IMF Executive Board Concludes 2024 Article IV Consultation with Peru
IMF News, May 21, 2024
Source details
- Canonical URL
- IMF Executive Board Concludes 2024 Article IV Consultation with Peru
Other formats
Bibliographic details
- Published: May 21, 2024
Outlook and Macroeconomic Assessment
- The Executive Board concluded the Article IV consultation on May 20, 2024.
- Economic recovery context:
- The economy is recovering from consecutive climate-related shocks and social turmoil at the beginning of 2023.
- Inflation has receded thanks to the central bank’s decisive monetary policy tightening.
- The fiscal position and the financial system remain strong.
- The country is in a period of relative political stability, but lingering political uncertainty is denting the appetite for pressing reforms to boost potential growth.
- Growth and inflation projections:
- A rebound in growth to 2.5 percent is expected in 2024.
- Growth drivers: strong recovery in agriculture and fishing, continued momentum in mining, and a looser monetary policy stance.
- Private consumption and private investment: only a moderate recovery expected as nominal wages gradually regain purchasing power and elevated political uncertainty weighs on confidence.
- Inflation: as El Niño effects dissipate, inflation would rapidly decline towards the midpoint of the target band, aided by a negative output gap and normalization of supply shocks, with the Central Bank continuing a cautious monetary policy easing cycle.
- Current account: envisaged to return to a deficit of 1.1 percent of GDP in 2024 and to stabilize at 1.5 percent of GDP in the medium term.
- External financing and debt rollover risks are assessed as remaining low.
Risks and Buffers
- Evolving risks are broadly balanced; outlook remains uncertain.
- Key domestic risks:
- Intensification of political uncertainty.
- Social unrest.
- Climate-related shocks.
- Key external risks:
- Weak trading-partner growth.
- Commodity price volatility.
- Sharp tightening of global financial conditions.
- Upside scenario:
- A stronger recovery in confidence could support stronger private consumption and investment growth.
- Macroeconomic buffers:
- Relatively low public debt.
- Abundant international reserves.
- Access to international capital markets on favorable terms.
Executive Board Assessment and Policy Recommendations
- Executive Directors’ overall view:
- Commended Peruvian authorities for sustained track record of very strong macroeconomic policies and institutional frameworks.
- Noted low public debt, abundant international reserves, a robust financial sector, and favorable access to international capital markets as strong buffers.
- Supported authorities’ decision to exit the Flexible Credit Line arrangement upon its expiry in May 2024 given broadly balanced risks and strength of buffers.
- Noted authorities’ commitment to maintaining sound institutions and policies to strengthen resilience against external risks.
- Fiscal policy:
- Directors welcomed the strong fiscal position and the authorities’ commitment to fiscal sustainability.
- Given available fiscal space, a more gradual fiscal consolidation path could help support growth in the short run.
- Highlighted the need for ambitious revenue mobilization to support a more balanced medium‑term consolidation plan.
- Called for measures to further strengthen the fiscal framework, including:
- Reviewing the optimality of the medium‑term fiscal target, the debt ceiling, and liquidity buffers, supported by Fund TA.
- Bolstering the effectiveness of the Fiscal Council.
- Emphasized importance of pension reforms to address subpar income replacement and coverage, early withdrawals, and potential long‑term fiscal contingencies.
- Monetary and financial policy:
- Commended the central bank’s early decisive monetary tightening for anchoring inflation expectations and reducing inflation towards the target band.
- Agreed with ongoing cautious data‑dependent monetary policy easing.
- Encouraged the central bank to maintain exchange rate flexibility to act as a shock absorber and support faster economic recovery.
- Noting financial system resilience, encouraged authorities to remain vigilant and continue to facilitate de‑dollarization and capital market deepening.
- Structural reforms:
- Stressed urgent need for structural reforms to revive growth.
- Recommended focus on:
- Reforming labor and tax regulations.
- Building resilience to climate shocks.
- Embracing the digital and artificial intelligence revolution.
- Commended authorities’ commitment to addressing corruption and encouraged strengthening governance institutions.
- Noted the OECD accession process provides a clear roadmap for more ambitious reforms to boost the business climate and ensure sustainable and inclusive growth.
