International Monetary Fund, "Peru: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Peru" (IMF Country Report No. 21/63, March 2021)
Summary
IMF Country Report No. 21/63, March 2021, on the 2021 Article IV consultation with Peru, including the press release of March 22, 2021, the staff report the Executive Board considered on March 19, 2021 and a statement by the Executive Director for Peru. Fiscal rules had kept government debt within a 30-percent-of-GDP ceiling until 2019, and growth averaged 5.2 percent over 15 years. Strict COVID-19 lockdowns produced one of the deepest second-quarter falls in the world, and output shrank 11.1 percent in 2020. Staff projected 8.5 percent growth in 2021 if the health emergency was controlled by end-March, with downside risks dominant ahead of elections on April 11, 2021.
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“International Monetary Fund, ‘Peru: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Peru’ (IMF Country Report No. 21/63, March 2021).”
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IMF Country Report No. 21/63
PERU
2021 ARTICLE IV CONSULTATION—PRESS RELEASE;
March 2021 STAFF REPORT; AND STATEMENT BY THE EXECUTIVE
DIRECTOR FOR PERU
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions
with members, usually every year. In the context of the 2021 Article IV consultation with
Peru, the following documents have been released and are included in this package:
• A Press Release summarizing the views of the Executive Board as expressed during its
March 19, 2021 consideration of the staff report that concluded the Article IV
consultation with Peru.
• The Staff Report prepared by a staff team of the IMF for the Executive Board’s
consideration on March 19, 2021, following discussions that ended on
January 21, 2021, with the officials of Peru on economic developments and policies.
Based on information available at the time of these discussions, the staff report was
completed on March 2, 2021.
• An Informational Annex prepared by the IMF staff.
• A Statement by the Executive Director for Peru.
The IMF’s transparency policy allows for the deletion of market-sensitive information and
premature disclosure of the authorities’ policy intentions in published staff reports and
other documents.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
PO Box 92780 • Washington, D.C. 20090
Telephone: (202) 623-7430 • Fax: (202) 623-7201
E-mail: publications@imf.org Web: http://www.imf.org
Price: $18.00 per printed copy
International Monetary Fund
Washington, D.C.
© 2021 International Monetary Fund
PR21/76
IMF Executive Board Concludes 2021 Article IV Consultation
with Peru
FOR IMMEDIATE RELEASE
Washington, DC – March 22, 2021: The Executive Board of the International Monetary Fund
(IMF) concluded the Article IV consultation1 with Peru on March 19, 2021.
Peru entered the COVID-19 pandemic with a sustained track record of implementing very
strong policies amid very strong economic fundamentals and institutional policy frameworks.
Prudent fiscal management, supported by fiscal rules, has helped contain government debt
within the 30-percent-of-GDP ceiling until 2019, at the lowest level in the region. Under the
inflation targeting framework, inflation has been low and stable and financial dollarization has
declined while strong supervisory and macroprudential policies have contributed to preserving
financial stability. Supported by rising commodity prices and strong macroeconomic policies,
growth averaged 5.2 percent in the last 15 years, poverty was halved, and external
vulnerabilities reduced.
The COVID-19 shock led to very strict containment measures and hit economic activity hard,
with a sharp decline in GDP in the second quarter, one of the deepest in the world. The
recession was accompanied by large falls in employment and participation, particularly among
women, and increasing informality and poverty. A coordinated fiscal, monetary, and financial
sector policy response helped stabilize financial markets, contain insolvencies, and support
the recovery in the second half of 2020, when the containment measures were eased. As a
result, the output contraction narrowed to -11.1 percent in 2020, with core inflation within the
target range.
The ongoing second wave of the pandemic is likely to dampen the economic recovery, but the
economy is expected to rebound in 2021, assuming the health emergency is brought under
control by end-March. Under this scenario, restrictions could be gradually eased in the second
quarter, and activity could regain momentum led by domestic demand and historically
favorable terms of trade. Under these assumptions, GDP growth would reach 8.5 percent in
2021. The outlook is highly uncertain and downside risks prevail, but policy buffers are ample.
Executive Board Assessment2
1
Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial information, and discusses with officials the country's economic developments
and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
2
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:
http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
2
Executive Directors noted that Peru entered the COVID-19 pandemic with very strong
economic fundamentals and policy frameworks. The pandemic, however, inflicted a heavy
human and economic toll. Directors commended the authorities for their decisive response in
mitigating the impact of the crisis. Noting the significant risks ahead, they encouraged the
authorities to continue efforts to limit the scarring effects, promote a robust recovery, and
implement structural reforms to achieve a more broad-based, inclusive growth.
Directors advised the authorities to avoid premature withdrawal of fiscal support to help
contain the pandemic, mitigate its impact on poverty, and support recovery. Once the crisis
abates, priority should be given to addressing fiscal risks and rising spending pressures. In
this context, Directors underscored the need to anchor fiscal policy to a credible medium-term
framework. They emphasized that revenue mobilization will be key to preserving fiscal
sustainability and welcomed the authorities’ request for Fund Technical Advice to identify
measures to increase fiscal revenues. Going forward, they noted that any recalibration of the
fiscal rules should preserve debt sustainability, strengthen credibility, and be clearly
communicated.
Directors agreed that monetary policy should remain accommodative while macroprudential
policies should encourage banks to focus on clients' viability. In addition, they considered that
greater exchange rate flexibility would have benefits, especially as financial dollarization
continues to decline. Directors noted that the banking system remains resilient. They
commended the progress in implementing the 2018 Financial Sector Assessment Program
recommendations and encouraged the authorities to move ahead with the remaining
recommendations, especially to accelerate legislative and regulatory reforms to further
strengthen financial sector supervision.
Directors emphasized that the reform agenda should focus on structural fragilities exposed by
the pandemic and on promoting stronger and inclusive growth. Priority could be given to (i)
boosting productivity by improving education, enhancing infrastructure, facilitating labor
reallocation, and improving the business climate; (ii) enhancing social protection while
reducing incentives to informality from the tax-benefit system, including through investment in
health care and pension reform; and (iii) strengthening governance with additional
transparency in the public sector and robust anti-corruption and AML/CFT frameworks.
Peru: Selected Economic Indicators
Prel. Projections
2018 2019 2020 2021 2022 2023
Social Indicators
Poverty rate (total) 1/ 22.3 21.7 27.5 ... ... ...
3
Unemployment rate for Metropolitan Lima
(period average) 6.7 6.6 13.6 ... ... ...
(Annual percentage change; unless otherwise
indicated)
Production and prices
Real GDP 4.0 2.2 -11.1 8.5 5.2 4.8
Real domestic demand 4.2 2.4 -9.8 9.4 5.4 4.8
Consumer Prices (end of period) 2.2 1.9 2.0 2.0 2.0 2.0
External sector
Exports 8.0 -2.8 -11.1 27.5 3.7 3.7
Imports 8.1 -1.9 -15.6 19.9 5.0 4.8
External current account balance (% of GDP) -1.7 -1.5 0.5 -0.4 -0.7 -1.0
Gross reserves
In billions of U.S. dollars 60.3 68.4 74.9 75.1 75.1 75.0
Percent of short-term external debt 363.5 432.6 496.4 518.7 505.4 494.2
Money and credit 2/ 3/
Broad money 9.6 8.8 27.5 13.0 9.6 7.8
Net credit to the private sector 10.3 6.4 14.5 4.0 4.0 6.2
(In percent of GDP; unless otherwise indicated)
Public sector
NFPS Revenue 24.5 24.8 22.1 22.4 23.1 23.1
NFPS Primary Expenditure 25.5 25.0 29.3 25.6 24.7 24.0
NFPS Primary Balance -1.0 -0.2 -7.2 -3.3 -1.6 -0.9
NFPS Overall Balance -2.3 -1.6 -8.8 -5.0 -3.4 -2.8
Debt
Total external debt 34.6 34.7 43.1 39.0 36.6 34.2
4
NFPS Gross debt (including Rep. Certificates) 26.2 27.1 35.4 35.4 36.2 36.7
External 8.9 8.5 15.0 14.1 13.9 13.4
Domestic 17.3 18.6 20.3 21.3 22.3 23.2
Savings and investment
Gross domestic investment 21.7 21.5 18.8 21.1 22.0 22.3
National savings 20.0 19.9 19.3 20.7 21.3 21.3
Memorandum items
Nominal GDP (S/. billions) 740 770 712 815 872 929
GDP per capita (in US$) 7,000 6,958 6,084 6,678 7,051 7,389
Sources: National authorities; UNDP Human Development Indicators;
and IMF staff estimates/projections.
