20230326-IMF-Peru_2023_Article_IV_Consultation-Press_Release_Staff_Report_and_Statement_by_the_Executive_Director_for_Peru_127页_3mb

2023 IMF Article IV Consultation with Peru Summary

Core Content

The 2023 Article IV consultation with Peru by the IMF concluded on March 22, 2023, following discussions in Lima from January 24 to February 8, 2023. The consultation assessed Peru's economic performance, outlook, and policy frameworks, emphasizing resilience, structural reforms, and the need for continued prudent policies.

Main Points

Economic Performance and Shocks

• Peru has experienced strong economic performance over the last 25 years, marked by ambitious structural reforms and prudent macroeconomic policies.
• The economy was hit by multiple shocks in recent years, including the pandemic, which caused a steep decline in 2020, followed by a rapid recovery in 2021.
• Growth slowed in 2022 due to the withdrawal of policy stimulus, deteriorating external and financial conditions, and disruptions in copper production and exports from road blockades and strikes.
• Inflation has declined recently but remains above the target range of 1-3 percent.
• Unemployment and poverty rates are still above pre-pandemic levels, although they have been falling.

Outlook and Risks

• Growth is expected to slow to 2.4 percent in 2023 and converge to its potential of 3 percent in the medium term.
• Inflation is projected to fall into the target range by early 2024.
• Downside risks include:
  • Escalation of Russia-Ukraine conflict effects
  • Global economic slowdown and commodity price volatility
  • De-anchoring of inflation expectations
  • Political uncertainty and social unrest
  • Natural disasters
• Upside risks include:
  • A "soft landing" in key trade partners
  • Acceleration of structural reforms

Policy Recommendations

• Continue the central bank's data-driven monetary policy and maintain a contractionary stance to bring inflation under control.
• Implement a small fiscal impulse in the short term, with a planned fiscal consolidation from 2025-26 to stabilize the debt-to-GDP ratio and preserve fiscal sustainability.
• Improve tax administration and public spending efficiency to support fiscal consolidation.
• Maintain a tightening bias in financial sector policies to ensure stability.
• Use the OECD accession process to define a clear structural reform agenda, focusing on green and inclusive growth, productivity, human capital, and reducing informality.

Key Information

Macroeconomic Buffers and Resilience

• Peru's macroeconomic buffers remain strong, with public debt at the lowest level in the region.
• The country has sizable international reserves (about 30 percent of GDP) and access to international capital markets.
• A two-year Flexible Credit Line (FCL) arrangement of about US$5.5 billion, approved in May 2022, provides additional insurance against adverse shocks.

Institutional and Policy Frameworks

• Peru has a credible inflation targeting framework and fiscal rules.
• The FCL arrangement is based on strong fundamentals and institutional frameworks, and the authorities are expected to treat it as precautionary and exit it over time.

Financial Sector

• The Peruvian banking system remains well-capitalized and profitable.
• Directors encouraged further reductions in financial dollarization and development of the forward foreign exchange market to reduce the need for frequent interventions.

Structural Reforms

• The government needs to work across the political spectrum to restore confidence and reduce social tensions.
• Structural reforms are critical for achieving more inclusive and broad-based growth.
• Priority areas include pension reform, improving governance, and addressing weaknesses in education and health systems.

Political Developments

• Recent political turmoil, including the impeachment of President Castillo and the election of President Boluarte, has increased uncertainty.
• Early elections were initially planned for April 2024 but were advanced to October 2023 due to social unrest, though the necessary constitutional amendments have not yet been approved.

Selected Economic Indicators (2019–2028)

Conclusion

The IMF Executive Board commended Peru's strong policy frameworks and macroeconomic resilience. It urged the authorities to continue implementing prudent policies, enhance social cohesion, and accelerate structural reforms to ensure sustainable growth and reduce inequality and poverty. The FCL arrangement and strong financial sector policies are expected to provide further stability and support the economy against external and domestic risks.