IMF Executive Board Concludes 2023 Article IV Consultation with Peru
IMF News, March 24, 2023
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- Published: March 24, 2023
Recent economic developments and social outcomes
- Peru experienced a steep decline in 2020 at the outset of the pandemic, followed by a rapid recovery in 2021 and slowed growth in 2022 as policy stimulus was withdrawn and external and financial conditions deteriorated.
- Road blockades and strikes at major mining sites adversely affected copper production and exports in 2022.
- Inflation has declined recently but remains well above the target range.
- The unemployment rate and poverty continue falling but are still above the pre-COVID-19 pandemic levels.
- Volatility in financial markets has recently increased in line with global trends, while the Peruvian banking system remains well-capitalized and profitability continues to recover from the impact of the pandemic.
- The government needs to work across the political spectrum to restore confidence, preserve stability, accelerate structural reforms to boost economic activity, and tackle inequality, poverty, and weaknesses in the education, health, and pension systems.
Outlook and risks
- Baseline projection: Growth is expected to slow to 2.4 percent in 2023 as external conditions tighten and political uncertainty remains high.
- Inflation is expected to decline to the target range at end-2023-early-2024.
- Main external downside risks:
- Intensification of spillovers from Russia’s war in Ukraine.
- An abrupt global slowdown with associated commodity price volatility.
- A possible de-anchoring of inflation expectations forcing further tightening in global financial conditions.
- Key domestic downside risks:
- Intensification of political uncertainty.
- Social unrest over political developments.
- Natural disasters that could hinder economic activity and risk the planned medium-term fiscal consolidation.
- New COVID-19 outbreaks that may significantly affect economic activity.
- Upside risks:
- A “soft landing” in key trade partner countries.
- An acceleration of structural reforms at home, which could increase Peru’s medium-term growth potential.
Macroeconomic buffers and Fund support
- Public debt remains the lowest in the region.
- Sizable international reserves (about 30 percent of GDP), access to international capital markets, and a robust financial sector mitigate macroeconomic risks and support the country’s capacity to cope with additional adverse shocks.
- These buffers are complemented by a two-year Flexible Credit Line (FCL) arrangement for about US$ 5½ billion, approved by the IMF Executive Board in May 2022.
Executive Board assessment and policy recommendations
- Directors noted Peru’s very strong economic fundamentals and policy frameworks, and a sustained track record of implementing very strong macroeconomic policies, which helped absorb large adverse shocks.
- Directors urged the authorities to continue implementing prudent policies while working to create greater social cohesion and consensus for accelerating structural reforms to achieve more broad‑based and inclusive growth.
- Monetary policy:
- Commended decisive response to high inflation and advised continuing to implement monetary policy in a flexible and well‑communicated manner.
- Supported readiness to take further measures, if needed, to bring inflation to the target range.
- Recommended development of a deeper forward foreign exchange market and further reductions in financial dollarization to limit frequent interventions and allow the exchange rate to play a larger shock‑absorbing role.
- Financial sector:
- Noted the banking system remains resilient.
- Urged maintaining a tightening bias in financial sector policies to create space for renewed support, if needed, in a deteriorating financial environment.
- Welcomed steps to strengthen financial sector oversight and stressed closing regulatory and supervisory gaps, including related to AML/CFT.
- Fiscal policy:
- Agreed the fiscal policy stance is appropriate, with a temporary, targeted, and small fiscal impulse supporting a weaker economy in the short term while avoiding adding to inflationary pressures.
- Underscored the need to identify specific measures, particularly in tax administration and expenditure rationalization, to support announced fiscal consolidation in 2025‑26 aimed at preserving fiscal sustainability while creating space for priority social and infrastructure spending.
- Agreed on the need to prioritize pension reform.
- Welcomed recent reforms to enhance the effectiveness of the Fiscal Council and called for additional enhancements, including to strengthen its operational independence.
- Structural reform agenda:
- Encouraged using the OECD accession process to promote social consensus around a well‑articulated structural reform agenda.
- Priority areas: boosting productivity, enhancing human capital and reducing informality, further improving governance, and reducing climate risks.