1/ Defined as the percentage of households with total spending below
the cost of a basic consumption basket.
2/ Corresponds to depository corporations.
3/ Foreign currency stocks are valued at end-of-period exchange rates.
PERU
STAFF REPORT FOR THE 2021 ARTICLE IV CONSULTATION
March 2, 2021
KEY ISSUES
Context. Peru entered the pandemic with a sustained track record of implementing very
strong policies amid very strong economic fundamentals and institutional policy
frameworks, but was hit hard by the pandemic, which took a heavy toll in terms of
human lives and economic output. Tensions between executive and legislative powers
continue to affect institutional cohesion, but new general elections will be held in April-
June 2021. The IMF Executive Board approved a two-year FCL arrangement in the
amount of US$11 billion (600 percent of quota) on May 28, 2020.
Outlook and risks. Assuming the second wave of COVID-19 infections is brought under
control by end-Q1, activity is expected to recover steadily in 2021. Driven by domestic
demand and favorable terms of trade, real GDP growth is projected to reach 8.5 percent
in 2021, returning output to its pre-pandemic level in 2022. The crisis is likely to leave
significant scars in the medium term. The outlook is highly uncertain, and is subject to
significant downside risks, notably concerning the evolution of the pandemic.
Policy advice. In the short term, the available fiscal policy space should be used to
address the pandemic, including by providing further support to households, limit its
impact on poverty, and safeguard against downside risks to growth. At the same time,
fiscal risks and rising spending pressures underscore the need for a credible medium-
term plan to return to the fiscal targets. With inflationary pressures remaining muted,
monetary conditions should remain accommodative even as extraordinary measures are
withdrawn. Structural reforms should target the weaknesses exposed by the pandemic,
focusing on policies that enhance productivity and strengthen the social safety net.
Reforms to strengthen governance should continue.
PERU
Approved By Discussions were held virtually during January 18-29, 2021. The
K. Srinivasan (WHD) mission comprised Leo Bonato (head), Luisa Charry, Etibar Jafarov
and R. Duttagupta (all WHD), and Gohar Minasyan (SPR). Krishna Srinivasan (WHD)
(SPR) joined the concluding meetings. Armando Morales (OED)
participated in the discussions. Staff met with Minister of Economy
and Finance Mendoza, Governor Velarde, other senior central
government officials, and representatives of the private sector and
civil society. Carlo Pizzinelli (WHD), and Ronald Cueva and Hernan
Winkler (World Bank) contributed to the report. Danjing Sheng and
Patricia Delgado (WHD) provided research and administrative
assistance.
CONTENTS
CONTEXT_________________________________________________________________________________________ 4
RECENT DEVELOPMENTS _______________________________________________________________________ 4
OUTLOOK AND RISKS _________________________________________________________________________ 10
POLICY DISCUSSIONS _________________________________________________________________________ 11
A. Balancing Short-Term Fiscal Support and Medium-Term Plans to
Return to the Fiscal Targets ______________________________________________________________________ 11
B. Maintaining Monetary Accommodation and Preserving Financial Stability ____________________ 14
C. Structural Reforms for Stronger, Resilient, and Inclusive Growth ______________________________ 17
D. Authorities’ Views _____________________________________________________________________________ 19
STAFF APPRAISAL _____________________________________________________________________________ 21
FIGURES
1. Containment Measures and Economic Recovery ______________________________________________ 23
2. Real Sector Developments ____________________________________________________________________ 24
3. Fiscal Sector Developments ___________________________________________________________________ 25
4. Balance Sheet Indicators ______________________________________________________________________ 26
5. Corporate Sector Financial Performance in Peru and Peer Countries __________________________ 27
6. External Sector Developments _________________________________________________________________ 28
7: External Debt Sustainability: Bound Tests _____________________________________________________ 29
TABLES
1. Selected Economic Indicators _________________________________________________________________ 30
2. Nonfinancial Public Sector Main Fiscal Aggregates ____________________________________________ 31
3. Statement of Operations of the General Government _________________________________________ 32
2 INTERNATIONAL MONETARY FUND
PERU
4. Financial Soundness Indicators ________________________________________________________________ 33
5. Balance of Payments __________________________________________________________________________ 34
6. Monetary Survey ______________________________________________________________________________ 35
7. External Debt Sustainability Framework, 2014–24 _____________________________________________ 36
ANNEXES
I. Implementation of Past Fund Advice___________________________________________________________ 37
II. Peru’s Health Preparedness ___________________________________________________________________ 39
III. Labor Market Developments and Social Support Programs___________________________________ 41
IV. 2021 Poverty Projections under Different Scenarios __________________________________________ 46
V. Withdrawal from Pension Funds ______________________________________________________________ 51
VI. External Sector Assessment ___________________________________________________________________ 54
VII. Risk Assessment Matrix ______________________________________________________________________ 58
VIII. Public Debt Sustainability Analysis __________________________________________________________ 61
IX. Foreign Exchange Intervention––Controlling Exchange Rate Volatility to Preserve Financial
Stability __________________________________________________________________________________________ 69
X. Implementation of 2018 FSAP Recommendations_____________________________________________ 71
INTERNATIONAL MONETARY FUND 3
PERU
CONTEXT
1. Peru entered the COVID-19 pandemic with a sustained track record of implementing
very strong policies amid very strong economic fundamentals and institutional policy
frameworks. Prudent fiscal management, supported by fiscal rules, has helped contain government
debt within the 30-percent-of-GDP ceiling until 2019, at the lowest level in the region. Under the
inflation targeting framework, inflation has been low and stable and financial dollarization has
declined while strong supervisory and macroprudential policies have contributed to preserving
financial stability. Supported by rising commodity prices and strong macroeconomic policies, growth
averaged 5.2 percent in the last 15 years, poverty was halved, and external vulnerabilities reduced.
Policies have been broadly in line with past Fund advice (Annex I).
2. The pandemic hit Peru hard. On the heels of a combination of adverse shocks that slowed
the growth momentum in recent years, the pandemic presented an unprecedented challenge, taking
a heavy toll on lives and livelihoods and causing one of the deepest recessions. Based on Peru’s very
strong policies and institutional frameworks and track record of sound economic performance and
policy implementation, and to strengthen its policy buffers and boost confidence, the IMF Executive
Board approved a two-year FCL arrangement in the amount of US$11 billion (600 percent of quota)
on May 28, 2020. The authorities expect to treat the arrangement as precautionary.
3. Political uncertainty heightened in 2020 and is likely to continue until new elections in
2021. A new Congress was elected in January 2020, but tensions with the executive power
continued to affect institutional cohesion. Instability culminated in November 2020 when the former
president was impeached based on corruption allegations. His immediate successor resigned
following deadly protests within days after his confirmation, following which Francisco Sagasti was
installed as the interim president. Presidential and parliamentary elections will be held in April-June
2021.
RECENT DEVELOPMENTS
4. Despite very aggressive containment measures, the pandemic claimed many human
lives in 2020 and is intensifying again in 2021. Low capacity in the health system (Annex II) forced
the authorities to enforce one of the world’s earliest and strictest lockdowns. Owing to a significant
share of contact-intensive sectors and limited teleworking capacity because of low digitalization, the
containment measures crippled the economy but could not halt soaring infection rates, with the
latter reflecting inadequate test-and-trace abilities. The spread of the infection and capacity
constraints in the health system caused a surge in fatalities, with Peru recording one of the highest
per-capita death rates globally. From August to December, the number of new cases subsided, but a
second wave of the pandemic started in January 2021, with new infections climbing rapidly. The
health system’s capacity is being stretched again, and the authorities have taken targeted measures
to contain infections.1
1
These measures include lockdowns and curfews in 32 provinces in the 17 most-affected regions (originally, the
coverage was 10 most-affected regions) for the month of February.
