IMF Staff Country Reports

This Special Issues paper explores the impact of revamping fiscal decentralization to secure Peru’s position as a leading critical mineral exporter. After 20 years, fiscal decentralization has failed to fulfill its goals. Reducing horizontal inequality could allow for a better targeting of resources. Enhancing the capacity for medium-term planning in regional and district governments would improve spending efficiency. Closing development gaps will require enhancing the scale and impact of investment projects. Amendments to the decentralization framework should be accompanied by strengthening accountability and oversight from the central government. Traceability of the final use of central government transfers at the subnational government level is critical for effective oversight. Establishing internal controls and revamping audit processes to shift the focus away from intrusive, legalistic monitoring and toward facilitating project implementation would both promote more efficient investment while preventing corruption. Improving the fiscal decentralization framework is essential for Peru to better benefit from the green transition. While fiscal decentralization has the potential to enhance local governance and improve public service delivery, significant challenges persist.