IMF Executive Board Concludes 2021 Article IV Consultation with Peru
IMF News, March 22, 2021
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- Published: March 22, 2021
Overview
- The Executive Board concluded the Article IV consultation with Peru on March 19, 2021.
- Peru entered the COVID-19 pandemic with very strong economic fundamentals and institutional policy frameworks, including:
- Fiscal rules that helped contain government debt within the 30-percent-of-GDP ceiling until 2019.
- An inflation targeting framework with low and stable inflation.
- Declining financial dollarization and strong supervisory and macroprudential policies preserving financial stability.
- Growth averaged 5.2 percent in the last 15 years prior to the pandemic, poverty was halved, and external vulnerabilities were reduced.
Economic impact of COVID-19 and recovery prospects
- The COVID-19 shock led to very strict containment measures and a sharp decline in GDP in the second quarter of 2020, described as one of the deepest in the world.
- The recession was accompanied by large falls in employment and participation, particularly among women, and increasing informality and poverty.
- Coordinated fiscal, monetary, and financial sector policy responses stabilized financial markets, contained insolvencies, and supported recovery in the second half of 2020.
- Output contraction in 2020 narrowed to -11.1 percent, with core inflation within the target range.
- Baseline 2021 projection assumes the health emergency is brought under control by end-March and restrictions are gradually eased in the second quarter; under this scenario:
- GDP growth would reach 8.5 percent in 2021.
- The outlook is highly uncertain and downside risks prevail, but policy buffers are ample.
Executive Board assessment
- Directors noted Peru’s very strong economic fundamentals and policy frameworks entering the pandemic and commended authorities for their decisive response to mitigate the crisis.
- Directors encouraged continued efforts to limit scarring effects, promote a robust recovery, and implement structural reforms to achieve broader, more inclusive growth.
- Fiscal policy guidance:
- Avoid premature withdrawal of fiscal support to help contain the pandemic, mitigate its impact on poverty, and support recovery.
- Once the crisis abates, priority should be given to addressing fiscal risks and rising spending pressures.
- Anchor fiscal policy to a credible medium-term framework.
- Revenue mobilization is key to preserving fiscal sustainability; Directors welcomed the authorities’ request for Fund Technical Advice to identify measures to increase fiscal revenues.
- Any recalibration of fiscal rules should preserve debt sustainability, strengthen credibility, and be clearly communicated.
- Monetary and financial sector guidance:
- Monetary policy should remain accommodative while macroprudential policies should encourage banks to focus on clients' viability.
- Greater exchange rate flexibility would have benefits, especially as financial dollarization continues to decline.
- Directors noted that the banking system remains resilient and commended progress implementing the 2018 Financial Sector Assessment Program recommendations; they encouraged moving ahead with remaining recommendations, especially legislative and regulatory reforms to strengthen financial sector supervision.
- Structural reform priorities:
- Boost productivity by improving education, enhancing infrastructure, facilitating labor reallocation, and improving the business climate.
- Enhance social protection while reducing incentives to informality from the tax-benefit system, including through investment in health care and pension reform.
- Strengthen governance with additional transparency in the public sector and robust anti-corruption and AML/CFT frameworks.
Key statistics and projections (as reported)
- Social Indicators
- Poverty rate (total) 1/: 2018: 22.3; 2019: 21.7; 2020: 27.5; 2021: ...
- Unemployment rate for Metropolitan Lima (period average): 2018: 6.7; 2019: 6.6; 2020: 13.6
- Production and prices (Annual percentage change; unless otherwise indicated)
- Real GDP: 2018: 4.0; 2019: 2.2; 2020: -11.1; 2021: 8.5; 2022: 5.2; 2023: 4.8
- Real domestic demand: 2018: 4.2; 2019: 2.4; 2020: -9.8; 2021: 9.4; 2022: 5.4
- Consumer Prices (end of period): 2018: 1.9; 2019: 2.0; 2020: (value not listed)
- External sector
- Exports: 2018: 8.0; 2019: -2.8; 2020: 3.7
- Imports: 2018: 8.1; 2019: -1.9; 2020: -15.6; 2021: 19.9; 2022: 5.0
- External current account balance (% of GDP): 2018: -1.7; 2019: -1.5; 2020: 0.5; 2021: -0.4; 2022: -0.7; 2023: -1.0
- Gross reserves (In billions of U.S. dollars): 2018: 60.3; 2019: 68.4; 2020: 74.9; 2021: 75.1; 2022: 75.0
- Percent of short-term external debt: 2018: 363.5; 2019: 432.6; 2020: 496.4; 2021: 518.7; 2022: 505.4; 2023: 494.2
- Money and credit (Corresponds to depository corporations; Foreign currency stocks are valued at end-of-period exchange rates)
- Broad money: 2018: 9.6; 2019: 8.8; 2020: 13.0; 2021: 7.8
- Net credit to the private sector: 2018: 10.3; 2019: 6.4; 2020: 14.5; 2021: 6.2
- Public sector (In percent of GDP; unless otherwise indicated)
- NFPS Revenue: 2018: 24.5; 2019: 24.8; 2020: 22.1; 2021: 22.4; 2022: 23.1
- NFPS Primary Expenditure: 2018: 25.5; 2019: 25.0; 2020: 29.3; 2021: 25.6; 2022: 24.7; 2023: 24.0
- NFPS Primary Balance: 2018: -0.2; 2019: -7.2; 2020: -3.3; 2021: -1.6; 2022: -0.9
- NFPS Overall Balance: 2018: -2.3; 2019: -8.8; 2020: -5.0; 2021: -3.4
- Debt
- Total external debt (In percent of GDP): 2018: 34.6; 2019: 34.7; 2020: 43.1; 2021: 39.0; 2022: 36.6; 2023: 34.2
- NFPS Gross debt (including Rep. Certificates): 2018: 26.2; 2019: 27.1; 2020: 35.4; 2021: 36.2; 2022: 36.7
- External (portion of NFPS Gross debt): 2018: 8.9; 2019: 15.0; 2020: 14.1; 2021: 13.9; 2022: 13.4
- Domestic (portion of NFPS Gross debt): 2018: 17.3; 2019: 18.6; 2020: 20.3; 2021: 21.3; 2022: 23.2
- Savings and investment
- Gross domestic investment: 2018: 21.5; 2019: 18.8; 2020: 21.1; 2021: 22.0
- National savings: 2018: 20.0; 2019: 19.3; 2020: 20.7
- Memorandum items
- Nominal GDP (S/. billions): 2018: 740; 2019: 770; 2020: 712; 2021: 815; 2022: 872; 2023: 929
- GDP per capita (in US$): 2018: 7,000; 2019: 6,958; 2020: 6,084; 2021: 6,678; 2022: 7,051; 2023: 7,389
Source: Press Release No. 21/76, IMF Communications Department, March 22, 2021.