Selected economic indicators and projections (highlights)
- Social indicators:
- Poverty rate (total) 1/: 2019: 20.2; 2020: 30.1; 2021: 25.9
- Unemployment rate (in percent; average): 2019: 6.6; 2020: 13.0; 2021: 10.7; 2022: 7.8
- Production and prices (annual percentage change unless otherwise indicated):
- Real GDP: 2019: 2.2; 2020: -11.0; 2021: 13.6; 2022: 2.7; 2023: 2.4; 2024: 3.0
- Output gap (percent of potential GDP): 2019: -1.6; 2020: -7.2; 2021: -0.3; 2022: -0.4; 2023: 0.0
- Consumer prices (end of period): 2019: 1.9; 2020: 2.0; 2021: 6.4; 2022: 8.5; 2023: 2.3
- Consumer prices (period average): 2019: 2.1; 2020: 1.8; 2021: 4.0; 2022: 7.9; 2023: 5.7
- External sector:
- Exports (annual percentage change): 2019: -2.2; 2020: -10.6; 2021: 47.2; 2022: 4.3; 2023: 3.2; 2024: 3.1; 2025: 2.9; 2026: 3.3
- Imports: 2019: -1.8; 2020: -15.6; 2021: 38.9; 2022: 16.7; 2023: 0.9; 2024: 4.2; 2025: 3.6; 2026: 3.5; 2027: 3.8; 2028: 3.7
- External current account balance (% of GDP): 2019: -0.7; 2020: 1.2; 2021: -2.3; 2022: -4.5; 2023: -2.1; 2024: -1.5
- Gross reserves (In billions of U.S. dollars): 2019: 68.4; 2020: 74.9; 2021: 78.5; 2022: 72.2; 2023: 71.9; 2024: 73.3; 2025: 74.8; 2026: 76.6; 2027: 79.0; 2028: 80.7
- Percent of short-term external debt 5/: 2019: 429; 2020: 482; 2021: 594; 2022: 524; 2023: 513; 2024: 519; 2025: 472; 2026: 483; 2027: 589; 2028: 574
- Percent of foreign currency deposits at banks: 2019: 224; 2020: 222; 2021: 229; 2022: 207; 2023: 210; 2024: 219; 2025: 228; 2026: 242; 2027: 260; 2028: 282
- Money and credit (annual percentage change):
- Broad money: 2019: 8.8; 2020: 29.2; 2021: 7.0; 2022: 6.0; 2023: 6.7; 2024: 5.6; 2025: 5.0
- Net credit to the private sector: 2019: 14.0; 2020: 6.5; 2021: 6.1; 2022: 5.4; 2023: 5.5
- Credit-to-private-sector/GDP ratio (%): 2019: 42.7; 2020: 52.5; 2021: 45.9; 2022: 43.9; 2023: 42.9; 2024: 43.2; 2025: 43.4; 2026: 44.1
- Public sector (In percent of GDP unless otherwise indicated):
- NFPS revenue: 2019: 24.7; 2020: 21.9; 2021: 25.6; 2022: 25.7; 2023: 25.3; 2024: 25.2; 2025: 25.1; 2026: 24.9
- NFPS primary expenditure: 2019: 26.6; 2020: 25.8; 2021: 24.3
- NFPS primary balance: 2019: -0.2; 2020: -7.3; 2021: -1.0; 2022: -0.1; 2023: 0.1; 2024: 0.6; 2025: 0.5; 2026: 0.4
- NFPS overall balance: 2019: -8.9; 2020: -2.5; 2021: -2.0
- NFPS structural balance: 2019: -0.6; 2020: -6.4; 2021: -3.7; 2022: -1.3; 2023: -1.2; 2024: -1.1
- NFPS structural primary balance 5/: 2019: 0.7; 2020: -4.8; 2021: 0.3
- Debt:
- Total external debt 6/: 2019: 34.8; 2020: 44.2; 2021: 45.1; 2022: 42.5; 2023: 38.8; 2024: 37.6; 2025: 35.6; 2026: 34.2; 2027: 32.9; 2028: 32.3
- NFPS gross debt 7/: 2019: 26.9; 2020: 35.0; 2021: 36.4; 2022: 33.4; 2023: 33.0; 2024: 33.3; 2025: 33.2; 2026: 32.8; 2027: 31.9
- External (of NFPS gross debt): 2019: 8.4; 2020: 14.9; 2021: 19.5; 2022: 17.4; 2023: 17.0; 2024: 16.6; 2025: 15.5; 2026: 14.1; 2027: 13.8
- Domestic (of NFPS gross debt): 2019: 18.5; 2020: 20.1; 2021: 16.9; 2022: 16.0; 2023: 17.7; 2024: 17.9; 2025: 18.2; 2026: 18.1
- Savings and investment:
- Gross domestic investment: 2019: 21.8; 2020: 19.7; 2021: 22.0; 2022: 23.7; 2023: 25.0; 2024: 24.8; 2025: 24.6
- Public sector (incl. repayment certificates): 2019: 4.6; 2020: 4.7
- Private sector (incl. inventories): 2019: 17.2; 2020: 15.4; 2021: 17.3; 2022: 19.6; 2023: 19.4; 2024: 19.2; 2025: 19.1; 2026: 19.0
- Private sector: 2019: 18.0; 2020: 16.8; 2021: 20.5; 2022: 20.7; 2023: 18.9
- National savings: 2019: 21.1; 2020: 20.9; 2021: 19.8; 2022: 19.3; 2023: 23.0; 2024: 22.9; 2025: 23.2; 2026: 23.1
- Memorandum items:
- Nominal GDP (S/. billions): 2019: 775; 2020: 719; 2021: 877; 2022: 950; 2023: 1,031; 2024: 1,087; 2025: 1,144; 2026: 1,202; 2027: 1,263; 2028: 1,326
- GDP per capita (in US$): 2019: 7,006; 2020: 6,145; 2021: 6,679; 2022: 7,094; 2023: 7,773; 2024: 8,018; 2025: 8,320; 2026: 8,633; 2027: 8,952; 2028: 9,285
IMF Executive Board press release, March 24, 2023.