.2 (2014), 3.5 (2015), projections: 3.8 (2016), 2.5 (2017).
- External sector:
  - Exports (annual percent change): 29.5 (2011), 2.2 (2012), -9.6 (2013), -7.8 (2014), -13.4 (2015), projections: -1.0 (2016), 7.1 (2017).
  - External current account balance (% of GDP): -1.9 (2011), -2.7 (2012), -4.2 (2013), -4.0 (2014), -4.4 (2015), projections: -3.9 (2016), -3.5 (2017).
  - Gross reserves (US$ millions): 48,859 (2011), 64,049 (2012), 65,710 (2013), 62,353 (2014), 61,537 (2015), projections: 62,230 (2016), 62,930 (2017).
- Public finances (percent of GDP):
  - NFPS Revenue: 27.2 (2011), 27.7 (2012), 27.8 (2013), 27.7 (2014), 24.6 (2015), projections: 24.3 (2016), 24.8 (2017).
  - NFPS Overall Balance: 2.0 (2011), 2.3 (2012), 0.9 (2013), -0.3 (2014), -2.1 (2015), projections: -2.1 (2016), -1.6 (2017).
  - NFPS Gross debt (including Repayment Certificates): 23.0 (2011), 21.2 (2012), 20.3 (2013), 20.7 (2014), 24.0 (2015), projections: 25.9 (2016), 25.8 (2017).
- Labor and social:
  - Unemployment rate: 7.7 (2011), 6.8 (2012), 5.9 (2013), 5.9 (2014), 6.5 (2015).
  - Poverty rate (total): 27.8 (2011), 25.8 (2012), 23.9 (2013), 22.7 (2014), 21.8 (2015).
- Other notable facts:
  - The sol has depreciated 31 percent with respect to the U.S. dollar since its peak in January 2013, but only 3.8 percent in nominal effective terms over the same period.
  - Growth averaged about 2¾ percent over 2014–15 compared to 6 1/5 percent over the previous decade.
  - Growth reached 3.3 percent in 2015; the external current account reached a deficit of 4.4 percent in 2015.

### Policy recommendations (concise)
- Monetary: Maintain wait-and-see stance; be prepared to tighten further if external rate developments warrant.
- Exchange rate: Continue allowing greater exchange rate flexibility to aid adjustment and deepen hedging markets.
- Fiscal: Pursue gradual fiscal consolidation; create space for capital spending by containing non-complementary current spending and raising revenue.
- Structural reforms: Prioritize labor market reform, fiscal decentralization, public investment management, education quality improvement, and measures to reduce informality and boost non-extractive investment.

*PERU — STAFF REPORT FOR THE 2016 ARTICLE IV CONSULTATION*

### 4.      Over 2015, the sol depreciated amid the BCRP’s FX intervention. The sol depreciated

### _cr16234 - 4.      Over 2015, the sol depreciated amid the BCRP’s FX intervention. The sol depreciated

### Exchange rate developments, interventions, and reserves
- The sol depreciated 14 percent with respect to the U.S. dollar in 2015, much more than in 2014 but less than other LA5 currencies, implying a flatter path for the sol in real effective terms.
- Net spot market sales amounted to US$8 billion or about 4 percent of GDP.
- FX swaps and FX-linked certificates of deposit accounted for US$3.2 billion or about 2 percent of GDP.
- Intervention slowed by year-end and more recently focused on managing appreciation pressures.
- Net international reserves (NIR) remained high at US$61.5 billion (308 percent of the Assessing Reserve Adequacy (ARA) metric, or 263 percent after augmenting the ARA for commodity buffers).
- A significant part of NIR consists of domestic FX liabilities, mostly of maturities of 2 years and longer; after adjusting for these liabilities, NIR still remained within the adequacy range.
- The authorities saw the exchange rate to be currently in line with fundamentals, noting that EBA models do not fully account for future copper expansion.

### Real activity and demand composition (selected figures)
- Peru: Real Aggregate Demand Growth (contribution to growth rates, y-o-y, percent)
  - Gross Domestic Product: 2014 = 2.4; 2015 = 3.3; 2016 Q1 = 4.4; 2016 Proj. Year = 3.7
  - Domestic Demand: 2014 = 2.3; 2015 = 3.0; 2016 Q1 = 2.0; 2016 Proj. Year = 2.3
  - Private Consumption: 2014 = 2.5; 2015 = 2.1; 2016 Q1 = 2.3; 2016 Proj. Year = 2.3
  - Domestic Investment: 2014 = -1.4; 2015 = -0.3; 2016 Q1 = -1.7; 2016 Proj. Year = -0.3
  - External Demand contribution: 2014 = 0.1; 2015 = 0.3; 2016 Q1 = 2.5; 2016 Proj. Year = 1.4
  - Exports: 2014 = -0.2; 2015 = 0.9; 2016 Q1 = 1.9; 2016 Proj. Year = 1.6
  - Imports: 2014 = 0.3; 2015 = -0.6; 2016 Q1 = 0.6; 2016 Proj. Year = -0.1
- The recovery is off to a good start in the first quarter of 2016:
  - GDP grew 4.4 percent, y-o-y, in 2016 Q1.
  - Final domestic demand accelerated to 3.6 percent, y-o-y, in 2016 Q1 from 3.3 percent, y-o-y, in 2015 Q4.
  - Inflation declined since end-2015 (3.9 percent, y-o-y, in April 2016) and inflation expectations have fallen within the BCRP’s target range at the 2017 and 2018 horizons.
  - Credit growth: 8.3 percent in April (y-o-y).
  - The sol appreciated since mid-February 2016.

### External sector outlook
- Staff projects 3¾ percent growth in 2016 and 4.1 percent growth in 2017.
- By 2017, mining production is expected to double from its 2014 level, with smaller increases thereafter.
- The current account deficit is projected to approach the norm of 2 percent of GDP by 2021 under current policies.
- Peru’s medium-term potential growth was revised downwards by one percentage point to 3½ percent annual growth from 2018 onwards under the staff baseline.
- The authorities’ potential growth estimates range from 4.0 to 4.5 percent under envisaged structural reforms and higher private non-commodity investment and public capital spending execution.

### Fiscal outcomes and public debt
- The non-financial public sector (NFPS) deficit rose to about 2 percent of GDP in 2015 after a string of surpluses since 2009.
- Government revenues fell by about 2 percent of GDP in 2015.
  - About one-third of the revenue fall was due to a loss of income from reduced tax rates; the rest reflected a structural drop in commodity prices, one-off extraordinary revenues collected in 2014, and higher tax reimbursements on overestimated pre-payments.
- Under-execution of capital spending, especially at sub-national levels, undermined the authorities’ targeted fiscal impulse.
- Fiscal policy remained broadly neutral in structural terms and is estimated to have contributed negatively to economic activity in 2015.
- Gross public debt increased to about 24 percent of GDP, including pre-financing operations.
- Net debt (gross debt excluding government deposits at the central bank and in private banks) increased to 7 percent of GDP.
- Staff estimates (Selected Issues Paper, Chapter 2) indicate capital spending multipliers in the range 0.5–1.1 and a weighted fiscal impulse impact on the economy in 2015 of a negative 0.3 percent.
- After a decade absence in European markets, Peru issued a 1.1 billion euro bond with 11-year maturity, yielding 2.75 percent, to pre-finance the 2017 needs.
- In June 2015, the authorities published for the first time the stock of contingent liabilities (as required by the fiscal rules framework adopted in 2014).

