{
  "title": "Peru: Staff Concluding Statement of the 2019 Article IV Mission",
  "publication": "IMF News, December 3, 2019",
  "sourceUrl": "https://www.imf.org/en/news/articles/2019/12/03/mcs1232019-peru-staff-concluding-statement-of-the-2019-article-iv-mission",
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  "summary": "Mission period: November 5–18, 2019.",
  "publishDate": "2019-12-03",
  "sections": [
    {
      "heading": "Mission context and timing",
      "content": "- Mission period: November 5–18, 2019.\n- The authorities consented to publication; views expressed are those of IMF staff and do not necessarily represent the IMF Executive Board."
    },
    {
      "heading": "Recent developments, outlook, and risks",
      "content": "- Historical performance:\n  - Annual real GDP growth averaged 5.4 percent over the past fifteen years.\n- Recent slowdown drivers:\n  - Less benign external environment, trade tensions, increased international financial market volatility, and partial recovery of commodity prices from the 2011–15 decline.\n  - Domestic factors: 2017 El Niño weather event disruption; findings of the Lava Jato investigation hampering large investment projects.\n- Short-term outlook:\n  - GDP grew by 2.2 percent in the first nine months of 2019.\n  - GDP growth for 2019 is projected to be 2½ percent.\n  - Projected GDP growth: 3¼ percent in 2020 and 3¾ percent in the following years.\n  - Negative output gap expected to persist; inflationary pressures should remain subdued.\n- Risk assessment:\n  - Risks tilted to the downside: prolonged external uncertainty, continued trade tensions, sudden tightening of financial conditions, exchange rate movements magnified by partial dollarization, and domestic political uncertainty and corruption investigations.\n  - Policy buffers cited: favorable public debt position, considerable financial assets, large stock of international reserves, and a solid financial system."
    },
    {
      "heading": "Fiscal policy recommendations",
      "content": "- Use fiscal space:\n  - Authorities should make full use of the space available under the fiscal rule to provide a fillip to the economy.\n  - Policy aim: bring fiscal deficit below the 1 percent of GDP ceiling by 2021.\n  - Budget under-execution has led to a tighter stance than required by the fiscal rule, contributing to slowing growth.\n  - Government measures to remove financing and capacity constraints of local and regional governments should help speed up capital spending execution; close monitoring and supporting measures may be necessary.\n- Public investment and fiscal consistency:\n  - National Plan of Infrastructure for Competitiveness identifies priority projects amounting to 13 percent of GDP to be executed in the next decade.\n  - To be consistent with the fiscal rule, additional measures would be required: enhancements in revenue administration, improved performance of public enterprises, and reduced current spending.\n- Revenue mobilization:\n  - Peru’s tax revenue ratio remains comparatively low with modest progress over the last twenty years.\n  - Continued improvements in revenue administration are paramount; maintain SUNAT’s ability to focus on core activity and attract top quality staff.\n  - Recent measures: introduction of electronic invoicing and adoption of best practices on international taxation.\n  - Authorities’ intention to simplify tax regimes for small businesses could help reduce loopholes and increase compliance.\n- Fiscal framework flexibility:\n  - Consider introducing more flexibility in the fiscal framework to avoid procyclical fiscal stance and create space for infrastructure spending.\n  - Low debt and strong fiscal framework would limit risks associated with a modest increase in the deficit ceiling; existing expenditure rules would continue to limit current spending."
    },
    {
      "heading": "Monetary and exchange rate policy recommendations",
      "content": "- Monetary stance:\n  - Recent easing of monetary policy stance is appropriate given weakening growth, increased uncertainty, and muted inflationary pressures.\n  - Inflation expectations well anchored; output gap expected to remain negative; fiscal policy contractionary.\n  - Forward guidance from the central bank indicates the last policy rate cut did not necessarily imply further cuts; policy remains data-driven.\n  - Further policy easing might be needed if downside risks to the inflation outlook materialize.\n  - Real interest rate now close to zero; authorities should remain vigilant against emergence of financial sector vulnerabilities.\n- Exchange rate flexibility and dollarization:\n  - As dollarization declines, the central bank could allow greater exchange rate flexibility to absorb external shocks and promote financial development.\n  - Loan dollarization: 39 percent for firms and 10 percent for households.\n  - Use of foreign exchange intervention (FXI) has declined over time.\n  - Limiting central bank intervention to cases of disorderly market conditions could help reduce dollarization further, encourage hedging instruments, and strengthen the interest channel of monetary policy."
    },
    {
      "heading": "Financial sector policy recommendations",
      "content": "- Progress and remaining actions:\n  - Important steps taken to strengthen financial sector oversight, including the new law on credit cooperatives and measures responding to Financial Sector Assessment Program recommendations.\n  - Implemented measures to limit systemic risks; enhance governance and control frameworks; broaden supervision of bank and insurance sectors; and strengthen financial integrity.\n  - Further steps needed: reinforce legal protection of supervisors; mandate the SBS to exercise consolidated supervision; enhance effectiveness of the AML/CFT framework.\n  - Bring some regulations in line with Basel III, including risk weights for foreign currency loans, to help reduce dollarization further."