Key Statistics from Table 1. Peru: Selected Economic Indicators (selected items)
- Social Indicators:
- Poverty rate (total) 1/: 30.1 (2020), 25.9 (2021), 27.5 (2022)
- Unemployment rate for Metropolitan Lima (average): 13.0 (2020), 10.7 (2021), 7.8 (2022), 6.8 (Est.), [no further breakdown in source]
- Production and Prices (annual percentage change, unless otherwise indicated):
- Real GDP: -10.9 (2020), 13.4 (2021), 2.7 (2022), -0.6 (2023 Est.), 2.5 (2024 Proj.), 2.3 (2025), [output gap series below]
- Output gap (percent of potential GDP): -5.5 (2020), 0.9 (2021), 0.6 (2022), -1.3 (2023), -0.7 (2024), -0.2 (2025), 0.0 (2026)
- Consumer prices (end of period): 2.0 (2020), 6.4 (2021), 8.5 (2022), 3.2 (2023), 2.4 (2024)
- Consumer prices (period average): 1.8 (2020), 4.0 (2021), 7.9 (2022), 6.3 (2023)
- Money and Credit (depository corporations; foreign currency stocks valued at end-of-period exchange rates):
- Broad money: 29.2 (2020), -0.3 (2021), 1.5 (2022), 3.9 (2023), 4.7 (2024), 5.3 (2025), 5.5 (2026)
- Net credit to the private sector: 14.0 (2020), 6.5 (2021), 3.6 (2022), 0.4 (2023), 4.8 (2024), 5.1 (2025)
- Credit-to-private-sector/GDP ratio (%): 52.4 (2020), 45.9 (2021), 44.4 (2022), 41.8 (2023), 41.4 (2024), 41.6 (2025), 42.0 (2026), 42.5 (2027), 43.0 (2028), [series continues in table]
- External Sector:
- Exports: -10.7 (2020), 47.0 (2021), 5.2 (2022), -0.8 (2023), 3.1 (2024), 3.4 (2025), 3.5 (2026)
- Imports: -15.5 (2020), 38.2 (2021), 16.5 (2022), -10.8 (2023), 4.3 (2024), 3.3 (2025)
- External current account balance (percent of GDP): 1.1 (2020), -2.2 (2021), -4.0 (2022), -1.1 (2023), -1.4 (2024), -1.5 (2025)
- Gross reserves in billions of U.S. dollars: 74.9 (2020), 78.5 (2021), 72.2 (2022), 71.3 (2023), 73.8 (2024), 76.3 (2025), 78.4 (2026), 80.8 (2027), 82.7 (2028), 84.4 (2029)
- Percent of short-term external debt 4/: 495 (2020), 583 (2021), 530 (2022), 409 (2023), 459 (2024), 438 (2025), 430 (2026), 483 (2027), 493 (2028)
- Public Sector (in percent of GDP unless otherwise indicated):
- NFPS revenue: 21.8 (2020), 25.5 (2021), 26.9 (2022), 23.9 (2023), 23.8 (2024), 23.6 (2025), 23.7 (2026)
- NFPS primary expenditure: 29.1 (2020), 26.5 (2021), 27.0 (2022), 25.0 (2023), 24.7 (2024), 24.1 (2025), 22.9 (2026), 23.0 (2027), 23.2 (2028)
- NFPS primary balance: -7.3 (2020), -1.0 (2021), -0.1 (2022), 0.2 (2023), 0.7 (2024)
- NFPS overall balance: -8.9 (2020), -2.5 (2021), -1.7 (2022), -2.8 (2023), -2.0 (2024)
- NFPS structural balance 5/: -7.0 (2020), -1.8 (2021), -1.2 (2022)
- NFPS structural primary balance 5/: -5.4 (2020), -0.9 (2021), -0.5 (2022), 0.5 (2023)
- Debt:
- Total external debt 6/: 43.7 (2020), 46.3 (2021), 40.6 (2022), 37.0 (2023), 35.5 (2024), 33.6 (2025), 32.7 (2026), 31.8 (2027)
- Gross non-financial public sector debt 7/: 34.9 (2020), 36.1 (2021), 33.9 (2022), 32.1 (2023), 33.0 (2024), 33.3 (2025), 33.2 (2026), 32.6 (2027), 31.6 (2028)
- External vs Domestic composition (percent of GDP): External 14.8 (2020), 19.4 (2021), 17.5 (2022), 16.0 (2023), 15.3 (2024), 14.2 (2025), 13.1 (2026), 11.5 (2027), 10.9 (2028), 10.3 (2029); Domestic 20.1 (2020), 16.7 (2021), 16.4 (2022), 16.1 (2023), 17.8 (2024), 19.0 (2025), 21.1 (2026), 21.3 (2027), 21.4 (2028)
- Savings and Investment:
- Gross domestic investment: 19.9 (2020), 21.7 (2021), 22.1 (2022), 19.2 (2023), 20.4 (2024), 20.8 (2025), 20.9 (2026), 21.5 (2027)
- Public sector (incl. repayment certificates): 5.0 (2020), 4.9 (2021)
- Private sector: 16.8 (2020), 20.2 (2021), 17.9 (2022), 17.7 (2023), 17.4 (2024), 17.2 (2025), 16.9 (2026), 16.6 (2027)
- National savings: 21.0 (2020), 19.5 (2021), 18.1 (2022), 19.8 (2023), 19.3 (2024), 19.7 (2025), 20.0 (2026)
- Memorandum Items:
- Nominal GDP (S/. billion): 721 (2020), 878 (2021), 939 (2022), 1,002 (2023), 1,051 (2024), 1,102 (2025), 1,151 (2026), 1,202 (2027), 1,255 (2028), 1,309 (2029)
- GDP per capita (in US$): 6,320 (2020), 6,848 (2021), 7,336 (2022), 7,933 (2023), 8,291 (2024), 8,567 (2025), 8,839 (2026), 9,115 (2027), 9,397 (2028), 9,685 (2029)
Press Release No. 24/172, May 21, 2024 — IMF Communications Department.