### Banking sector performance and dollarization
- Banking sector reported strong results in 2015.
- BCRP reduced the average reserve requirement rate on local currency deposits from 20 percent to 6.5 percent from May 2013 through June 2015 to reduce dollarization and encourage local currency intermediation.
- Private sector credit grew 9½ percent (y-o-y, in FX adjusted terms).
- Net profits increased 32 percent in 2015, the highest rate since 2008, while credit risk indicators stabilized.
- Direct exposure to the commodity sector remains limited; banks are solid, profitable, and liquid.
- Share of FX loans in total loans dropped to 27.4 percent in January 2016 from 38.2 percent in December 2014 (result of de-dollarization measures introduced in late-2014).
- Expectations of further currency depreciation boosted dollar deposits in commercial banks in 2015 to about 45 percent of total deposits from 40 percent in 2014.
- The BCRP has been offering FX repos with maturities of 2 to 5 years to close banks’ open balance-sheet positions in U.S. dollars and support creation of credit in local currency.
- Substitution repos constitute 3 percent of the NIR.
- Stress test calculations by the SBS suggest that only about 11 percent of FX lending poses risks to banks’ capital.

### Outlook, risks, and scenarios
- Downside external risks:
  - (i) Structurally weak growth and disorderly rebalancing in China affecting metal prices.
  - (ii) A stronger-than-expected dollar.
  - (iii) Sharp asset price adjustments and decompression of credit spreads.
- Domestic upside risks to near-term forecast:
  - Strengthening of non-primary sectors’ growth observed in Q1 2016.
  - Possibly stronger pickup in sub-national investment.
  - Improvement in TFP.
  - Investor-friendly presidential election outcomes leading to larger-than-projected increases in confidence and investment.

### Policy discussions and recommendations
- Holding tight (monetary policy):
  - Recent monetary tightening aimed at re-anchoring inflationary expectations.
  - Under authorities’ and staff’s baseline scenarios, Peru’s small output gap would be closed around end-2017.
  - Observed and expected inflation outside the target band could warrant further tightening, but declines in year-on-year inflation since end-2015 and softer medium-term inflation expectations support a wait-and-see approach.
  - Exchange rate pass-through estimates fall into the range of 0.1−0.2 for 1 percent depreciation depending on methodology; pass-through is high for some non-tradable goods directly priced in U.S. dollars.
  - Staff noted a possibly steeper path of U.S. interest rate hikes could trigger the need for further rate increases in Peru to address inflationary impact of a weaker sol.
  - Recent 13 percent increase in the national minimum wage could exert some pressure on inflation; pass-through is uncertain.
- Communication and inflation target band:
  - Staff raised that the inflation target band could be demanding given high exposure to relative price shocks and an average inflation rate of 2¾ percent since the start of the inflation-targeting regime.
  - Clearer indication that the BCRP’s “target” is the whole target range (rather than midpoint) would better align communication with actions.
  - Authorities argued that targeting a band reflects experience with supply shocks and lower inflation excluding food and fuels (around 2¼ percent over the last decade).
- De-dollarization strategy:
  - Steady de-dollarization of credit portfolios has reduced financial stability risks and improved monetary transmission.
  - BCRP’s long-run repo operations (using dollar deposits as collateral) are deemed transitory and will be wound down as domestic currency deposits pick up.
  - Staff suggested more stringent prudential requirements could help make FX deposits less attractive but noted constitutional constraints on imposing higher costs on holders of FX deposits.
  - Staff reiterated need to develop measures to help de-dollarization, such as creating incentives for diversifying savings and investment instruments (e.g., deepening local-currency bond markets, allowing retail sales of government bonds), and continuing toward greater exchange rate flexibility.
  - Local currency public domestic bonds are likely to become Euro-clearable in 2016; authorities are working to develop real estate investment trusts (REITs) and modify the Alternative Securities Market scheme to encourage issuances by medium-sized companies.
- Exchange rate flexibility:
  - Staff welcomed greater exchange rate flexibility but saw room for further flexibility.
  - Temporary intervention to reduce excess volatility could be helpful, but greater flexibility would keep the current account closer to equilibrium, discourage risk taking, and incentivize development of FX derivatives to support hedging.
  - Greater flexibility would help de-dollarization and limit need for measures to alleviate banks’ balance sheet mismatches.
  - Macro-financial risks from FX lending appear limited, but FX leverage by firms and households requires close monitoring.

*Source: IMF staff report excerpt (Peru, 2015–2016 text provided).*

### 15.      Staff supported the authorities’ efforts to keep

### 15.      Staff supported the authorities’ efforts to keep

### Market classification and equity market liquidity
- Staff supported authorities’ efforts to keep Peru’s current classification in the MSCI Emerging Market index.
- Reclassification into the MSCI frontier market index (contemplated by MSCI) would change the investor base; authorities believe it would not have significant macro-financial consequences.
- Measures taken by the Supervisor of the Stock Market (SMV) and the Lima stock exchange (BVL) to increase market liquidity:
  - Temporary exemption of the capital gains tax — staff does not object.
  - Stronger incentives for market makers and stock lending.
- Selected Liquidity Improving Measures (as described by the Lima Stock Exchange):
  - Exempt sales of shares from capital gains tax
    - Temporary exemption for 3 years.
    - Applies to transactions with volumes that represent less than 10 percent of the company’s total value and with a minimum traded volume of 4 UITs (approximately U.S.$ 4,700). 1/
  - Strengthen incentives for market makers
    - Modification of payments in advance tax scheme for market makers, and transaction fees of BVL, Central Register for Securities and Settlements (CAVALI), and SMV exempted until July 31, 2016.
  - Promote stock lending
    - Transaction fees of BVL, CAVALI, and SMV exempted for stock lending operations until July 31, 2016. Pension funds allowed to act as stock lenders.
  - Implement a new trading platform “Millennium”
    - The platform allows algorithmic trading via Direct Market Access, market making, stock lending, and short selling.
  - 1/ A "tax unit" (UIT) is a figure set annually by the tax authorities to determine applicable rates and deductions.

### Fiscal stance, projections, and recommendations
- 2016 fiscal stance and deficits:
  - Under the escape clause, the 2016 deficit target was increased to 3 percent of GDP to support the economy and to accommodate provisions for a possibly stronger El Niño.
  - As El Niño has now been downgraded, the authorities project the deficit not to exceed 2.5 percent of GDP.
  - Staff estimates an even lower deficit (about 2¼ percent of GDP), making the fiscal stance neutral in structural terms.
- Revenue and spending dynamics:
  - Projected small loss in income tax collection (following further rate cuts spread over 2015–19) is expected to be more than offset by lower current and capital spending, given lower historical execution of investment than budgeted and that this is a government transition year.
  - Revenues could surprise on the upside if growth rises by more than projected.
- Staff advice to incoming government:
  - Concentrate on delivering the originally budgeted capital spending and resist surpassing the budgeted current outlays.
  - No significant fiscal impulse necessary given the economy’s ongoing recovery.
- Medium-term fiscal consolidation:
  - Output gap estimated to close around end-2017; staff supported fiscal consolidation starting next year in line with Peru’s current fiscal rules.
  - Staff reiterated Fund advice to reach a ½ percent of GDP primary surplus in the medium term.
  - Such a target would stabilize the debt-to-GDP ratio well below 30 percent, and protect fiscal buffers against natural disasters, commodity price shocks, and contingent liabilities totaling 8 percent of GDP (including from public-private partnerships).
- Fiscal Council and medium-term framework:
  - Newly elected Fiscal Council became operational in January 2016 and provided a non-binding opinion on the three-year macro fiscal framework released in April 2016.
  - The Council views authorities’ medium-term growth estimates as somewhat optimistic and recommended bigger adjustments in expenditures than projected.