4 INTERNATIONAL MONETARY FUND
PERU
Covid Confirmed Cases per Million Covid Daily New Cases per Million
50000 (5-day moving average)
45000 800
Brazil
40000 Chile 700 Brazil
Colombia Chile
35000 Mexico 600 Colombia
30000 Peru Mexico
500 Peru
25000 400
20000
300
15000
200
10000
100
5000
0
0
Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21
Sources: Johns Hopkins University; Haver; and IMF staff calculation.
5. The pandemic’s economic impact was severe in the first half of 2020, but economic
activity rebounded afterwards. Real GDP fell by 3.7 percent and 30 percent (y-o-y) respectively in
Q1 and Q2, owing largely to the stringent containment measures (Figure 1). Some sectors—
including mining, construction, and services—almost came to a halt, affecting primary exports,
consumption, and investment. Following an easing of restrictions in June-July, economic activity
recovered rapidly, supported by a strong policy response. As a result, real GDP contracted by 11.1
percent in 2020 (Figure 2). Reportedly, industries representing 28 percent of GDP (including
agriculture, chemical and food industries, telecommunications, and construction) have already
reached their pre-COVID levels of production while another group representing 34 percent of GDP
(including fishing, electricity, and manufacturing) is very close. Despite a spike in food prices in
January, core inflation has remained muted.
Activity Indicators Confidence Index
(In percent, yoy change) (In points)
150 30 60
General Government Public Investment
100 Internal Consumption of Cement 20 50
Electricity Production (RHS)
50 10 40
0 0 30
-50 -10 20
-100 -20 Business Confidence
10
Consumer Confidence
-150 -30 0
Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20
Sources: Haver; INEI; MEM; and IMF staff calculations. Sources: Haver; BCRP; Apoyo Consultoria; and IMF staff calculations.
6. The recession was accompanied by large falls in employment and participation,
particularly among women, and increasing informality and poverty. In the second quarter,
INTERNATIONAL MONETARY FUND 5
PERU
employment contracted by a whopping 35.5 percent (y-o-y), the largest in the region, but the
contraction narrowed to 17.1 percent in the third quarter. Large reduction of wages were also
experienced in the informal sector. The share of informal workers increased to 73.7 percent in
2020Q3 from 71,6 percent one year before (Annex III). Social support programs provided much
needed assistance but could not fully offset income losses for vulnerable households, and poverty
increased to an estimated 27.5 percent in 2020, up from 21.7 percent in 2019 (Annex IV).
7. The swift monetary policy response helped stabilize financial markets. After reducing
the benchmark interest rate by 2 percentage points to a historic low of 0.25 percent at the onset of
the crisis—the lowest level in the region— the central bank provided ample liquidity mainly by
implementing guaranteed-credit repo operations with banks under the Reactiva Perú program,
lowering reserve requirements, and extending the amount and maturity of repo operations. The
Banco Central de Reserva del Perú (BCRP) also made available foreign currency liquidity to the
market during periods of stress. Together with the approval of the FCL, these measures helped
reassure markets, limiting the increase in risk spreads and the depreciation of the exchange rate.
Peru could issue sovereign bonds at low yields in April (US$3 billion) and November (US$4 billion,
including US$1 billion in century bonds, immediately after the November political crisis).
Macroprudential policies were also eased by reducing the countercyclical capital buffer for financial
institutions and allowing them to adjust the terms of loans to households and enterprises without
changing loan classification.2
Exchange Rate Index Government Bond Yield
(Jan. 2013=100) (In percent per annum)
350
Peru Chile Colombia 10
PER 10Y USD-denominated bond
Brazil Mexico PER 10Y sol-denominated bond
300 8 CHL 10Y USD-denominated bond
CHL 10Y peso-denominated bond
250 6
200 4
150 2
100 0
Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21
2
Regarding CFM/MPM measures, the weekly threshold for operations with foreign exchange derivatives above which
financial institutions are required to have additional reserve requirement was raised from US$500 to US$575 million
in December 2019 and then further to US$675 million in March 2020. The threshold above which the additional
reserve requirement applies for financial institutions’ short position in foreign exchange derivatives was increased
from 100 percent of equity (or 100 percent of the average short position or US$800 million, whichever was higher) to
115 percent of equity (or 115 percent of the average short position or US$1 billion, whichever was higher) in
December 2019, and then to 135 percent of the equity (or 135 percent of the average short position or US$1.17
billion, whichever is higher) in March 2020. Given receding capital inflows, these relaxations are in line with the Fund’s
institutional view on capital flows.
6 INTERNATIONAL MONETARY FUND
PERU
EMBI Stock Market Indices
(Jan. 2013=100)
600 220
Peru Chile
Peru Brazil 200
500 Colombia Brazil
Chile Colombia
Mexico 180 Mexico
400 160
140
300
120
200 100
80
100
60
0 40
Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21
Sources: Bloomberg; and IMF staff calculations.
8. The large and broad-based fiscal policy response was essential in containing the
pandemic's impact but was initially hampered by poor implementation. Including non-fiscal
measures in the amount of 7.6 percent of GDP, the total package exceeded 26½ percent of GDP.
Nonetheless, only about 69 percent of above-the-line fiscal measures (7.4 percent of GDP) was
implemented by year-end, reflecting restrictions on construction activity that delayed public
Reactiva Peru Credits by the Size of Borrowers
Number of
Credits Share of total Share of total Employment Share of total
enterprises
(Million of Soles) (Percent) (Units) (Percent) (Thousands) (Percent)
Less than 10 employees 23,857 41.1 483,245 96.2 1,089 39.1
11 to 50 employees 14,938 25.7 14,428 2.9 292 10.5
51 to 100 employees 5,495 9.5 2,060 0.4 147 5.3
101 to 500 employees 9,901 17.0 2,071 0.4 407 14.6
More than 500 employees 3,903 6.7 480 0.1 848 30.5
Total 58,094 100.0 502,284 100.0 2,782 100.0
Source: BCRP, Inflation Report, December 2020
investment and early difficulties in the delivery of direct cash transfers to households.3 The package
included direct support to the health system, households, and businesses and a sizable credit-
guarantee program to support lending to businesses (Reactiva Perú). The latter, which ended in
2020, successfully provided a lifeline to many businesses, including small ones, which constituted
about 99 percent of the beneficiaries. The support of household incomes was not sufficient to
prevent an increase in poverty and its implementation was delayed by administrative problems—
including outdated surveys,4 low financial inclusion, and limited assistance to migrants and
3
By late 2020, public investment recovered significantly while the difficulties in delivery assistance to households had
been largely addressed.
4
The Encuesta Nacional de Hogares (ENAHO) and the Sistema de Focalización de Hogares (SISFOH), which
determine poverty thresholds and social program targets, use the outdated 2007 and 2005 censuses, respectively.
INTERNATIONAL MONETARY FUND 7
PERU
refugees.5 This was partly compensated by opening access to settlement payment and private
pension funds, which, however, did not provide relief to most vulnerable workers (Annex III) and had
adverse implications for the pension system’s integrity (Annex V). Reflecting these measures and the
cyclical drop in revenues, the fiscal deficit widened from 1.6 percent of GDP in 2019 to 8.8 percent in
2020 while public debt increased from 27.1 to 35.4 percent of GDP (Tables 2–3, Figure 3).
Summary of Policy Measures – 2020
(In percent of GDP)
Measures Announced Implemented
Total 26.6 19.2
Fiscal Measures 19.0 14.0
Above the line 7.4 5.1
Revenue 2.3 1.0
Of which : Deferred revenue 1.7 …
Spending 5.1 4.2
Health 0.9 0.8
Non-health 4.2 3.3
Households1 2.8 2.4
Firms2 0.2 0.2
Public works3 1.1 0.6
Other4 0.2 0.1
Below the line 11.6 8.8
Of which : Credit guarantees5 9.6 8.2
Other6 7.6 5.2
Of which : Congress-mandated 5.6 3.9
Sources: Country authorities, IMF staff.
1
Includes cash transfers, subsidies, and in-kind transfers.
2
Wage subsidies.
3
Arranca Perú.
4
Purchases from SMEs, support to agriculture, and other measures.
5
Reactiva Perú and Fondo de Apoyo Empresarial MYPE.
6
CTS and private pension funds withdrawals.
