Peru: Request for Arrangement Under the Flexible Credit Line-Press Release; Staff Report; and Statement by the Executive Director for Peru

IMF Staff Country Reports, May 29, 2020

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Peru: Request for Arrangement Under the Flexible Credit Line-Press Release; Staff Report; and Statement by the Executive Director for Peru

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Bibliographic details

• Published: May 29, 2020
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9781513545820.002

Summary and key findings

• Peru requests an Arrangement Under the Flexible Credit Line (FCL).
• Peru qualifies for the FCL by virtue of its "very strong fundamentals and institutional policy frameworks and track record of economic performance and policy implementation."
• The coronavirus disease 2019 shock poses an extraordinary challenge, pushing the Peruvian economy into a recession.
• The authorities have responded with stringent containment measures and a large policy package to limit socio-economic fallout, enabled by Peru’s "ample fiscal space and monetary policy credibility."
• The policy package includes a broad set of measures aimed at:
  • containing the health emergency,
  • supporting vulnerable businesses and households,
  • maintaining adequate credit flows to the economy.
• Despite very strong policy buffers, Peru remains vulnerable to external tail risks.
• A prolonged Covid-19 outbreak would have significant repercussions for trade and financial flows, which could:
  • put significant pressure on Peru’s balance of payments,
  • magnify the adverse domestic impact of the coronavirus disease 2019 shock.

Policy response and institutional strengths

• Qualification for the FCL is based on:
  • "very strong fundamentals",
  • "institutional policy frameworks",
  • a track record of "economic performance and policy implementation."
• Authorities’ response components:
  • stringent containment measures,
  • a large fiscal and policy package leveraging "ample fiscal space",
  • reliance on "monetary policy credibility" to stabilize conditions.
• Policy package objectives:
  • health emergency containment,
  • support for vulnerable businesses and households,
  • ensure adequate credit flows.

Risks and vulnerabilities

• Main external risk: prolonged Covid-19 outbreak.
• Potential channels of contagion:
  • trade flows,
  • financial flows.
• Potential consequences:
  • significant pressure on Peru’s balance of payments,
  • magnified adverse domestic impact of the shock.

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