### Tax policy and revenue mobilization
- Peru’s tax burden and reforms:
  - Peru’s tax-to-GDP ratio is slightly above 15 percent and remains below the regional average.
  - Staff advised improving revenue collection while avoiding tax rate cuts.
  - The tax agency (SUNAT) agreed with the proposals and was receptive to recommendations in the area of international taxation.
  - SUNAT has its own action plan to raise collections that will need to be supported through complementary structural reforms to formalize the economy.
- Risks of alternative strategies:
  - Boosting investment spending further without raising revenues could still keep debt-to-GDP ratios below the fiscal rule’s 30 percent, but would carry reputational risks and would have to provide a credible medium-term anchor to stabilize debt dynamics.

### Public investment, execution, and public investment management (PIM)
- Execution rates and needs:
  - Execution rates have increased over the past five years, reaching a record-high 82 percent in 2015, but still average 75 percent.
  - Higher execution rates and efficiency of budgeted public investment are needed to support stronger economic activity.
- Recommendations to improve PIM and decentralization:
  - Adopt a multi-year budget to guarantee full execution of multi-year investments, including documentation on scheduled commitments.
  - Revisit assignment of natural resource revenues through more transparent and equitable transfer mechanisms.
  - Improve cash flow management to minimize project implementation delays.
  - Strengthen efficiency of subnational investment and service delivery through capacity building.
  - Design an Information System to integrate planning, budgeting and investment over the project cycle; monitor major projects and publish external ex-post audits.
  - Consider merging jurisdictions and reallocate resources away from low-capacity districts to seek economies of scale.
  - Centralize assessment and selection of investment projects and decentralize their execution.
- Implementation capacity:
  - Implementation capacity needs further improvement, especially at the sub-national level, including project selection and quality assurance for large projects under the System of National Public Investment.
  - Assessment of small projects could be centralized.
  - Prepare a new investment pipeline to be ready once current mega-projects (e.g., metro line, gas pipeline, highway, and airport) come to fruition.
  - Enhance system of risk evaluation for public-private partnerships to insure against contingent liabilities to the state.

### Structural reforms, growth, and social inclusion
- Multi-pronged reform agenda to spur growth:
  - Reduce informality, including through labor market reforms.
  - Introduce measures to boost investment in non-extractive industries.
  - Increase competitiveness of Peruvian corporations by reducing red tape and improving infrastructure, while preserving the integrity of the fiscal base.
- Labor market and competitiveness:
  - Peru has the highest rate of informal employment among LA5 countries and strong regulatory constraints that preclude more dynamic job creation in the formal sector.
  - Labor market reforms should introduce more flexibility in hiring and firing decisions.
  - Accession to the OECD could play a key role in triggering reforms.
- Trade agreements and fiscal implications:
  - Peru is well placed to reap benefits from free trade agreements, including the TPP.
  - Possible revenue losses from eliminating 60 percent of nonzero tariffs would be very small and could be offset by correcting weaknesses in tax collections and closing loopholes.
- Social indicators and human capital:
  - Poverty rate fell by ½ percentage point to 21.8 percent over the past year.
  - Five main programs of targeted assistance have delivered results: higher student enrollment, reduced malnutrition, and greater integration of women into the labor force.
  - Peru has achieved one of the highest rates of education coverage in Latin America but still faces low quality of education (student test scores and teachers’ proficiency), staffing shortfalls, and inadequate facilities.
  - The National Financial Inclusion strategy (launched July 2015) sets targets for financial inclusion; the interoperable mobile money platform (private sector-led) could help achieve them.

### Staff appraisal, macro outlook, and policy stance
- Recent performance and outlook:
  - After decelerating sharply in 2014, economic activity recovered last year despite a volatile external environment.
  - Recovery reflected additional mining production capacity coming on stream; non-mining activity has also accelerated modestly.
  - Activity is expected to accelerate further in 2016 and 2017, while inflation continues to decline.
- Risks to the outlook:
  - Risks are balanced and include weaker-than-projected growth in China and softer metal prices, possible adverse spillovers from other countries in the region, sharp asset price adjustments in advanced and emerging economies, and an even stronger dollar.
  - Upside domestic risks include stronger-than-expected improvements in business confidence and more effective execution of the existing pipeline of infrastructure projects.
- Monetary and exchange rate policy recommendations:
  - Following monetary tightening, the BCRP should maintain a wait-and-see stance given declining inflation and medium-term inflation expectations and uncertainties about the cyclical position.
  - A possibly steeper interest rate path in the United States could trigger the need for further monetary tightening in Peru.
  - Greater exchange rate flexibility in 2015 was welcome with no noticeable impact on firms’ and banks’ balance sheets; further flexibility would support development of hedging instruments and help accelerate de-dollarization.
- Fiscal policy recommendation summary:
  - A gradual fiscal consolidation in the next few years is advisable to maintain healthy debt dynamics and protect fiscal buffers.
  - With the output gap closing around end-2017, there is no case for loosening fiscal policy.
  - To accommodate higher-than-projected public capital spending, create fiscal space by containing current spending that is not complementary to capital expansion and structural reforms, and by raising low revenue collection through administrative streamlining, reducing informality and exemptions, and protecting the tax base from international profit shifting by multinational corporations.
  - Reducing bottlenecks to public investment and improving management would enable full execution of budgeted spending and support private investment.

*Source: _cr16234 - 15.      Staff supported the authorities’ efforts to keep (IMF).*

### 27.      With the end of commodity-driven growth, the agenda for growth-spurring structural

### _cr16234 - 27.      With the end of commodity-driven growth, the agenda for growth-spurring structural

### Structural reforms, growth potential, and poverty reduction
- Potential growth is otherwise estimated to be 3½ percent in the absence of continued reforms.
- Key long-standing challenges:
  - Reducing informality.
  - Low quality of education despite one of the highest rates of education coverage in Latin America.
  - Constraints from the current decentralization framework that hamper full execution of planned capital expansion and better allocation of resources.
  - Need to spur investment in non-extractive industries by improving competitiveness and infrastructure.
- Policy recommendations:
  - Labor market reforms aiming at lowering the costs of hiring and firing workers to help reduce informality.
  - Continue ongoing education reforms to address low quality of education.
  - Improve the decentralization framework to enable full execution of planned capital expansion and better resource allocation.
  - Raise financial inclusion (noting recent launch of the National Financial Inclusion Strategy and a private sector-led e-money platform).
  - Use free trade agreements as opportunities to boost and diversify long-term growth.

### Financial Conditions (Box 1: Assessment of Financial Conditions)
- Methodology:
  - Two FCI approaches: (1) VAR-based weighting using estimated impact on real GDP growth; (2) common-factor estimated from several financial variables.
  - Quarterly data from 2001 to 2015. Increases signal more accommodative financial conditions.
- Empirical findings:
  - The VAR-based FCI has a correlation of 0.57 with two-quarter-ahead, year-over-year, real quarterly GDP growth.
  - Financial conditions were relatively easy between mid-2014 and mid-2015, largely due to the real policy rate and external financial conditions.
  - By end-2015, the contribution of the FCI to real GDP growth declined but remained marginally positive.
  - Despite increases in the policy interest rate since September 2015, most tightening in financial conditions since mid-2015 comes from abroad.
  - As of March 2016, financial conditions are still sligthly supportive of growth until the fall of 2016, contributing 0.3 percentage points to annualized qoq growth.