9. To address the second wave of the pandemic, the government announced a new set of
measures in late January 2021. The measures, which amount to about 1.1 percent of GDP, include:
(i) direct support to the health system, including for the purchase of vaccine; (ii) universal direct cash
transfers to households (a third round of the Bono Universal) in the most affected regions; (iii) tax
deferrals for households and businesses in the same regions; and (iv) a new guaranteed-lending
program for SMEs. Moreover, the implementation of already budgeted projects in the health sector,
including the construction of 23 hospitals and 11 health centers, is being accelerated.
10. The financial system remains stable, but vulnerabilities have increased in some
segments. At end-2019, the banking system had adequate capital (Tier-1 capital ratio of 11.6
percent) and liquidity (liquid assets at 21 percent of total assets), and low non-performing assets
(3.4 percent), which were adequately provisioned (149 percent of NPLs; Table 4, Figure 4). Bank
profitability has declined recently (ROE falling to 4.6 percent in November 2020 from 18.1 percent a
5
Over the past three years, nearly one million Venezuelan refugees have settled in Peru.
8 INTERNATIONAL MONETARY FUND
PERU
year ago, and ROA falling to 0.5 percent from 2.3 percent) reflecting lower interest rates and low
demand for credit —with mostly government-guaranteed lending rising—, slight increases in NPLs
(to 4 percent in November 2020, partly reflecting loan restructuring), and additional voluntary
provisions by banks. Top-down stress tests point to a resilient financial system and limited solvency
problems even under adverse scenarios. Nevertheless, default rates are expected to rise significantly
in the cooperative and microfinance sectors, which represent about 7 percent of system assets.
Financial Soundness Indicators Heatmap
Peru 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1 2020Q2 Latest
Overall Financial Sector Rating M M M M M M M M M M M M
Credit cycle L L L L L L L L L L M M
Change in credit / GDP ratio (pp, annual) -0.9 0.0 0.5 0.8 1.3 1.2 1.2 1.2 0.7 2.4 9.2 9.2
Growth of credit / GDP (%, annual) -4.5 -2.6 0.0 1.4 2.4 3.7 3.5 3.6 3.5 1.9 6.8 6.8
Credit-to-GDP gap (st. dev) -0.9 -0.7 -0.2 0.4 1.3 1.2 1.4 1.6 1.6 2.2 3.7 3.7
Balance Sheet Soundness M M M M M M M M M M M M
Balance Sheet Structural Risk M M M M M M M M M M M M
Deposit-to-loan ratio 91.1 90.2 89.1 88.0 88.6 91.0 90.5 91.7 90.5 92.0 94.5 94.5
FX liabilities % (of total liabilities) 41.1 40.2 40.5 39.3 38.9 38.3 38.8 39.9 37.4 38.3 34.3 34.3
FX loans % (of total loans) 29.3 29.0 29.4 28.5 28.3 28.0 27.6 27.4 26.4 27.0 24.6 24.6
Balance Sheet Buffers L L L L L L L L L L L L
Leverage L L L L L L L L L L L L
Leverage ratio (%) 12.1 11.6 12.0 12.6 12.5 12.0 12.3 12.4 12.9 12.6 11.0 11.0
Profitability L L L L L L L L L L L L
ROA 2.1 2.0 2.1 2.2 2.2 2.2 2.2 2.3 2.2 2.1 1.5 1.5
ROE 17.7 17.5 17.6 18.0 17.8 17.6 17.8 18.2 17.9 16.7 12.6 12.6
Asset quality M L L L L L L L L L L L
NPL ratio 4.7 3.4 3.4 3.4 3.3 3.4 3.4 3.5 3.4 3.5 3.5 3.5
NPL ratio change (%, annual) 9.4 -26.6 -27.7 -28.2 -30.3 0.4 1.4 1.7 2.9 4.0 0.9 0.9
Note: L=Low vulnerability; M=medium vulnerability; and H=high vulnerability. The increase in the credit cycle vulnerability in Q2 2020 is related to the increase in credit growth,
which was driven by less risky government-guarenteed lending, while GDP, the denominator of the relevant variables, declined sharply.
Source: IMF staff estimates.
11. While weakening in 2020, Peru’s corporate sector performance has remained robust,
considering global and regional trends. Corporate profitability had already fallen before the
pandemic and declined further in 2020, but it remains robust considering regional trends. At the
same time, corporate leverage increased sharply in 2020, after declining slightly in 2017-2019, yet it
is not very high by regional standards. The cash ratio and interest coverage are the highest in the
region, and the share of debt at risk is not very high (Figure 5).
12. Following an initial collapse in foreign trade, the external position has strengthened. In
January-September 2020, the current account balance improved, reflecting plummeting imports,
lower repatriation of profits from mining, and a one-off income tax payment from a foreign sale of
shares of a large domestic corporation. As a result, the current account registered an estimated
surplus of 0.5 percent of GDP in 2020, compared with a deficit of 1.5 percent in 2019. FDI inflows fell
sharply, which was compensated by substantial public sector foreign borrowing. At end-2020,
international reserves stood at US$74.9 billion, up from US$68.4 billion at end-2019. Based on
preliminary estimates, the external position is moderately stronger than the level predicted by
fundamentals and desirable policies. However, uncertainty around this estimate is very large (Table
5, Figures 6 and 7, Annex VI).
INTERNATIONAL MONETARY FUND 9
PERU
OUTLOOK AND RISKS
13. Assuming the second wave of infections is brought under control by end-March, the
economy is expected to rebound in 2021. After some delays, the authorities have finalized
contracts to purchase COVID-19 vaccines and have started to deploy them.6 The baseline scenario
assumes the recently introduced restrictions are gradually eased in Q2 while macroeconomic
policies remain supportive. Under these assumptions, economic activity would slow in Q1, reflecting
tighter restrictions and reduced mobility, but would regain momentum in the remainder of the year,
led by domestic demand and historically high commodity prices and favorable terms of trade.
Accordingly, staff projects real GDP to grow by 8.5 percent in 2021. The large negative output gap in
2021-22 would dampen inflation pressures, with inflation projected to stay within the target range
of 2 +/-1 percent in the projection horizon. Following an estimated small surplus in 2020, the
current account is expected to gradually converge to a deficit of 1.6 percent of GDP in the medium
term, with international reserves remaining at comfortably high levels.
14. The crisis is likely to leave significant scars. In the medium term, output levels are
projected to be about 9 percent lower than in the pre-pandemic baseline. Contact-intensive
activities such as accommodation and restaurants, which halved in 2020, are expected to recover
fully only in the medium-to-long term. Moreover, long-lasting effects on growth are likely to arise
from firm closures, the permanent loss of dislocated workers, and reduced human capital
accumulation due to school closures. Staff estimates that potential growth has declined from 3½ to
3¼ percent. Growth is projected to converge gradually toward potential, with the negative output
gap closing in 2024.
IMF Staff Real GDP Projection Real GDP and Employment
(In millions of New Soles at 1994 prices) (2019 Q4=100)
800,000
120
700,000
100
600,000
80
500,000
400,000 60
300,000 40
February 2021 projection
200,000 Real GDP (SA)
Pre-pandemic projection 20
100,000 Employment (3M moving average)
0
0
2019Q4 2020Q1 2020Q2 2020Q3
2018 2019 2020 2021 2022 2023 2024 2025 2026
Sources: IMF staff calculations. Sources: Haver; BCRP; INEI; and IMF staff calculation.
15. The outlook is highly uncertain, and risks remain to the downside. The pandemic's
second wave could be more acute and protracted, or another wave could follow in the winter
season. Reflecting low capacity in the health system and delays in vaccination plans, this would
require broader and stricter containment measures, which would hurt economic activity and
6
Peru has finalized agreements with Pfizer (20 million doses), Sinopharm (38 million doses), AstraZeneca (14 million
doses), and the COVAX facility (13.2 million doses) to cover its 31.5 million population by-end 2021. Vaccinations
started in February and 24.5 million people are expected to have received the vaccine by end-July..
