{
  "title": "Peru's Future Growth Can be Lifted Through Structural Reforms",
  "publication": "IMF News, June 28, 2017",
  "sourceUrl": "https://www.imf.org/en/news/articles/2017/06/21/na062217perus-future-growth-can-be-lifted-through-structural-reforms",
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  "summary": "<span>After sustained improvements in economic and social indicators since the turn of the century, Peru has its eyes set on becoming a high-income nation, but achieving this goal will require additional reforms, the IMF said in its latest assessment of the country.</span><br>",
  "authors": [
    "Francisco Roch"
  ],
  "publishDate": "2017-06-28",
  "sections": [
    {
      "heading": "Overview",
      "content": "- After sustained improvements in economic and social indicators since the turn of the century, Peru aims to become a high-income nation, but achieving this goal will require additional reforms.\n- Sound economic policies and structural reforms—in the context of the recently ended commodity boom—have played an essential role in improvements: growth averaging over 5¼ percent since 2000; significant reductions in unemployment and poverty; inflation in the low single digits; strengthened fiscal position; and marked decline in dollarization (borrowing and saving in U.S dollars).\n- International experience suggests avoiding the “middle income trap” will be challenging and, even if high-income status is attainable, it will take time."
    },
    {
      "heading": "Short-term picture: resilience in the face of major domestic shocks",
      "content": "- Current domestic shocks: the Odebrecht corruption scandal and one of the worst episodes of flooding and landslides in over 50 years.\n- External environment: commodity prices have recovered somewhat since late 2016 but remain significantly lower than during the commodity boom; uncertainty about the U.S outlook and potential rise in protectionist pressures.\n- Growth forecast: 2017—2.7 percent.\n- Outlook: the economy is expected to bounce back in 2018–19."
    },
    {
      "heading": "Fast Facts (as reported)",
      "content": "- Real GDP growth (2016): 3.9%\n- Per capita GDP (2016): $6,199\n- Unemployment rate (2016): 6.7%\n- Poverty rate (2016): 20.7%\n- Life expectancy at birth (2015): 74.6 years\n- Adult literacy rate (2015): 94%"
    },
    {
      "heading": "Potential growth: causes of decline and IMF medium-term estimate",
      "content": "- Potential growth has been declining since the end of the commodity boom.\n- During 2001–08 (before the Great Recession), potential growth averaged 5.7 percent.\n- Main factors behind the decrease: low productivity and insufficient capital.\n- IMF estimate of potential growth over the medium term: about 3¾ percent."
    },
    {
      "heading": "Structural reforms to boost investment and productivity",
      "content": "- Government measures already introduced to tackle impediments to higher investment, stronger tax collection, and lower financing costs include:\n  - a new institutional framework for public and public-private infrastructure investment to reduce red tape;\n  - improving the business climate by cutting administrative procedures and promoting the use of digital processes;\n  - a new tax regime for small and medium enterprises to make the current tax system more progressive, reduce compliance costs, increase the use of electronic payments, and formalize value chains.\n- IMF recommendation: to increase potential growth above 4 percent over the medium term, Peru should consider additional reforms that:\n  - help investment grow at a similar pace to during the commodity boom;\n  - increase productivity to around double the rate assumed in the report’s baseline scenario."
    },
    {
      "heading": "Labor market policies",
      "content": "- Current labor market features:\n  - Labor laws offer generous protection, contributing to large informality: about 53 percent of Peru’s workforce is outside the formal job market, with no protection, no social security or unemployment contributions and paying no taxes.\n  - Termination for economic reasons is severely limited, requiring authorization from the Ministry of Labor or the courts.\n  - Labor market regulations are identified in a recent opinion survey as a key impediment to growth.\n  - Other contributors to informality: education levels, the tax system, access to public services, and enforcement of laws.\n- Government actions:\n  - Focus on reducing high levels of informality.\n  - Set up a Social Protection Commission to reform the social security system, aiming to increase coverage while reducing informality.\n- IMF analysis:\n  - Growth gains from labor market reform—such as relaxing policies that push labor costs above productivity growth, or reducing labor taxes and firing costs—can be significant.\n  - The Social Protection Commission can make an important contribution to help Peru reach its high-income goal.\n\nIMF Country Focus: Peru's Future Growth Can be Lifted Through Structural Reforms (June 28, 2017), by Francisco Roch, IMF Western Hemisphere Department.\n\n---\n\n\n References\n\n- https://www.imf.org/en/News/country-focus\n- PRESS CENTER\n- IMF Country Focus\n- Read the report\n- Read the press release\n- Latest outlook for Latin America\n- Peru and the IMF\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2017/06/21/na062217perus-future-growth-can-be-lifted-through-structural-reforms"
    }
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    "Authors: Francisco Roch",
    "Published: June 28, 2017",
    "After sustained improvements in economic and social indicators since the turn of the century, Peru aims to become a high-income nation, but achieving this goal will require additional reforms.",
    "Sound economic policies and structural reforms—in the context of the recently ended commodity boom—have played an essential role in improvements: growth averaging over 5¼ percent since 2000; significant reductions in unemployment and poverty; inflation in the low single digits; strengthened fiscal position; and marked decline in dollarization (borrowing and saving in U.S dollars).",
    "International experience suggests avoiding the “middle income trap” will be challenging and, even if high-income status is attainable, it will take time.",
    "Current domestic shocks: the Odebrecht corruption scandal and one of the worst episodes of flooding and landslides in over 50 years.",
    "External environment: commodity prices have recovered somewhat since late 2016 but remain significantly lower than during the commodity boom; uncertainty about the U.S outlook and potential rise in protectionist pressures.",
    "Growth forecast: 2017—2.7 percent.",
    "Outlook: the economy is expected to bounce back in 2018–19.",
    "Real GDP growth (2016): 3.9%",
    "Per capita GDP (2016): $6,199",
    "Unemployment rate (2016): 6.7%",
    "Poverty rate (2016): 20.7%",
    "Life expectancy at birth (2015): 74.6 years",
    "Adult literacy rate (2015): 94%",
    "Potential growth has been declining since the end of the commodity boom.",
    "During 2001–08 (before the Great Recession), potential growth averaged 5.7 percent.",
    "Main factors behind the decrease: low productivity and insufficient capital.",
    "IMF estimate of potential growth over the medium term: about 3¾ percent.",
    "Government measures already introduced to tackle impediments to higher investment, stronger tax collection, and lower financing costs include:",
    "IMF recommendation: to increase potential growth above 4 percent over the medium term, Peru should consider additional reforms that:",
    "Current labor market features:",
    "Government actions:",
    "IMF analysis:",
    "[https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[IMF Country Focus](https://www.imf.org/en/news/country-focus)",
    "[Read the report](http://www.imf.org/en/Publications/CR/Issues/2017/06/28/Peru-2017-Article-IV-Consultation-Press-Release-and-Staff-Report-45001)",
    "[Read the press release](http://www.imf.org/en/News/Articles/2017/06/28/pr17252-imf-executive-board-concludes-2017-article-iv-consultation-with-peru)",
    "[Latest outlook for Latin America](http://www.imf.org/en/news/articles/2017/05/18/na190517latin-america-and-the-caribbean-bouncing-back-from-recession)",
    "[Peru and the IMF](http://www.imf.org/external/country/per/index.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
  ],
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