### Risks and policy advice (Box 2: Risk Assessment Matrix)
- Notation: Relative likelihood labels — “low” (<10 percent), “medium” (10–30 percent), “high” (30–50 percent).
- Key risks, likelihood, impact, and staff policy advice:
  - Further improvement in business confidence and a pick-up in public investment execution
    - Likelihood: HM (↑)
    - Impact: A positive boost to domestic demand through consumption and investment.
    - Advice: Keep up the confidence with the acceleration of structural reforms and capacity building.
  - Protracted period of weak domestic investment
    - Likelihood: MM (↓)
    - Impact: Investment could be affected by uncertainties from external conditions, slow structural reforms, and social discontent.
    - Advice: Persevere with structural reforms, especially those aimed at increasing investment potential; and keep up efforts to advance social inclusion.
  - Fiscal expansion that undermines the fiscal rule
    - Likelihood: LM (↓)
    - Impact: This would erode important fiscal buffers.
    - Advice: Current spending path should follow the current framework (consolidation); any increase in productive capital spending should be financed with higher fiscal revenues. Ensure effectiveness of spending by implementing reforms to PIM.
  - Structurally weak growth in key advanced and emerging economies / Significant China slowdown (short-term)
    - Likelihood: H/LM/M (↓)
    - Impact: Worsening current account deficit and weaker growth through lower exports in prices and volume.
    - Advice: Exchange rate flexibility as first line of defense; use liquidity buffers; ease monetary and prudential policies; accelerate structural reforms.
  - Surge in the U.S. dollar
    - Likelihood: HH (↓)
    - Impact: Balance sheets strained for dollar debtors.
    - Advice: Exchange rate flexibility while intervening to smooth excessive volatility; develop a market in hedging instruments; avoid heavy central bank intervention.
  - Sharp asset price decline and decompression of credit spreads
    - Likelihood: MM (↓)
    - Impact: Higher risk premia, pressures on the sol, capital outflows, higher domestic yields, potential crowding out of private credit, slower FDI.
    - Advice: Exchange rate flexibility and use of liquidity buffers; reduce financial dollarization; improve data collection and analysis of private sector balance sheets; unwind macroprudential measures (lower ceiling on average reserve requirements on domestic liabilities and reserve requirements on foreign currency liabilities).

### Exchange rate pass-through to inflation (Box 3)
- Authorities’ and staff estimates:
  - The BCRP considers the rising U.S. dollar explained 2/3 of inflation in 2015, with an ERPT coefficient of 0.16 percentage point (pp) for a 1-percent depreciation of the sol.
  - IMF staff cross-country analysis suggests low ERPT in Latin America; pass-through for IT emerging countries is 16 percent, and 52 percent for non-IT emerging countries.
  - Peru: an ERPT point estimate of about 0.06 using NEER; small NEER depreciation in 2014–2015 would have contributed marginally to the inflation increase.
  - Using category-specific exchange rates (e.g., US$/sol for rent and electricity; NEER for food and clothing) yields an overall ERPT of about 0.1 for the Peruvian economy.
  - Given a 14 percent depreciation of the sol with respect to the U.S. dollar since December 2014, staff estimates ERPT accounted for about 50 basis points of the year-over-year inflation increase from December 2014 (3.2 percent) to December 2015 (4.4 percent).
- Empirical notes:
  - Countries with inflation targeting and flexible exchange rates exhibit lower ERPT.
  - Peru has the lowest import content in the region and a statistically insignificant ERPT under some specifications; category-specific analysis reveals higher and statistically significant ERPT.

### Public Investment Management and investment efficiency (Box 4)
- Context:
  - Fiscal policy and deep structural reforms post-1990 strengthened institutions, including PIM.
  - Peru’s Public-Private Partnership framework is among the most developed in Latin America.
  - Given higher multipliers of capital spending (Chapter 2, accompanying Selected Issues Paper), Peru attempted an investment-led stimulus when growth slowed, but efforts were largely derailed.
- Main problems identified:
  - Bureaucratic and regulatory hurdles.
  - Lingering weaknesses in PIM.
  - Unfinished decentralization process hampering local-level spending.
  - Peru ranks 112th out of 140 countries for quality of overall infrastructure (World Economic Forum).
  - Staff estimates indicate sub-par public investment efficiency outcomes.
- Recommended improvements to PIM (areas highlighted):
  - Multiyear budgeting.
  - National & sectoral planning.
  - Central-local coordination.
  - Management of PPPs.
  - Company regulation.
  - Budget comprehensiveness and unity.
  - Project appraisal and selection.
  - Protection of investment.
  - Availability of funding.
  - Transparency of execution.
  - Project management.
- Note: Survey inputs for Peru were conducted with inputs from the Ministry of the Economy and Finance.

*IMF staff summary as presented in the source content.*

### 15. Monitoring of Assets

### 15. Monitoring of Assets

### Real sector developments
- Economic growth: "growth rebounded as supply shocks unwound and copper production increased."
- Contribution to GDP growth (percent change, year-on-year): private investment continued to be a drag; consumption helped sustain growth.
- Output and demand indicators shown series through Mar-09 to Sep-15 and into 2016 include:
  - Output gap and Real GDP (time series chart provided).
  - Real GDP (Percent change, year-on-year) plotted.
- Inflation dynamics:
  - "Inflation increased significantly above the upper limit of the central bank's target band ..."
  - Drivers: food and energy price inflation picked up, and exchange rate depreciation passed through prices; but it has retreated recently.
  - Inflation series and components shown (Headline inflation; Non-food and non-energy; Tradables; Non-tradables; Food).
- Labor market and sentiment:
  - "Employment growth has remained moderate..."
  - Employment growth and Unemployment series presented.
  - "Market sentiment has recently improved." Business Confidence Index series shown.

### Fiscal sector developments
- Fiscal balances:
  - "Fiscal balances have been deteriorating as a result of counter-cyclical policies and a growth slowdown..."
  - Primary expenditures and Revenue series (Percent of GDP) shown for 2011–2018.
- Fiscal impulse and spending:
  - "... resulting in positive impulses over the past three years." Fiscal impulse and Output gap charts provided.
  - "Current expenditure has begun to stabilize after increases associated with recent civil service reform."
- Commodity and revenue:
  - "Commodity revenue declined by more than half as a result of lower prices..."
  - Mining taxes, mining royalties, taxes, and commodity revenue series shown.
- Fiscal projections:
  - "Fiscal positions are projected to be in deficit but improve over the next few years..."
  - Public debt: "...with debt stabilizing as a percent of GDP." External gross debt and Domestic gross debt series shown.

### External sector developments
- Trade and flows:
  - "... leading to lower exports for the year, despite a sharp rebound in metal exports volumes."
  - Trade balance, export volume growth (yoy), and import volume growth (yoy) series plotted.
  - "But the pace of outflows moderated compared to 2014..."
  - Portfolio flows (Net flows; Assets; Liabilities) and Portfolio and other ST flows, MLT loans, FDI, and Financial account (Percent of GDP) series shown.
  - "...thanks to higher public and private borrowing, as FDI slowed."
- Terms of trade and prices:
  - "Metal prices and terms of trade have continued to deteriorate..." Copper price and Gold price series with Terms of trade plotted (2005=100).
- Capital flows and financing:
  - "... while short-term capital flows remained volatile."
  - "Long-term capital inflows were sufficient to finance the current account deficit in 2015..."