10 INTERNATIONAL MONETARY FUND
PERU
dampen domestic demand. Further political uncertainty and social unrest would have depressing
effects on investment in the short-term. A decline in political support for key institutions and
policies could have significant medium-term implications. Main external risks include a global
reversal in trade integration, a sudden change in foreign investors’ sentiment, and the intensification
of natural disasters in the medium term due to climate change. Stronger global growth from
unexpected shifts in the pandemic and a significant increase in public investment execution are
upside risks (Annex VII).
16. Despite the challenges, policy buffers are ample. Notwithstanding its recent increase,
public debt remains low. Sizable international reserves (about 34 percent of GDP), access to the two-
year FCL arrangement and other funding sources, and a robust financial sector mitigate
macroeconomic risks stemming from the pandemic and support the country’s capacity to cope with
additional adverse shocks.
POLICY DISCUSSIONS
Heightened health risks require continued policy support. Using the space available, fiscal policy
should address the new health emergency and sustain household incomes to reduce poverty, limit
scarring, and ensure against downside risks to growth. In the absence of inflationary pressures,
monetary conditions should remain accommodative. Structural reforms should address the needs
exposed by the pandemic, focusing on policies to enhance productivity, improve governance, and
strengthen the social safety net.
Balancing Short-Term Fiscal Support and Medium-Term Plans to Return
to the Fiscal Targets
17. The fiscal position remains strong, notwithstanding the large policy support deployed
in 2020. The fiscal deficit is expected to fall from 8.8 percent of GDP in 2020 to 5 percent of GDP in
2021 as transitory relief measures are gradually phased out. Public debt would peak at about 37.5
percent of GDP in 2025 before declining steadily
Public Balance Sheets
toward the 30-percent-of-GDP target, beyond the (EMs and Peru)
100%
forecast horizon. Gross debt and debt burden
80%
indicators are well below the corresponding
60%
benchmarks for emerging economies and are
40%
expected to remain sustainable under standard
20%
shocks (Annex VIII). Despite a large share of debt
0%
held by non-residents, market access is ample, as Spring 2020 Fall 2020 - Latest Spring 2020 Fall 2020 - Latest
evidenced by the century-bond issuance last Public Assets
Weak Balanced
Public Liabilities
Strong Peru
November. The authorities’ goal of broadening the Sources: IMF Consistent Policy Assessment database.
investor base and raising the domestic currency
share of public debt should help mitigate investor concentration risks.
INTERNATIONAL MONETARY FUND 11
PERU
18. More policy support is warranted in the short term. Peru has some fiscal space under the
current fiscal rules and substantial fiscal space in a scenario unconstrained by the fiscal rules. Despite
the anticipated recovery in 2021, the output gap is expected to remain large while employment and
labor participation are lagging. In staff’s view, a more gradual withdrawal of the fiscal stimulus is
needed to address the pandemic, limit its impact on poverty, and ensure against downside risks to
growth. Accordingly, staff sees merit in considering a fourth round of the Bono Universal in the
amount of about 2½ percent of GDP. In the alternative scenario with this additional stimulus, the
output gap would close more rapidly, poverty would return to pre-Covid levels in 2021 (Annex IV),
inflationary pressures would be contained, and public finances would remain healthy, with public
debt peaking at slightly above 39 percent of GDP. Furthermore, there would remain fiscal space to
use fiscal policy for countercyclical purposes in case downside risks to growth materialize.
Baseline and Alternative Scenarios
(In percent of GDP unless otherwise specified)
Prelim. Projections
2019 2020 2021 2022 2023 2024 2025 2026
Baseline scenario
GDP growth rate (percent) 2.2 -11.1 8.5 5.2 4.8 3.4 3.3 3.3
Output gap (% of potential GDP) -1.7 -7.2 -3.0 -1.4 -0.1 0.0 0.0 0.0
Primary NFPS spending 25.0 29.3 25.6 24.7 24.0 23.7 23.6 23.3
NFPS fiscal balance -1.6 -8.8 -5.0 -3.4 -2.8 -2.4 -2.1 -1.8
NFPS debt 27.1 35.4 35.4 36.2 36.7 37.2 37.5 37.4
Poverty rate (percent) 21.7 27.5 27.2 … … … … …
Alternative scenario 1/
GDP growth rate 2.2 -11.1 10.4 3.6 4.8 3.4 3.3 3.3
Output gap (% of potential GDP) -1.7 -7.2 -1.4 -1.2 0.0 0.0 0.0 0.0
Primary NFPS spending 25.0 29.3 27.7 24.7 24.0 23.7 23.5 23.3
NFPS fiscal balance -1.6 -8.8 -7.1 -3.4 -2.8 -2.4 -2.1 -1.8
NFPS debt 27.1 35.4 37.0 38.3 38.6 39.1 39.3 39.2
Poverty rate (percent) 21.7 27.5 20.8 … … … … …
Difference between output (alternative/baseline; in percent) … … 1.7 0.3 0.3 0.3 0.3 0.3
Sources: Peruvian authorities; and IMF staff estimates.
1/ Based on the assumption of additional fiscal spending of 2.5 percent of GDP in 2021 as advised by the IMF staff.
19. The authorities’ current plans to return to the fiscal targets need to be revisited. After
the suspension of the fiscal rules in 2020-21, the authorities’ 2020 Medium-Term Macroeconomic
Framework (MTMF) envisions meeting the 1-percent-of-GDP fiscal deficit target in 2026. The
planned consolidation would be supported by a gradual unwinding of transitory measures, with
current spending falling by 1.9 percent of GDP and tax revenues increasing by 1.7 percent of GDP.
These plans seem now ambitious considering the extreme uncertainty around the macroeconomic
12 INTERNATIONAL MONETARY FUND
PERU
outlook and the need to accommodate the MTMF Revenue and Spending
(Percent of GDP)
higher spending needs highlighted by the 29
Revenue Measures
revival of the pandemic. In staff’s views, the 27 Total Revenue
available fiscal space would allow for a more Total Spending
25
gradual return to the pre-pandemic fiscal
23
targets than currently envisioned.
21
20. Moreover, spending needs in key 19
sectors will have to be accommodated in 17
2018 2019 2020 2021 2022 2023 2024 2025 2026
the medium term. The public healthcare
Sources: MEF; and IMF staff calculation.
system suffers from serious capacity
bottlenecks (Annex II). The social safety net (SSN), while having a good coverage —in line with the
regional median and above the EME median, particularly for low-income families— looks worse than
comparators as to adequacy for all income groups. The need to address these weaknesses has been
emphasized by the pandemic. To reduce scarring, training programs and income support could be
provided to displaced workers as they transition to new jobs. The depletion of personal accounts in
private pension funds has heightened the challenges of low coverage and low adequacy in the
pension system —with replacement rates projected to decline further in the medium term— and the
urgency of reform.7 Investment in infrastructure is also a priority to boost productivity, increase
resilience to climate change, and enhance digitalization. Some costs will arise from the contingent
liabilities related with the guaranteed-lending program.
Social Protection and Labor: Coverage and Adequacy
(In percent, by income quintile, most recent available year)
Coverage Adequacy
120 60
100 50
Adequacy of Benefits (%)
80 40
Coverage (%)
60 30
40 20
20 10
0
0
Q1 (Poorest) Q2 Q3 Q4 Q5 (Richest)
Q1 (Poorest) Q2 Q3 Q4 Q5 (Richest)
Brazil Chile Colombia Brazil Chile Colombia
Mexico Peru EME (median) Mexico Peru EME (median)
LAC (median) LAC (median)
Source: IMF FAD Social Protection & Labor - Assessment Tool (SPL-AT).
Note: Coverage measures the percentage of the quintile that receives a SSN benefit. Adequacy of benefits measures the total
transfer amount received by all beneficiaries in the quintile as a percent of the pre-transfer total income/expenditure of
beneficiaries (in that quintile). Calculations are based on pre-COVID-19 information. EME = emerging market economies; LAC
= Latin America and the Caribbean.
7
See Annex V and Freudenberg, C. and F. Toscani (2019) “Informality and the Challenge of Pension Adequacy:
Outlook and Reform Options for Peru”, IMF WP/19/149.
