Six Things to Know About Peru's Economy in 2020

IMF News, January 14, 2020

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Peru has been one of the fastest-growing economies in the region, but growth weakened to 2.4 percent last year owing to a combination of external and domestic factors.
External factors: reduced demand for exports of primary products; mining and fuel exports contracted during the year.
Domestic factors: lower-than-planned execution of public investment projects and weather-related factors that hampered fishing production.
Economic activity is expected to pick up some steam in 2020—supported by improvements in exports and domestic demand—but boosting long-term growth prospects will require narrowing large infrastructure gaps and tackling social spending and corruption.

Government focus on raising revenues to increase spending on infrastructure and social protection.
Recent initiatives highlighted:
- Adoption of electronic invoicing for the filing of value-added taxes (VAT).
- Introduction of some environmental and health-related excise taxes.

The government launched the National Plan of Infrastructure for Competitiveness to address Peru’s large infrastructure gaps.
Investment is particularly needed in:
- transportation
- sanitation
- health
- telecommunications
- water
Peru’s infrastructure compares unfavorably with that of competitors.

Over the past two decades, Peru experienced a boom in agricultural exports led by seasonal exports of high-value fresh fruits and vegetables (mostly grapes, avocados, blueberries, and asparagus) to the northern hemisphere.
This boom helped reduce poverty in rural areas:
- Poverty declined from 80 percent in 2004 to 36 percent in 2018.
- Some areas that saw larger expansion of agro-exports experienced even larger declines in poverty.

The Lava Jato corruption investigation has had political and economic impacts over the past three years, including the stalling of some large investment projects.
The government has placed fighting corruption at the top of its agenda and is implementing a broad anti-corruption plan.

Improving social protection is critical to further reduce poverty and support inclusive growth.
Actions needed include:
- Reforming the pension system.
- Providing more equitable distribution of natural resource revenues across regions.
- Deepening financial development and inclusion.

Peru has been the second largest recipient of Venezuelan migrants (behind Colombia).
UN reports estimate 800,000 immigrant arrivals between early 2017 and mid-June 2019—about 2½ percent of Peru’s population.
Labor market effects:
- Central Bank estimates competition from migrant workers was particularly felt by young, low-skilled workers in the service and commerce sectors.
Growth effects:
- Central Bank estimates around 0.3 percentage points of the GDP growth registered in 2018 can be attributed to higher consumption of the immigrant population.
- IMF staff estimates this impact may peak at around 0.4 percentage points in 2021.
- As frictions to integrate the migrant labor force dissipate in the medium term, larger growth benefits are expected to materialize.

International Monetary Fund