    },
    {
      "heading": "Structural reforms and social protection",
      "content": "- Prioritization and approach:\n  - National Competitiveness Plan (released in June) covers a large spectrum of reforms; a focused approach with clear timelines recommended.\n  - Legal and product market reforms would ensure high growth payoff and potentially greater popular support.\n- Governance and anti-corruption:\n  - Continue efforts to improve public sector transparency and governance.\n  - Additional anti-corruption reforms recommended: simplify and make government procurement more transparent and competitive; reform the National Control System to better manage risks and increase accountability; introduce independent internal auditors in some entities while strengthening external audits.\n- Economic diversification and agriculture:\n  - Foster economic diversification; extension of the agriculture promotion law appears crucial.\n- Social protection and inclusion:\n  - Reform pension system to ensure sustainability and enhance coverage.\n  - Provide more equitable distribution of natural resource revenues across regions.\n  - Deepen financial development and inclusion as identified in the National Competitiveness Plan.\n  - Reforms to reduce labor market rigidities and other costs that prevent shifts from informal to formal sector."
    },
    {
      "heading": "Mission acknowledgement",
      "content": "- The mission thanks the authorities for their generous hospitality and the candid and constructive discussions during November 5–18, 2019."
    },
    {
      "heading": "Selected economic indicators (staff projections)",
      "content": "- Social Indicators:\n  - Poverty rate (total) 1/: 20.5 (2018)\n  - Unemployment rate: 6.7 (2018)\n- Production and prices (Annual percentage change; unless otherwise indicated):\n  - Real GDP: 4.0 (2018); 2.4 (2019); 3.2 (2020); 3.7 (2021); 3.7 (2022)\n  - Real domestic demand: 4.2 (2018); 3.4 (2019); 3.9 (2020)\n  - Consumer Prices (end of period): 2.2 (2018); 1.9 (2019); 2.0 (2020)\n- External sector:\n  - Exports: 8.0 (2018); -4.8 (2019); 3.6 (2020); 4.3 (2021); 4.8 (2022)\n  - Imports: 8.1 (2018); -0.3 (2019); 2.7 (2020); 5.6 (2021)\n  - External current account balance (% of GDP): -1.6 (2018); -2.1 (2019); -1.4 (2020)\n  - Gross reserves (In billions of U.S. dollars): 60.3 (2018); 66.7 (2019)\n  - Percent of short-term external debt: 363.5 (2018); 446.2 (2019); 452.0 (2020); 447.1 (2021); 434.8 (2022)\n- Money and credit (Corresponds to depository corporations):\n  - Broad money: 9.5 (2018); 8.3 (2019); 7.8 (2020)\n  - Net credit to the private sector: 10.3 (2018); 7.3 (2019); 6.9 (2020); 7.1 (2021); 6.6 (2022)\n  - Note: Foreign currency stocks are valued at end-of-period exchange rates.\n- Public sector (In percent of GDP; unless otherwise indicated):\n  - NFPS Revenue: 24.5 (2018); 25.1 (2019); 25.4 (2020); 25.7 (2021)\n  - NFPS Primary Expenditure: 25.2 (2018)\n  - NFPS Primary Balance: -0.9 (2018); 0.0 (2019); 0.5 (2020)\n  - NFPS Overall Balance: -2.3 (2018); -1.7 (2019); -1.5 (2020); -1.0 (2021)\n- Debt:\n  - Total external debt: 34.5 (2018); 35.2 (2019); 34.8 (2020); 33.7 (2021); 32.5 (2022)\n  - NFPS Gross debt (including Rep. Certificates): 26.1 (2018); 26.8 (2019); 27.0 (2020); 26.6 (2021)\n  - External: 8.8 (2018); 9.6 (2019); 9.7 (2020); 9.4 (2021); 9.1 (2022)\n  - Domestic: 17.3 (2018); 17.2 (2019); 17.1 (2020); 17.0 (2021)\n- Savings and investment:\n  - Gross domestic investment: 21.5 (2018); 22.0 (2019); 22.3 (2020); 23.1 (2021); 23.6 (2022)\n  - National savings: 19.9 (2018); 20.7 (2019); 21.6 (2020); 22.2 (2021)\n- Memorandum items:\n  - Nominal GDP (S/. billions): 741 (2018); 775 (2019); 816 (2020); 864 (2021); 916 (2022)\n  - GDP per capita (in US$): 7,007 (2018); 7,106 (2019); 7,296 (2020); 7,600 (2021); 7,928 (2022)\n\nIMF staff concluding statement, December 3, 2019.\n\n---\n\n\n References\n\n- Peru and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- Article IV\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2019/12/03/mcs1232019-peru-staff-concluding-statement-of-the-2019-article-iv-mission"
    }
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    "Published: December 3, 2019",
    "Mission period: November 5–18, 2019.",
    "The authorities consented to publication; views expressed are those of IMF staff and do not necessarily represent the IMF Executive Board.",
    "Historical performance:",
    "Recent slowdown drivers:",
    "Short-term outlook:",
    "Risk assessment:",
    "Use fiscal space:",
    "Public investment and fiscal consistency:",
    "Revenue mobilization:",
    "Fiscal framework flexibility:",
    "Monetary stance:",
    "Exchange rate flexibility and dollarization:",
    "Progress and remaining actions:",
    "Prioritization and approach:",
    "Governance and anti-corruption:",
    "Economic diversification and agriculture:",
    "Social protection and inclusion:",
    "The mission thanks the authorities for their generous hospitality and the candid and constructive discussions during November 5–18, 2019.",
    "Social Indicators:",
    "Production and prices (Annual percentage change; unless otherwise indicated):",
    "External sector:",
    "Money and credit (Corresponds to depository corporations):",
    "Public sector (In percent of GDP; unless otherwise indicated):",
    "Debt:",
    "Savings and investment:",
    "Memorandum items:",
    "[Peru and the IMF](http://www.imf.org/external/country/PER/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[Article IV](http://www.imf.org/external/pubs/ft/aa/aa04.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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