INTERNATIONAL MONETARY FUND 13
PERU
21. Revenue mobilization will be key to preserving fiscal sustainability while
accommodating additional spending. Increased use of electronic invoicing, the maturation of tax
measures introduced in 2017-2018 (including changes to the excise schedules), the implementation
of the OECD/G20 Inclusive Framework on BEPS,8 the expiration of tax benefits of some large mining
projects, and other efforts at revenue administration (including streamlining of tax auditing
processes) would yield additional tax revenues of about 1 percentage point of GDP. Staff’s baseline
incorporates the expected yields from the identified measures that, while ambitious, are achievable.
To help identify measures that address the remaining 0.7-percent-of-GDP revenue gap, the
authorities have asked for Fund TA.
22. Continuing to anchor policy to a credible medium-term plan will help the authorities
navigate through uncertainty. Peru’s very strong fiscal framework has served it well to anchor
fiscal policy. Guiding the adoption of the 2022 budget with a new MTMF underpinned by
conservative growth projections and adequate measures will help maintain confidence in a situation
of extreme uncertainty. Moreover, the new MTMF should also identify contingent policy measures in
case downside risks materialize.
Maintaining Monetary Accommodation and Preserving Financial
Stability
23. Monetary accommodation has been essential in preventing disruptions in the financial
system. The extraordinary easing of monetary conditions by the BCRP, combined with the relaxation
of macroprudential policies and the government-guaranteed lending programs, have succeeded in
stimulating credit growth at low interest rates (Table 6), and averting widespread bankruptcies and
business closures. Credit to businesses in domestic currency increased by 21.6 percent (y-o-y) in
October—one of the highest rates in the region—but, excluding loans under Reactiva Perú, fell by
3.9 percent. Still, a significant part of the injected liquidity returned to the central bank as
commercial bank deposits and other claims on the BCRP, reflecting low demand for investment.
24. Easy monetary conditions should continue as extraordinary measures are being
withdrawn. With a substantial negative output gap until 2022, inflationary pressures are expected
to remain subdued. Continued monetary accommodation would facilitate a gradual return to
normality as the impact of the extraordinary measures taken in 2020 dissipates. In its February
forward-guidance, the BCRP has highlighted appropriately that easy monetary conditions are likely
to persist for an extended period. In addition, the BCRP has created new security repos conditional
on the expansion of long-term lending, which can enhance the transmission of monetary policy and
allow further easing of monetary conditions if necessary. As extraordinary measures are withdrawn
— Reactiva Perú expired in 2020— another guaranteed-lending program could be considered,
particularly if downside risks to growth materialize.
8
Actions 4 (limitation on interest rate deductions), 8-10 (transfer pricing), and 13 (exchange of information).
14 INTERNATIONAL MONETARY FUND
PERU
Macrofinancial Stance and Advice Commercial Bank Lending to the Private Sector
(EMs and Peru) and Changes in the Position Against the BCRP
100% (Millions of Soles)
60,000
80% Credits to the private sector
Obligations to the BCRP
60% Deposits with and other claims on the BCRP
40% 40,000
20%
0%
20,000
Spring 2020 Fall 2020 - Latest Spring 2020 Fall 2020 - Latest
Macro-Fin Stance Macro-Fin Advice
Loose(n) Moderately Loose(n)
Neutral (stay on hold) Moderately Tight(en) 0
Tight(en) Peru 2019 2020
Credit Growth Interest Rates
(In percent, yoy) (In percent)
30 8
Enterprises Small enterprises
Consumer Mortgages
Total 6
20
10 4
2 Lending to corporates, 360 days<
0
Lending to corporates, >360 days
Deposits, 30 day
0
-10 Jan-19
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Feb-19
Mar-19
Apr-19
May-19 Jun-19
Jul-19
Aug-19
Sep-19
Jun-19
Jul-19
Aug-19
Sep-19 Oct-19
Nov-19
Dec-19
Jan-20
Oct-19
Nov-19
Dec-19
Jan-20 Feb-20
Mar-20
Apr-20
May-20
Feb-20
Mar-20
Apr-20
May-20 Jun-20
Jul-20
Aug-20
Sep-20
Jun-20
Jul-20
Aug-20
Sep-20 Oct-20
Nov-20
Dec-20
Oct-20
Nov-20
Dec-20
Sources: IMF Consistent Policy Assessment database ; national authorities; and IMF staff calculations.
25. In the medium term, greater exchange rate flexibility would have several benefits.
With reserve levels adequate for precautionary purposes, the BCRP has intervened on both sides of
the market since the beginning of the pandemic, without preventing the exchange rate from
depreciating (Annex IX). In fact, the exchange rate has depreciated more than in some regional
comparators, but volatility has been much less pronounced, in line with the BCRP’s objective to
prevent the build-up of self-fulfilling expectations in a context characterized by persistent but
declining financial dollarization. As uncertainty subsides and currency mismatches decline further,
additional exchange rate flexibility would help foster the development of hedging instruments,
strengthen the transmission of monetary policy, and further reduce dollarization by inducing agents
to internalize exchange rate risk. Higher risk weights for FX loans (a 2018 FSAP recommendation)
would also help reduce dollarization.
INTERNATIONAL MONETARY FUND 15
PERU
Foreign Exchange Intervention
Exchange Rate Index
(Millions of US dollars)
600 3.7 (Dec. 2019=100)
160 Peru
400 3.6 Brazil
150
Chile
3.5 Colombia
200 140
Mexico
3.4
0 130
3.3
-200 120
3.2
-400 110
Non-spot 1/ Spot purchases (net) 3.1
USD/PEN (RHS) 100
-600 3.0
Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20
90
Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21
Sources: Bloomberg and IMF staff calculations.
Source: BCRP and staff estimates.
1/ Net maturity of CDR BCRP, net maturity of FX (sell) swaps, net issuance of
CDLD and net purchases of FX (buy) swaps.
26. Further enhancing communications could help manage the challenges of a multi-
instrument framework. Peru has historically used such a framework to achieve its policy objectives,
with exchange rate policy focused on managing risks associated with liability dollarization, and
macroprudential policies on mitigating financial stability risks (IMF Country Report No. 20/4). While
the BCRP has solid communication and transparency practices, the use of multiple instruments
presents specific communication challenges. The BCRP could go further than reporting factual FX
interventions, to explain, for example in its quarterly inflation reports, the rationale of past
interventions by linking them to the structural characteristics of the economy and the policy trade-
offs. This could help guide expectations beyond the immediate horizon, thereby facilitating a
gradual transition to more exchange rate flexibility as dollarization declines. Staff and the
authorities have agreed on continuing to work on better understanding the challenges and trade-
offs of a multi-instrument framework.
27. As conditions allow, macroprudential policies may start shifting focus by encouraging
banks to put more emphasis on the viability of clients. Interest rates on business loans —
particularly to SMEs and micro-sized firms— have started to increase with the end of government-
guaranteed lending programs while parts of the corporate sector remain fragile, especially in badly-
hit sectors like tourism and services. At the onset of the pandemic, the Superintendencia de Bancos,
Seguros y AFPs (SBS) reduced the countercyclical capital buffer for financial institutions and allowed
them to adjust the terms of loans (allowing temporary grace periods, extensions and other loan
modifications) without changing loan classification. As of November 2020, 28 percent of total loans
had been modified, with the highest shares in consumer lending and lending to SMEs. Considering
the credit cycle and financial vulnerabilities, macroprudential policies could start encouraging banks
to focus on borrowers’ viability and directing resources to viable but illiquid firms. For unviable ones,
efficient bankruptcy frameworks will be needed. In this regard, the authorities should aim to reduce
lengthy administrative proceedings and encourage out-of-court restructurings.
16 INTERNATIONAL MONETARY FUND
PERU
Bank Lending Rates in National Currency 1/ Private Balance Sheets
(EMs and Peru)
(In percent) 100%
35
30 Mar-20 Jun-20 Dec-20 2/ 80%
25
60%
20
15 40%
10
20%
5
0 0%
Corporate Big company Medium Small Micro Spring 2020 Fall 2020 - Latest Spring 2020 Fall 2020 - Latest
company company company
Private Financial Private Non-financial
Source: SBS.
Weak Balanced Strong Peru
1/ For operations carried out in the last 30 business days.
2/Information as of December 17, 2020. Sources: IMF Consistent Policy Assessment database.
calculations.
