20240520-IMF-Peru_2024_Article_IV_Consultation-Press_Release_Staff_Report_and_Statement_by_the_Executive_Director_for_Peru_100页_2mb

2024 Article IV Consultation Summary: Peru

Core Content

The IMF conducted the 2024 Article IV consultation with Peru, concluding on May 20, 2024. The consultation assessed the country's economic recovery following consecutive climate-related shocks and social turmoil in early 2023, highlighting macroeconomic resilience and the need for structural reforms.

Main Views and Key Information

Economic Recovery and Outlook

• Recovery: Peru is recovering from climate shocks and social unrest, with inflation receding due to the central bank's monetary tightening.
• Growth: A rebound in growth to 2.5% is expected in 2024, driven by agriculture and fishing recovery, and continued momentum in mining.
• Inflation: Inflation is expected to converge to the midpoint of the target band (1-3%) by mid-2024, aided by the normalization of supply shocks and a negative output gap.
• Current Account: The current account deficit is projected to be 1.1% of GDP in 2024 and stabilize at 1.5% in the medium term.
• Macroeconomic Resilience: Peru has strong buffers, including low public debt, abundant international reserves, and access to international capital markets.

Political and Social Context

• Political Stability: The country is in a period of relative political stability, though political uncertainty persists and hampers reform efforts.
• Social Unrest: Social unrest peaked in January 2023 and persisted until April 2023, impacting growth and economic activity.
• Congressional Fragmentation: Major reforms needed to boost growth are unlikely to be approved due to a fragmented Congress.

Key Policy Advice

• Monetary Policy: A cautious easing cycle is appropriate as El Niño effects subside. The central bank should maintain exchange rate flexibility and support de-dollarization.
• Fiscal Policy: A more gradual fiscal consolidation path could support growth, while revenue mobilization is necessary for a balanced medium-term plan. The authorities should analyze the optimality of fiscal targets and improve fiscal policy guidance.
• Financial Sector: The financial system remains robust, and the authorities should continue to monitor and address vulnerabilities, particularly related to private pension withdrawals.
• Structural Reforms: Urgent reforms are needed to boost productivity and growth, including labor and tax regulation reforms, investment in resilient infrastructure, climate adaptation, and digital transformation. The OECD accession process is seen as a roadmap for these reforms.

Risks and Vulnerabilities

• Domestic Risks: Intensification of political uncertainty, social unrest, and climate shocks.
• External Risks: Weak growth in trading partners, commodity price volatility, and tightening global financial conditions.
• Financial Vulnerabilities: FX mismatches and potential for capital flight remain concerns, though risks are currently manageable.

Fiscal and Debt Indicators

• Fiscal Position: The fiscal deficit reached 2.8% of GDP in 2023, above the fiscal rule target of 2.4%.
• Public Debt: Public debt stood at 32.1% of GDP in 2023, down from 33.9% in 2022.
• International Reserves: Gross reserves were projected to increase to 84.4 billion USD by 2029.

Institutional and Governance Considerations

• Governance: The authorities are committed to addressing corruption and strengthening governance institutions.
• Pension Reform: The pension reform is expected to improve income replacement and reduce long-term fiscal risks.
• OECD Accession: The OECD accession process is a key opportunity for further reforms to improve the business climate and reduce informality.

Staff Report Highlights

• Economic Indicators: Real GDP growth is projected to be 2.5% in 2024, with inflation expected to stabilize at 2.4%.
• Monetary and Credit: Broad money is expected to grow at a moderate pace, while net credit to the private sector is projected to increase.
• Public Sector: Fiscal consolidation is necessary to preserve sustainability, and structural reforms are critical for long-term growth.

Conclusion

The IMF Executive Board commended Peru's macroeconomic policies and resilience, supporting the decision to exit the Flexible Credit Line upon its expiry in May 2024. The country is in a stable position, but structural reforms and continued vigilance are essential to sustain growth and ensure long-term economic stability.