### FX and capital market developments
- Exchange rate:
  - "The sol depreciated steadily in 2015." Exchange Rates (US$/LC) Index (Jan. 2008 =100) series across countries.
- Capital and asset prices:
  - "Bond and equity flows retreated in 2015."
  - "Equity prices have rebounded recently but continue below levels earlier in the decade." Stock Market Indices (Jan. 2008 =100).
  - "Market capitalization has declined since then as well." Market Capitalization (Percent of GDP) series.
- Country risk and yields:
  - "Spreads rose in 2015, in line with other regional economies, but have receded recently..."
  - "The sovereign bond yield curve has shifted upward since 2012." Country Risk (Basis Points) and Sovereign Yield Curve (Percent, end of period) shown.

### Financial sector developments
- Credit and dollarization:
  - "Private sector credit growth has been robust, reflecting a pick-up in economic activity." Total credit series (Percent yoy) shown.
  - "The share of corporate loans in dollars has continued to decline rapidly..."
  - "Dollarization of consumer loans remains low." Consumer Loans and Home Mortgage series shown.
- Financial soundness:
  - "Deposit-taking institutions are well-capitalized and provisioned..." Financial Soundness Indicators (Capital to risk-weighted assets; NPL to total gross loans; Provisions to NPLs).
  - "…with adequate liquidity and comfortable profitability ratios." Profitability Indicators (ROA, ROE, Total liquid assets to short-term liabilities).
- Balance sheet and housing:
  - "Peru's net international investment position has been deteriorating slightly since 2012." International Investment Position (Percent of GDP).
  - "Foreign bank liabilities and claims on Peru are growing." Foreign Bank Positions vis-à-vis Peru (Billions of U.S. dollars).
  - "Credit dollarization has come down at a steady pace but deposits have gone up lately." Dollarization at Depository Corporations (Percent).
  - "Non-residents' holding of government securities have declined from previous highs." Nonresident Holdings of Securities (Percent).
  - "Housing prices have risen in recent years, but remain close to fundamentals." Apartment Prices in Residential Areas of Lima (Prices per square meter).

### Public sector debt sustainability (DSA) — Baseline and scenarios
- Baseline projections (selected series and statistics):
  - Nominal gross public debt: 22.5 (2014); 20.7 (2015); 23.1 (2016); 25.3 (2017); 25.5 (2018); 25.4 (2019); 25.2 (2020); 25.1 (2021); 24.9 (projection column present).
  - Public gross financing needs: 0.6 (2014); 1.8 (2015); 3.2 (2016); 3.6 (2017); 3.3 (2018); 2.8 (2019); 3.0 (2020); 3.2 (2021); 1.9 (projection end).
  - Real GDP growth (percent): 6.7 (2010–2013); 2.4 (2014); 3.3 (2015); 3.7 (2016); 4.1 (2017); 3.6 (2018); 3.5 (2019); 3.5 (2020); 3.5 (2021).
  - Inflation (GDP deflator, percent): 2.8 (2010–2013); 3.2 (2014); 3.5 (2015); 3.1 (2016); 2.5 (2017); 2.5 (2018); 2.5 (2019); 2.5 (2020); 2.5 (2021).
  - Effective interest rate (percent): 5.2 (2010–2013 entry labeled "4/5.2"); 5.6 (2014); 5.6 (2015); 5.8 (2016); 6.1 (2017); 6.1 (2018); 6.0 (2019); 6.7 (2020); 6.8 (2021).
  - Spread (bp): 248. CDS (bp): 188.
- Baseline scenario key assumptions (Figure 8):
  - Real GDP growth: 2016 3.7; 2017 4.1; 2018 3.6; 2019 3.5; 2020 3.5; 2021 3.5.
  - Inflation: 2016 3.1; 2017 2.5; 2018 2.5; 2019 2.5; 2020 2.5; 2021 2.5.
  - Primary Balance 1/: 2016 -1.2; 2017 -0.5; 2018 -0.3; 2019 0.0; 2020 0.4; 2021 0.6.
  - Effective interest rate: 2016 5.8; 2017 6.1; 2018 6.1; 2019 6.0; 2020 6.7; 2021 6.8.
- Alternative scenarios (selected):
  - Historical scenario assumptions:
    - Real GDP growth: 2016 3.7; 2017 5.9; 2018 5.9; 2019 5.9; 2020 5.9; 2021 5.9.
    - Primary Balance 1/: 2016 -1.2; 2017 2.2; 2018 2.2; 2019 2.2; 2020 2.2; 2021 2.2.
    - Effective interest rate: 2016 5.8; 2017 6.1; 2018 6.6; 2019 7.1; 2020 8.6; 2021 9.6.
  - Constant Primary Balance scenario:
    - Primary Balance: -1.2 for 2016–2021.
    - Real GDP growth and inflation follow baseline.
    - Effective interest rate series: 2016 5.8; 2017 6.1; 2018 6.0; 2019 5.8; 2020 6.2; 2021 6.2.
- DSA diagnostics and shocks (Figure 9):
  - Individual shocks are permanent one-half standard deviation shocks; combined shocks and specific tests include:
    - Interest Rate Shock, Current Account Shock, Real Depreciation Shock, Growth Shock, Combined Shock.
  - Example scenario values shown:
    - Baseline and scenario boxes list averages: Baseline: 4.1; Scenario: 4.7; Historical: 5.0 (contextual placement in figure).
    - Baseline: 3.7; Scenario: 2.3; Historical: 5.9 (another box set).
    - Baseline: -1.7; Scenario: -3.2; Historical: -0.2.
    - "30% depreciation" indicated for Real Depreciation Shock.

### Key fiscal and financial indicators (selected tables and series)
- Monetary and financial stocks and flows (Table series highlights):
  - Net foreign assets and Net international reserves series across 2011–2018 with levels in billions of U.S. dollars and soles.
  - Broad money, Monetary base, Liabilities to the private sector, Credit to private sector and sectoral breakdowns reported with percent changes and levels.
- Financial soundness indicators (Table 7, as of 2015 unless noted):
  - Capital to risk-weighted assets: 14.3 (2015).
  - Regulatory Tier I capital to risk-weighted assets: 10.3 (2015).
  - Nonperforming loans to total gross loans: 2.9 (2015).
  - Provisions to nonperforming loans: 161.8 (2015).
  - Return on equity (ROE): 21.1 (2015).
  - Return on assets (ROA): 2.1 (2015).
  - Share of foreign currency deposits in total deposits: 49.5 (2015).
  - Share of foreign currency loans in total credit: 30.1 (2015).
  - EMBI+ PERU spread, basis points: 243 (2015) shown in memorandum items.

*Source: _cr16234 - 15. Monitoring of Assets*

### Annex I. Implementation of Past IMF Recommendations

### Annex I. Implementation of Past IMF Recommendations

### Implementation Summary — Banking Oversight, Insurance and Pensions
- By and large, Peruvian authorities have been appreciative of staff advice and research contributions.
- Peru is one of the highest recipients of Fund’s technical assistance, especially in the fiscal area.
- Authorities pushed to improve execution of public investment but progress was derailed by:
  - excessive paperwork,
  - the unfinished decentralization process,
  - poor sub-national capacity.
- Authorities have been making efforts to improve tax collection to offset revenue losses, and improve fiscal transparency.
- Recommendations on the design of the structural fiscal rule were taken into account when the methodology was recently amended.
- Greater exchange rate flexibility was allowed in 2015, in line with staff advice.
- A majority of 2011 FSAP recommendations have been implemented.