28. Closing key regulatory and supervisory gaps would boost financial resilience. The
authorities have taken significant steps to strengthen financial sector oversight, in line with the
recommendations of the 2018 FSAP. Reforms that have been fully or partially implemented include
expanding financial co-operatives’ oversight by SBS, monitoring of banks’ off-balance-sheet
exposures, introducing new risk-monitoring tools, implementing risk-based supervision for all
insurers, strengthening crisis preparedness and management, and enhancing the emergency
liquidity assistance framework. Several measures are being prepared, in line with the FSAP
recommendations, including higher capital surcharges for systemically important banks, enhanced
supervision of financial groups, and requirements for recovery and resolution planning for domestic
systemically important banks and financial groups (Annex X).
Structural Reforms for Stronger, Resilient, and Inclusive Growth
29. Reforms remain essential to remove structural bottlenecks and boost sustainable
growth. Sound policies and frameworks have
underpinned a very strong macroeconomic Impact of Structural Reforms on GDP Level
10
performance in the last 15 years. The continuation Domestic Finance
Trade
External Finance
Product Market
8
of this performance requires removing several Labor Market Governance
structural hurdles, for which the payoff is 6
expected to be quite large. Staff estimate that 4
GDP could increase by up to 8 percent six years 2
after the implementation of reforms in the areas 0
of governance, labor market, and domestic Reach the level of the best LAC
performer
Reach the level of the best
performer (globally)
finance.9 Sources: IMF staff estimates, based on the methodology and data of 2019
WEO Chapter 3.
9
Estimated based on the methodology and data of 2019 WEO Chapter3, “Reigniting Growth in Low-Income and
Emerging Market Economies: What Role Can Structural Reforms Play?”
INTERNATIONAL MONETARY FUND 17
PERU
30. The authorities continue to make progress on strengthening governance and anti-
corruption. The institutional reforms approved with the 2019 referendum have been
implemented.10 In 2020, key achievements under the Anti-Corruption Plan (2018–21) have been the
creation of the Offices of Institutional Integrity in more than 200 public sector entities, the launch of
a whistleblower complaint platform, and the development of an integrity index by the Integrity
Secretariat to focus on areas with higher corruption risks. The Comptroller’s Office monitors
emergency-related spending, identifies abuses, and publishes regularly its reports.11 Efforts to
ensure the accuracy of beneficial ownership information of companies collected by SUNAT is
ongoing. Several AML/CFT regulations have been issued to guide customer due diligence
requirements for politically exposed persons. Asset declaration requirements cover high-level public
officials and are made publicly available.
31. Staff has completed the safeguards procedures for Peru's FCL arrangement. KPMG Peru
issued an unmodified (clean) audit opinion on the BCRP’s financial statements for 2019. The annual
financial statements are audited in accordance with international standards, include comprehensive
disclosures and are published on a timely basis. Staff reviewed the 2019 audit results and held
discussions with the BCRP and KPMG Peru. No significant issues emerged from the conduct of these
procedures.
32. The pandemic has exposed important structural fragilities that should become
priorities in the reform agenda. Low capacity in health care, while contributing to high mortality,
required stringent containment measures with strong adverse effects on growth. Poverty, low
financial inclusion, high informality, and political instability hampered the authorities’ efforts to
provide relief to households and contain the contagion. Low digitalization, combined with a large
share of contact-intensive industries, limited teleworking, aggravating the economic impact of the
lockdown. Against this background, a multi-pronged strategy to address these fragilities should
focus on:
a. boosting productivity, including by improving education, enhancing infrastructure,
facilitating labor reallocation, and improving the business climate, in line with the National Plan for
Competitiveness and Productivity launched in 2019. The new agriculture promotion law, while
gradually removing fiscal incentives to create a level-playing field, should preserve the flexibility in
labor contracts that has been a key ingredient in the success of the agro-export sector (IMF, Country
Report No. 20/3, Annex I).
b. enhancing social protection while reducing incentives to informality from the tax-
benefit system. Investment in health care and a more adequate SSN, including pensions, are key but
the recently announced move to universal health care should be accompanied by measures that
10
For example, the National Board of Justice (an independent organ to appoint judges and prosecutors) is now
operational.
11
Almost 1,500 investigations were opened between March and August 2020 for irregularities amounting to 0.6
percent of GDP. Most cases were related to the direct distribution of food and medical equipment in municipalities.
18 INTERNATIONAL MONETARY FUND
PERU
reduce its adverse impact on incentives.12 Efforts to deepen financial development and inclusion
should be intensified.
c. further strengthening governance. Additional transparency in the public sector, including
at the local level, and robust anti-corruption and AML/CFT enforcement would improve the business
climate. In this context, priorities could focus on enhancing the effectiveness of anti-corruption
institutions —including by providing adequate resources and training to the newly created Offices
of Institutional Integrity—, strengthening the planning and implementation of public investment,
and moving toward digital methods for tax and business-related procedures.
Tele-workability and Internet Usage Sectoral Distribution of Employment
30
Employment Share by Sector (Percent of
0.4
ISR 25 Increasing Teleworkability
POLLTU EST
0.38 SGP 20
HUN FRA
SVK ESPFIN CHL MEX PER
Mean tele-workability
0.36 ITA NZL GBR 15
ECU CYP BEL
SVN
0.34 KAZ CHL IRL USACAN 10
CZE
Total Employment)
KOR
NLD
DEU DNK
NOR 5
0.32 MEX SWE
PER GRC JPN 0
0.3 AUT
0.28
TUR
0.26
45 55 65 75 85 95
Percent of internet users in population
Sources: Brussevich, M., E. Dabla-Norris, S. Khalid, 2020, "Who will bear the brunt of lockdown policies? Evidence from tele-
workability measures across countries." International Monetary Fund. Mimeo.
Authorities’ Views
33. The authorities were more optimistic on the growth outlook. The authorities expected
double-digit growth in 2021. They agreed that voluntary social distancing and tighter mobility
restrictions would take a toll on economic activity in Q1 but underscored the limited economic
impact of the targeted restrictions, with more activities allowed to operate compared with the first
lockdown period. Moreover, they noted underlying strong fundamentals, including exceptionally
favorable terms of trade, continued policy support, contained damage to the production capacity,
and recovering public and private investment, which should set the stage for a strong recovery in
the remainder of the year. While conceding that potential growth may have declined, they did not
see strong evidence of that happening yet.
34. The authorities agreed with the thrust of staff’s fiscal policy advice. They noted that the
strong policy measures taken in 2020 helped contain the depth of the economic recession, with
Reactiva Perú alone preventing the loss of 2.8 million jobs. Moreover, the package announced in
response to the second wave of the pandemic seeks to address the medical emergency, alleviate the
loss of income of vulnerable households, and protect SMEs by providing bridge financing. In line
12
Nauerz, J. and J. Torres, “Unintended Effects from the Expansion of the Contributory System SIS in Peru”, IMF WP
(to be published) show that larger access to free health care may reduce informal workers’ incentives to move to the
formal sector.
INTERNATIONAL MONETARY FUND 19
PERU
with staff’s recommendations, this package includes a third round of the Bono Universal, although
specifically targeted to the areas hardest hit by the pandemic. The authorities noted that other
measures are being considered, the nature of which will be contingent on developments on the
health front. They noted the temporary nature of these measures and their limited impact on debt,
reflecting the authorities’ effort to use budget reallocations and public assets for their financing. A
new transition path to the fiscal targets will be announced in August in the new MTMF. The
authorities agreed that the MTMF should identify measures to close the ensuing revenue gaps, but
noted that these measures, as well as a possible recalibration of the fiscal rules, will have to be
considered by the upcoming administration.
35. There was broad agreement on the monetary policy advice, but the authorities
disagreed with staff recommendations for additional transparency on foreign exchange
intervention. The authorities appreciated the concurrence of staff on the importance of the
aggressive monetary policy response to the pandemic and on the appropriate monetary stance. On
exchange rate policy, they noted that the exchange rate evolves in line with fundamentals and
broadly follows the same trend as in peer countries, although it is less volatile. However, in
exceptional cases such as the current pandemic, the exchange rate has depreciated more than in
other countries in the region. The authorities remarked that foreign exchange intervention is aimed
at reducing excessive exchange rate volatility in the context of persistent —although declining—
financial dollarization and ensuring proper market functioning. In normal times, foreign exchange
intervention declined. However, they also noted that, depending on the magnitude of exogenous
shocks, more frequent foreign exchange intervention may be needed. The authorities also
emphasized that, consistent with discretionary foreign exchange intervention, information on these
operations is published ex-post the same day. Thus, exchange rate policy is viewed as sufficiently
transparent as, unlike in many other EMEs, the central bank announces when it is starting to run
forex operations in the market in real time and publishes same-day information on foreign exchange
intervention and explains the rationale for intervention in its official publications, such as the
Inflation Report.
