Peru: Staff Concluding Statement of the 2022 Article IV Mission
IMF News, March 7, 2022
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- Published: March 7, 2022
Mission overview and key judgment
- The economic recovery has been strong, but the outlook is confronted with downward external and domestic risks.
- Monetary policy needs to respond rapidly to inflationary pressures and the tightening of global financial conditions.
- A neutral fiscal stance is appropriate considering the negative output gap and risks to growth.
- Realigning the fiscal framework, consistent with a gradual fiscal consolidation, will help preserve confidence.
- Structural reforms are necessary to enhance the effectiveness of public services, promote the development of the private sector, and prevent potential growth from declining.
Recovery from the pandemic and near-term outlook
- Real GDP rose by 13.3 percent in 2021, exceeding its pre-pandemic level in 21Q3.
- Formal employment fully recovered in 2021, but labor force participation and total employment haven’t fully recovered to pre-pandemic trends.
- Peru recorded one of the highest death rates globally during the pandemic and remains burdened by high social and economic costs.
- Growth is expected to slow to 3 percent in 2022 as external conditions tighten and policy stimulus is withdrawn.
- Main downside risks: the pandemic, a sharp tightening of global financial conditions, extended global supply chain disruptions, geopolitical tensions, an abrupt slowdown in China, and continued political uncertainty.
Policy buffers, reserves, and IMF arrangements
- Fiscal deficit fell to 2.6 percent of GDP (2021) on the back of higher metal prices, soaring tax revenues, collection of tax arrears, and winding down of 2020 stimulus measures.
- Public debt as a percentage of GDP is expected to decline in 2022.
- International reserves rose to US$78.5 billion (35 percent of GDP) in 2021.
- Peru has access to a Flexible Credit Line arrangement with the IMF in the amount of US$11 billion.
Inflation, exchange rate, and monetary policy
- Headline inflation began rising early in the summer of 2021, rapidly exceeding the target range, and extended to core inflation and inflation expectations.
- The Banco Central de Reserva del Perú (BCRP) started tightening monetary policy in August 2021 and has steadily raised the policy rate since reaching 3.5 percent in February.
- Although inflationary pressures are less acute than elsewhere in the region, the monetary stance remains slightly expansionary and further tightening is warranted.
- Short-term: foreign exchange intervention may be warranted to alleviate pressures from dollarization and currency mismatch.
- Medium-term: as dollarization declines, the exchange rate should play a larger role as a shock absorber and frequent FX intervention will weaken.
Fiscal stance and framework realignment
- The fiscal deficit would stand at about 2.7 percent of GDP in 2022, reflecting a prudent budget with increased spending in health, education, and social protection.
- Public debt is sustainable and Peru has some fiscal space; contingency plans should be prepared to contain slippages.
- Upside surprises should be used to rebuild fiscal buffers.
- Use of emergency procedures to appropriate budget resources should be phased out as Covid-related support subsides.
- Authorities intend to realign fiscal rules with a gradual consolidation path in the revised Medium-Term Macroeconomic Framework.
- Based on current spending plans, a fiscal consolidation of 0.6 percent of GDP per year in 2023-2025 would be necessary to attain the authorities’ targets with a limited impact on growth.
- Medium-term priorities: revenue mobilization, expenditure rationalization, enhanced tax collection, tax policy adjustments, a medium-term spending strategy, enhanced targeting of social benefits, and a comprehensive civil service reform.
Financial sector resilience and supervision
- Broad policy support during the pandemic maintained the flow of credit; voluntary provisioning by banks and targeted follow-up programs minimized the impact of a slight rise in nonperforming loans.
- Bank profitability, although below pre-pandemic levels, has increased, helping institutions—particularly smaller ones—to cover provisioning requirements.
- Stress tests indicate the financial system at large is resilient even under a severely adverse scenario.
- Normalization of prudential measures has begun without significant impact on the financial system.
- Further progress required in financial sector oversight, including strengthening legal protection of supervisory agency staff, which will require political consensus.
Structural reforms to boost potential growth and inclusion
- Revamp the structural reform agenda to reduce scarring from the pandemic and tackle fragilities exposed by the crisis.
- Continue addressing gaps in health, education, and social protection; improve effectiveness of public services and enhance transparency.
- A comprehensive civil service reform is essential; recent law approved is a step forward but requires steadfast implementation.