### Progress on Selected FSAP (2011) Recommendations (as reported)
- Tighten the regulation of related party and intra-group transactions.
  - Stricter criteria have been established for determining related parties, and the definition of the economic group has been updated in line with international standards (SBS Resolution No. 5780-2015).
- Strengthen consolidated supervision and regulate holdings.
  - The regulation of holding companies requires a change of law and has not been implemented.
  - Consolidated supervision has been strengthened through group-level supervision and exchange of data.
- Eliminate requirement for the SBS to pre-authorize issuers and instruments in which the AFPs can invest.
  - Implemented through the SBS Resolution No. 1293-2014.
- Introduce auction mechanisms for new entrants and automatic assignation of undecided contributors to lower the commission of the AFPs.
  - Implemented through Law No. 29903 and SBS Resolution No. 8517-2012.
- Reduce the incentives to invest in marketing by either introducing a flat component in fees, or limiting the frequency of switches, or allowing switches only toward lower-fee AFPs.
  - The incentives for marketing have been limited to procurement, as part of Law No. 29903.
- Base market risk monitoring on exogenous benchmarks and relative VAR.
  - AFPs to incorporate benchmarks into their models of investment management and monitor the expected losses of managed portfolios in relation to the VAR (SBS Resolution No. 6253-2014).
- Update mortality table for pension annuities.
  - In progress. Updated tables are pre-published and are being evaluated.

*Source: IMF staff assessment as presented in the Annex.*

### Annex II. External Sector Assessment

### Overall assessment
- Peru’s current external position is assessed to be moderately weaker than fundamentals with:
  - a moderately positive real effective exchange rate gap,
  - a current account deficit wider than the estimated norm.
- Under current policies and given small Peru-specific policy gaps, the current account is expected to gradually narrow closer to its norm in the medium term, financed mostly by longer-term capital flows.
- Peru’s reserve position remains strong and external debt remains low.

### Recent developments and drivers
- The current account deteriorated somewhat in 2015.
  - The current account deficit widened by ½ percent of GDP to 4.4 percent of GDP in 2015.
  - Falling copper prices significantly weighed on the trade balance, despite an improvement in mineral export volumes as new production came on-stream.
  - The deterioration in the trade balance was fully offset by lower profit payments, which declined by some 34 percent.
  - Current transfers fell ½ percent of GDP, back to their historical trend.
- Over the medium term, the current account should narrow as copper production is expected to double by 2018, and would remain financed mainly by FDI flows.

### REER and CA gap estimates (2015)
- Model-based estimates indicate moderately weaker fundamentals, with only a small part of the CA gap (0.4 percentage points) resulting from policy gaps.
- Staff expects the current account will narrow by about 1¼ percent of GDP—the amount required to close the gap with the estimated norm—over the medium term, owing to an increase in copper exports.
- The REER level regression results have historically shown large residuals for Peru and are considered less reliable than other estimates.

### Quantitative indicators (2015)
- CA headline: -4.4
- CA underlying 1/: -3.5
- CA norm: -2.0
- CA gap 2/: -1.5
- RER gap (in percent) 3/: 7.1
- Adjusted 4/:
  - CA underlying 1/: -3.1
  - CA norm: -2.0
  - CA gap 2/: -1.1
  - RER gap (in percent) 3/: 5.3
- Notes:
  - 1/ Cyclically adjusted CA for EBA results. Medium-term adj. CA for CGER.
  - 2/ CA gap is CA underlying minus CA norm.
  - 3/ Positive value indicates overvaluation.
  - 4/ Adjusted for under-reporting in the illegal exports of gold estimated at 0.4 percent of GDP.

### Net IIP, capital flows, and reserves
- Peru’s net IIP liabilities and foreign participation in the local bond market have historically been sizeable but do not pose immediate risks.
  - Large increase in FDI liabilities over the past decade, especially in mining, and in private sector debt has coincided with a significant increase in foreign assets.
  - Most IIP liabilities have long maturities, with short-term external debt not exceeding 4 percent of GDP.
  - Non-resident holdings of domestic public debt are significant, albeit declining.
  - Peru’s total public debt remains modest.
- Gross reserves stood at US$61 billion.
  - The BCRP has sold significant amounts of FX (US$8 billion in spot sales) to limit exchange rate volatility (in addition to sales of swaps) and required high reserves against FX deposits with commercial banks.
  - A significant part of the NIR consists of domestic FX liabilities—including the Fiscal Stabilization Fund, commercial banks’ reserves requirements on FX deposits, and deposits corresponding to FX repos—which are mostly of longer-term nature and do not pose short-term risks to reserves—repos have 2−5 year maturities, access to FSF resources is limited by law, and high commercial banks’ reserve requirements on dollar deposits protect against dollar liquidity risks.
  - Even when adjusting the NIR for these liabilities, reserves remain within the adequacy range.
  - Reserves remain adequate when augmenting the ARA metric with a commodity price buffer (US$4 billion based on prices at 68 percent of the confidence interval of futures data)—they stood at 250 percent of the augmented metric, and excluding commercial bank deposits, at 162 percent of the augmented metric.
  - Such higher precautionary liquidity could be useful to buffer against sudden drops in commodity prices and smooth adjustment to commodity price changes.

*Source: Fund staff estimates and Central Reserve Bank of Peru as presented in the Annex.*

### Annex III. Macro-Financial Stability Update

### A. Overall macro-financial stability
- Peru remains broadly stable in macro-financial terms.
- Market and liquidity risks have risen slightly, while inward spillover risks declined.
- Purely domestic monetary and financial conditions have eased, despite policy interest rate hikes from September 2015 to February 2016.
- Trends are broadly consistent with corresponding global risks as reported in the April 2016 GFSR, except for risk appetite and monetary and financial conditions.

### B. Financial sector risk assessment (end-2015)
- The financial sector faces medium vulnerability risks, with adequate buffers to contain them.
- Credit growth was robust, consistent with the pickup in economic activity in 2015 and continued financial deepening.
- Banks are sufficiently capitalized and liquid, reporting highest profitability and return on assets since end-2012.
- Non-performing loans (NPL) appear to have stabilized and are sufficiently provisioned for.
- Non-bank deposit-taking institutions (micro-enterprises, and small and medium enterprises) have higher NPLs than banks, but constitute only a small part of financial system assets (7 percent).
- The ratio of private sector credit to GDP in Peru was 42 percent in 2015.

### Dollarization and FX exposure
- Total credit dollarization declined rapidly to 27.4 percent in January 2016.
- SBS estimates of banks' net exposure to FX risk are around 11 percent (due to collateral and hedging).
- Deposit dollarization remains relatively high at around 45 percent.
- BCRP provided soles through repo operations with 2−5 year maturities to support local currency credit creation.

### Financial soundness indicators (selected time series and levels)
- Credit-to-GDP and credit dynamics (annual):
  - Change in credit / GDP ratio (pp, annual) — latest value: 3.0
  - Growth of credit / GDP (%, annual) — latest value: 11.5
  - Credit-to-GDP gap (st. dev) — latest value: -0.8
- Balance sheet structural indicators:
  - Deposit-to-loan ratio — latest value: 91.6
  - FX liabilities % (of total liabilities) — latest value: 49.2
  - FX loans % (of total loans) — latest value: 30.1
- Balance sheet buffers and profitability:
  - Leverage ratio (%) — latest value: 10.1
  - ROA — latest value: 2.1
  - ROE — latest value: 21.1
- Asset quality:
  - NPL ratio — latest reported value: 4.0
  - NPL ratio change (%, annual) — latest value: -0.7
- Structural ratings over recent quarters indicate an overall financial sector rating of M (Medium) with components varying between L (Low), M (Medium), and H (High) across time.

### Corporate and non-financial sector risks
- Commodity price movements have had little direct and indirect effects on financial stability:
  - Banks’ loan portfolios are well-diversified, with mining and agriculture constituting 5 percent each of total assets, and NPLs below 2 percent as of December 2015.
  - Several smaller institutions have higher direct exposure to these sectors, but their weights in the financial sector are small (less than 5 percent).
  - Trends in general unemployment rates do not appear correlated with growth in mining and agriculture; however, a more severe El Niño could carry serious consequences in affected areas.
- Corporate leverage has grown since 2007, in line with trends in emerging markets.
  - Debt issuance abroad grew from 14 percent of total regional issuance in 2012 to 29 percent in 2015.
- Firms in the non-tradable sector (about 1/4 of total) are vulnerable to large and abrupt currency depreciations because they lack natural FX hedges and external issuances are often in U.S. dollars.
  - Sectors with large FX asset-to-liability gaps, notably construction and consumer, suffered the largest FX losses when the sol depreciated in 2015.
  - Estimated FX losses in the aggregate corporate sector were only 0.2 percent of total earnings, as large gains in mining offset losses in other sectors.
  - Refinancing risks for bonds remain moderate as most debt is at long maturities and fixed interest rates.
  - Some companies increased the share of local currency debt in 2015.
- SMEs:
  - NPLs for SMEs have increased steadily.
  - NPL ratio for medium-sized firms almost doubled to 5.2 percent from 2012 to 2015.
  - NPL ratio for small enterprises rose from 5.8 to 8.4 percent from 2012 to 2015.
  - NPL ratios for microenterprises, consumer, and mortgage loans remain relatively low, though edged up slightly.
  - The stock of FX mortgage loans continued to decline and reached 24 percent of total mortgages in January 2016.
  - Around 15 percent of debtors have a debt-to-income ratio above 40 percent, concentrated within the high income segment and driven by mortgages.

### D. Asset prices
- Asset price developments do not point to serious risks to corporations or households.
  - The stock market remains fairly thin and represents a relatively small share of financial portfolios.
  - Stock prices declined since early 2012 in line with commodity prices but recovered since January 2016.
  - Measures were taken recently to increase market liquidity.
  - Housing prices (median apartment prices in Lima) appear high:
    - Average annual growth of apartment prices (in constant soles) from 2011 to first half of 2014 was 14 percent.
    - Price increases since the second half of 2014 have been more subdued than in the previous four years.
    - Market segmentation exists: oversupply of high-end condominiums in certain residential areas and short supply of low-income housing.

### Progress in Financial Inclusion
- Financial inclusion in Peru remains one of the lowest in the region.
  - 29 percent of adults have an account.
  - 12 percent of adults saved at a formal financial institution.
  - Credit penetration is 42 percent.
- Contributing factors include large informality of the economy and geographical challenges in rural areas.
- Both public and private sectors are making inroads to improve access to finance.
  - Authorities (through a multi-sectoral committee) launched the National Financial Inclusion Strategy in July 2015, targeting to increase access to personal accounts to 50 percent by 2018, and 75 percent by

*Source: IMF staff report annexes as provided in the content unit.*

### 2021. In the private sector, more than 30 financial institutions and four telecommunications companies

### _cr16234 - 2021. In the private sector, more than 30 financial institutions and four telecommunications companies

### BiM: interoperable mobile money platform (Modelo Peru)
- More than 30 financial institutions and four telecommunications companies formed a partnership, Modelo Peru, to jointly build a fully-interoperable mobile money platform (BiM).
- The creation of this platform was enabled under the 2013 law on electronic money.
- BiM targets five million users in five years through the use of mobile phones.
- The platform aims to create a digital ecosystem by enabling services across financial service providers and mobile networks in the country.
- Users open a simplified transaction account tied to their national ID and phone number, and are able to access the platform even on relatively low-tech devices.
- As of end-April 2016:
  - nine e-money issuers participating
  - twenty more expected to join by end-year
  - three major telecommunications companies have joined
  - the fourth telecommunications company scheduled to join soon
- While it is too early to evaluate the effectiveness of BiM, initial indicators of user take-up are encouraging.

### Financial inclusion indicators (World Bank's Global Findex)
- Share of adults with an account at a financial institution (figures as presented):
  - 20
  - 29
  - 39
  - 51
  - 57
  - 70
  - 2011 2014
  - Peru
  - Latin America & the Caribbean
  - Upper middle income countries
- Share of adults who saved at a financial institution (figures as presented):
  - 9
  - 12
  - 10
  - 13
  - 25
  - 32
  - 2011 2014
  - Peru
  - Latin America & the Caribbean
  - Upper middle income countries

### Annex IV — Measures to Improve Tax Revenues: key findings and policy context
- Peru's tax system evolution and current gap:
  - Over the last 30 years, Peru progressed from depending largely on trade taxes and a number of small taxes and fees to a modern regime based on a General Sales Tax (GST) and Income Taxes (IT), with relatively few exemptions.
  - Tax-to-GDP ratios are slightly above 15 percent, and remain below the regional average.
  - The end of the super commodity cycle, 2014 tax rate reductions, and lower potential growth have pushed further the timeline for raising the tax-to-GDP ratio to 18 percent, originally a 2016 objective.
  - Continuing social and infrastructure gaps call for alternative revenue enhancing measures to be adopted in the coming years.
- Mining sector fiscal regime reform (2011):
  - Reforming the fiscal regime for the mining sector in 2011 was a remarkable accomplishment.
  - Prior to the reform, the government’s share in the mining sector was relatively low when the commodity boom started since hardly any royalties were levied and the mining industry benefited from widespread fiscal stability agreements granted by the tax authority.
  - The current administration introduced new profit based and progressive mining royalties, with only a few corporations sticking to their stability agreements.
  - With the drop in prices, royalty collections also dropped sharply.
- 2014 tax reform motivation and effects:
  - The motivation of the tax reform in 2014 was to spur domestic demand, increase competitiveness of Peruvian corporations, and streamline the tax system.
  - Income tax and some excise rates were cut, and a number of specific investment incentives were granted.
  - Some important steps were taken to simplify the complex system of withholding and drawbacks.
  - Several measures will have a significant fiscal cost.
  - Cuts to the Corporate Income Tax (CIT) were accompanied with an increase in the withholding tax on dividends; the measure effectively provides more liquidity for companies to reinvest, deferring dividend distributions and hence also tax collection.

*Source: _cr16234 - 2021. In the private sector, more than 30 financial institutions and four telecommunications companies*

### 4.      Given the new macroeconomic landscape, and lower fiscal intake owing to lower

### _cr16234 - 4.      Given the new macroeconomic landscape, and lower fiscal intake owing to lower

### Tax policy agenda — overarching challenge
- Given the new macroeconomic landscape, and lower fiscal intake owing to lower commodity prices and tax rate cuts, the tax policy agenda will need to reemphasize recouping tax revenue losses while overcoming important structural challenges.
- The tax agency (SUNAT) still faces the difficult task of enforcing a complex system, in a context of high levels of informality and evasion.

### Complexity of current tax system and GST withholding schemes
- The various and widespread GST withholding schemes are costly to manage, but they guarantee a minimum amount of revenue.
- Enforcing a system more reliant on voluntary compliance may carry some risks, but it is more efficient and Peru has rightly moved in that direction; the system can be further simplified as SUNAT’s institutional capabilities are improved.
- Simplification would help reducing the current high level of tax in dispute (tax under litigation is larger than yearly tax revenues), which undercuts the incentive to formalize.