- Strengthen anti-corruption enforcement and increase effectiveness of anti-corruption institutions.
- Improve capacity to execute public investment to reduce the infrastructure gap, including digital infrastructure.
- Create a stable and predictable legal and regulatory environment to nurture confidence and private investment.
- Policies to increase productivity and reduce informality should focus on reducing rigidities and high compliance costs, improving the business climate, enhancing financial inclusion, and narrowing the gender gap.
- Pension reform is urgently needed to reduce old-age poverty risks; withdrawals from private pension funds in 2020-21 have heightened challenges of low coverage and adequacy. Any solution will likely require a broader contribution base and higher contribution rates.
Selected economic indicators and projections (exact figures as presented)
- Social indicators:
- Poverty rate (total) 1/: 2019 20.6; 2020 32.6; 2021 29.8; 2022 …
- Unemployment rate (in percent; period average): 2019 6.6; 2020 13.9; 2021 10.9
- Production and prices (Annual percentage change, unless otherwise indicated):
- Real GDP: 2019 2.2; 2020 -11.0; 2021 13.3; 2022 3.0
- Output gap (percent of potential GDP): 2019 -1.6; 2020 -7.3; 2021 -0.4; 2022 -0.3; 2023 0.0
- Consumer prices (end of period): 2019 1.9; 2020 2.0; 2021 6.4; 2022 2.3
- External sector:
- Exports: 2019 -2.2; 2020 -10.6; 2021 47.1; 2022 10.7; 2023 3.1; 2024 3.4
- Imports: 2019 -1.8; 2020 -15.6; 2021 39.3; 2022 11.2; 2023 4.8; 2024 5.0; 2025 5.2
- External current account balance (% of GDP): 2019 -1.0; 2020 0.8; 2021 -2.8; 2022 -1.4; 2023 -1.5
- Gross reserves (In billions of U.S. dollars): 2019 68.4; 2020 74.9; 2021 78.5; 2022 78.4; 2023 78.3; 2024 77.5; 2025 76.5
- Percent of short-term external debt 5/: 2019 428; 2020 487; 2021 586; 2022 563; 2023 540; 2024 555; 2025 491
- Money and credit 2/ 3/:
- Broad money: 2019 8.8; 2020 29.0; 2021 2.6; 2022 7.6; 2023 5.6; 2024 6.2
- Net credit to the private sector: 2019 14.0; 2020 6.3; 2021 7.0; 2022 6.5; 2023 7.1; 2024 7.5
- Public sector (In percent of GDP; unless otherwise indicated):
- NFPS revenue: 2019 24.8; 2020 22.0; 2021 25.6; 2022 24.1; 2023 24.2
- NFPS primary expenditure: 2019 25.0; 2020 29.2; 2021 26.6; 2022 25.3; 2023 24.9; 2024 24.3; 2025 23.8
- NFPS primary balance: 2019 -0.2; 2020 -1.2; 2021 -0.8; 2022 -0.1; 2023 0.4
- NFPS overall balance: 2019 -8.9; 2020 -2.6; 2021 -2.7; 2022 -2.1
- Debt:
- Total external debt 4/: 2019 34.7; 2020 43.3; 2021 46.1; 2022 44.5; 2023 42.0; 2024 39.9; 2025 37.7
- NFPS gross debt 5/: 2019 27.1; 2020 35.1; 2021 35.9; 2022 34.8; 2023 35.4; 2024 35.2; 2025 34.9
- External: 2019 8.5; 2020 14.9; 2021 19.6; 2022 20.4; 2023 19.8; 2024 18.9; 2025 18.4
- Domestic: 2019 18.6; 2020 20.2; 2021 16.3; 2022 14.4; 2023 15.6; 2024 16.2; 2025 16.5
- Savings and investment:
- Gross domestic investment: 2019 21.0; 2020 19.3; 2021 21.3; 2022 24.7
- National savings: 2019 20.0; 2020 23.6; 2021 23.5; 2022 23.3; 2023 23.2
- Memorandum items:
- Nominal GDP (S/. billions): 2019 771; 2020 717; 2021 872; 2022 952; 2023 1,001; 2024 1,049; 2025 1,099
- GDP per capita (in US$): 2019 6,963; 2020 6,127; 2021 6,643; 2022 6,888; 2023 7,116; 2024 7,323; 2025 7,569
IMF staff concluding statement, March 7, 2022.