### Fiscal stability agreements
- There were 877 agreements in 2014, meaning that there were as many potentially different special regimes to control.
- Aside from the possible distortions and administrative complexity this implies, continuing to grant these agreements is hardly justified.
- The reduction in CIT rates should be an opportunity to eliminate a good number of these agreements, as investors may surrender them to benefit from the tax cut.

### International taxation and base protection
- Peru’s tax system is adapting to its increasing integration to the world economy, so that cross-border business has clear rules and double taxation is minimized.
- This also entails risks, with increasing exposure to profit shifting and tax base erosion by multinational enterprises.
- Peru has a number of specific anti-avoidance rules to protect its tax base, which is an appropriate strategy given its administrative capabilities, but some of these rules can be improved.
- It is important as well that Peru’s treaty policy does not undermine this tax base protection in domestic law; special attention should be given to taxation of capital gains on indirect sales of Peruvian assets and improving the capability of exchanging information (Peru has very strict banking secrecy laws).
- See an accompanying Selected Issues Paper, Chapter 4.

### Subnational taxation — property tax
- Local revenues are relatively low in Peru and there is ample space to increase property tax collection.
- An essential aspect of this effort should to be to change how properties are valued for tax purposes, bringing the base closer to market values, together with modernizing the administration of local cadastres.
- These measures would not only increase revenues, but also improve the progressivity of the whole system.

### Subnational taxation — canon (mining revenue)
- The decline in commodity prices has underscored the inappropriateness of too-heavy reliance on volatile natural resource revenue.
- The assignment of the mining canon to subnational governments should be revisited—with the goals of switching to more stable sources of income for subnational governments, achieving a better distribution of canon across localities affected by the mineral extraction, and using the canon more effectively to fund larger infrastructure projects.

*Source: _cr16234 - 4.      Given the new macroeconomic landscape, and lower fiscal intake owing to lower*

### 2008. The mission completed the work on the SRF for the central bank and developed a bridge table

### 2008. The mission completed the work on the SRF for the central bank and developed a bridge table linking the source data reported by banks to the BCRP to the report form 2SR (other depository corporations).

### Migration to Standardized Report Forms (SRFs) and monetary statistics
- The mission completed the work on the SRF for the central bank and developed a bridge table linking the source data reported by banks to the BCRP to the report form 2SR (other depository corporations).
- The mission identified shortcomings in the management of the database that generate the accounts of the other depository corporations sector at the BCRP.
- Two technical assistant missions finalized the groundwork for the migration to the SRFs, but the BCRP has not yet started reporting monetary data using the SRFs.
- No set date is foreseen for the migration to the SRFs.

### Financial soundness indicators (FSIs)
- Peru started reporting data and metadata for financial soundness indicators (FSIs) with a quarterly frequency in June 2011.

### External sector statistics and balance of payments practices
- The BCRP prepares quarterly data on the balance of payments and international investment position largely in line with the recommendations of the fifth edition of the Balance of Payments Manual (BPM5).
- Data are reported to the Fund for publication in the IFS and the Balance of Payments Statistics Yearbook.
- Departures from BPM5 include:
  - the lack of coverage of assets held abroad and land acquisition abroad by residents; and
  - not recording on an accrual basis some external debt transactions.
- The BCRP has been reporting since August 2001 weekly data on international reserves in accordance with the Operational Guidelines for Data Template on International Reserves and Foreign Currency Liquidity.
- Since August 2006, the BCRP is including the full amount of the liquidity requirements in the reserve template both under official reserve assets and as a contingent net drain (as specified in Section III of the Data Template).
- Peru disseminates quarterly data on external debt with an eight week lag on the National Summary Data Page with a hyperlink to the Fund’s website.

### Data dissemination frequencies and recent observation dates (selected items)
- Exchange Rates: Date of Latest Observation 03/30/16; Date Received 03/31/16; Frequency of data D; Frequency of Reporting M; Frequency of Publication D.
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation 12/31/15; Date Received 03/09/16; Frequency of data D; Frequency of Reporting M; Frequency of Publication W.
- Reserve/Base Money: Date of Latest Observation 12/31/15; Date Received 03/09/16; Frequency of data W; Frequency of Reporting M; Frequency of Publication W.
- Broad Money: Date of Latest Observation 12/31/15; Date Received 03/09/16; Frequency of data W; Frequency of Reporting M; Frequency of Publication W.
- Central Bank Balance Sheet: Date of Latest Observation 12/31/15; Date Received 03/09/16; Frequency of data W; Frequency of Reporting M; Frequency of Publication W.
- Consolidated Balance Sheet of the Banking System: Date of Latest Observation 12/31/15; Date Received 03/09/16; Frequency of data W; Frequency of Reporting M; Frequency of Publication W.
- Interest Rates: Date of Latest Observation 12/31/15; Date Received 03/09/16; Frequency of data D; Frequency of Reporting M; Frequency of Publication D.
- Consumer Price Index: Date of Latest Observation 03/30/16; Date Received 04/01/16; Frequency of data M; Frequency of Reporting M; Frequency of Publication M.
- Revenue, Expenditure, Balance and Composition of Financing – CG and GG: Date of Latest Observation Q4 2015; Date Received 03/12/16; Frequency of data Q; Frequency of Reporting Q; Frequency of Publication Q.
- Stocks of CG Debt: Date of Latest Observation Q4 2015; Date Received 03/12/16; Frequency of data Q; Frequency of Reporting Q; Frequency of Publication Q.
- International Investment Position: Date of Latest Observation Q4 2015; Date Received 02/20/16; Frequency of data Q; Frequency of Reporting Q; Frequency of Publication Q.
- External Current Account Balance: Date of Latest Observation Q4 2015; Date Received 02/20/16; Frequency of data Q; Frequency of Reporting Q; Frequency of Publication Q.
- Exports and Imports of Goods and Services: Date of Latest Observation Q4 2015; Date Received 02/20/16; Frequency of data M; Frequency of Reporting M; Frequency of Publication M.
- GDP/GNP: Date of Latest Observation Q4 2015; Date Received 3/05/16; Frequency of data Q; Frequency of Reporting Q; Frequency of Publication Q.
- Gross External Debt: Date of Latest Observation Q4 2015; Date Received 02/20/16; Frequency of data Q; Frequency of Reporting Q; Frequency of Publication Q.

### Notes on data practices and assessments (footnotes excerpt)
- Every Friday the central bank disseminates daily net international reserves, and weekly International Reserve Assets and Reserve Liabilities.
- Interest rates: Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.
- Central government (CG) and general government (GG) revenue and expenditure data are available monthly; and the composition of financing are available quarterly. Financing comprises of foreign, domestic bank, and domestic nonbank financing.
- The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.
- Stocks of CG Debt: Including type of instrument, maturity and type of creditor.
- International Investment Position: Includes external gross financial asset and liability positions vis-à-vis nonresidents.
- Frequency codes: Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); Not Available (NA).
- Data quality methodological soundness assessment reflects the data ROSC published in October 2003 based on the findings of the mission during February 12–26, 2003. Assessment codes: fully observed (O), largely observed (LO), largely not observed (LNO), not observed (NO), or not available (NA).
- Data quality accuracy and reliability assessment uses the same coding as footnote 7, referring to source data, statistical techniques, assessment and validation of source data, assessment and validation of intermediate data and statistical outputs, and revision studies.

*IMF staff report excerpt.*

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