36. The authorities underscored the significant steps taken to strengthen financial sector
oversight. They highlighted the significant reforms implemented so far and several additional
measures that are being prepared to enhance oversight of the financial system and contain risks.
They noted that some FSAP recommendations had been delayed by the need to build political
support for amending the Banking Law. They agreed that the financial sector remains stable, and
that growing risks in the microfinance sector do not have systemic implications.
37. The authorities concurred on the importance of reorienting the structural reform
agenda to address the needs exposed by the pandemic. They agreed on the need to strengthen
the public provision of health, education, and social protection, and on the urgency of a
comprehensive and well-designed pension reform. They were confident that that the new agrarian
law approved by Congress would continue to underpin the success of the agro-export industry.
They concurred on the importance of investing in infrastructure and highlighted their recent efforts
to enhance digitalization. They confirmed their commitment to strengthening governance and
fighting corruption.
20 INTERNATIONAL MONETARY FUND
PERU
STAFF APPRAISAL
38. After being hit hard by the pandemic, Peru faces an uncertain economic outlook. Low
capacity in the health care system required stringent containment measures in the first half of 2020,
leading to a sharp fall in economic activity and employment while fatalities mounted. Activity
rebounded rapidly in the second half of 2020, helped by a very strong policy response and rising
commodity prices, but the second wave of infections that started in early 2021 is jeopardizing the
recovery. Assuming infections are brought under control by end-Q1, strong fundamentals should
allow a robust recovery in the rest of the year, and growth could rise to 8.5 percent in 2021 from a
contraction of 11.1 percent in 2020. However, downside risks—including that of a more acute and
prolonged second wave—remain.
39. Large policy buffers and continued implementation of very strong policies will help
mitigate risks. Large buffers allowed the authorities to adopt sizable monetary, fiscal, and financial
policy packages to fight the adverse effects of pandemic and prevent even worse economic
outcomes. As a result, the public deficit increased sharply, but debt remains sustainable even under
further shocks, and more fiscal space is available. With the policy rate close to the zero-lower bound,
monetary policy is experimenting with the use of forward guidance and unconventional policies. The
current account balance has improved significantly, and reserves are above standard reserve
adequacy metrics. Very strong economic fundamentals and institutional policy frameworks continue
to provide the basis for a sustained track record of very strong policies, including across multiple
electoral cycles and governments.
40. The second wave of the pandemic and large downside risks surrounding the outlook
argue against a premature withdrawal of the fiscal stimulus. The government is already
responding to the second wave with additional measures, but more is needed to compensate for
the pandemic's impact on most vulnerable groups. Moreover, the government should prepare
contingency measures in the event potential downside risks to growth materialized, including by
further accelerating the execution of special projects in the health sector. Similar vehicles could be
considered for public investments in water, sanitation, and housing.
41. Anchoring fiscal policy to a credible medium-term framework remains essential.
Converging back to the fiscal targets will take time in a situation characterized by extreme
uncertainty and rising spending needs. The new MTMF, which will guide the adoption of the 2022
budget, should be underpinned by conservative growth projections and adequate revenue measures
to address identified revenue gaps. It should also identify contingent measures based on the
analysis of risks. Any recalibration of the fiscal rules, which might be considered when uncertainty
has dissipated, should preserve debt sustainability, strengthen credibility, and be clearly
communicated.
42. Easy monetary conditions should continue while macroprudential policies should
encourage banks to focus on clients' viability if conditions allow. With a substantially negative
output gap until 2022 and well-anchored inflation expectations, monetary policy stimulus should
not be withdrawn. As dollarization declines, the central bank could allow greater exchange rate
INTERNATIONAL MONETARY FUND 21
PERU
flexibility to absorb external shocks and promote financial development. Foreign exchange
intervention has been two-way, and the external position is moderately stronger than the level
predicted by fundamentals and desirable policies. Loan restructuring in 2020 helped contain
bankruptcies. As the economy recovers, considering the credit cycle and financial vulnerabilities,
macroprudential policies could initiate a gradual return to normal conditions, encouraging banks to
focus on borrowers’ viability and direct resources to viable but illiquid firms. Unviable enterprises
should be resolved promptly.
43. Heightened financial stability risks highlight the importance of completing the
legislative and regulatory reform agenda. The authorities have taken significant measures to
maintain financial stability and strengthen financial sector oversight. Nonetheless, other steps are
needed to implement requirements for recovery and resolution planning for domestic systemically
important banks and financial groups, reinforce the legal protection of supervisors, and bring some
regulations in line with Basel III, including those regarding risk weights for foreign currency loans
and capital surcharges for systemic banks.
44. Priorities in the reform agenda should be informed by the important structural
fragilities exposed by the pandemic. A multi-pronged strategy to address these fragilities should
focus on (i) boosting productivity by improving education, enhancing infrastructure, facilitating labor
reallocation, and improving the business climate; (ii) enhancing social protection while reducing
incentives to informality from the tax-benefit system, including through investment in health care
and pension reform; and (iii) strengthening governance with additional transparency in the public
sector and robust anti-corruption and AML/CFT enforcement.
45. Staff recommends that the next Article IV consultation take place on the standard 12-
month cycle.
22 INTERNATIONAL MONETARY FUND
PERU
Figure 1. Peru: Containment Measures and Economic Recovery
Strict containment measures were eased in June-July. More than in other countries in the region, a large part of the
economy was closed.
Stringency Index Stringency and Growth in LA5 Countries
100 (March-December 2020) 1/
90 20
80 10
Dec
70
0 Nov Oct
Activity (%, yoy)
60 Sep
-10 Aug
50
Jul Jun
40 -20
Brazil Chile
30 Colombia Mexico -30
20 Peru May
-40 Apr
10
0 -50
Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 0 20 40 60 80 100
Stringency index
Unlike in Chile, Peru’s mining sector was subject to the The restrictive measures crippled economic activity.
lockdown.
Mining Production LA5: Construction Activity 2/
(Index, Dec=100, SA) (Index, Dec. 19 = 100, SA)
120 140
110 120
101.5
100 100
99.6
90
94.6 80
Peru
80
60 Colombia
70 Chile
40 Brazil
60 Mexico
50 56.0 20
12.3
40 0
Dec-19 Mar-20 Jun-20 Sep-20 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20
Mobility recovered as the restrictive measures were …and so did economic activity.
eased…
Economic Reopening and Mobility Economic Reopening and GDP
(LHS: in percent of GDP; RHS: percentage change from baseline) (LHS: in percent of GDP; RHS: SA, 2007=100)
Economic Reopening Mobility (7-day average) Economic Reopening GDP Index (RHS)
98
98 100 96.3 200
96.3 91.6
100 91.6 0
Phase 4 Phase 3 Phase 4
90 Phase 3 reopen -10
80 72.8 Phase 2 reopen reopen
80 Lockdown 72.8 Phase 2 7/1/2020 reopen -20 150
reopen 10/1/2020 reopen 7/1/2020 10/1/2020
70 start -30
6/5/2020 60 6/5/2020
60 3/16/2020 -40
50 -50 44.1 100
44.1
40 -60 40
30 -70
Phase 1 Lockdown Phase 1 50
20 -80 20
reopen start reopen
10 -90
5/4/2020 3/16/2020 5/4/2020
0 -100 0 0
Mar-20 May-20 Jul-20 Sep-20 Nov-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20
Sources: Oxford University, Haver; MEF, Diario Oficio El Peruano; Banco Central de Reserva del Perú (BCRP); and IMF
staff estimates.
1/ LA5 countries include Brazil, Chile, Colombia, Mexico, and Peru (in red).
2/ Chile and Peru: Monthly GDP, Brazil and Mexico: IP - Construction, Colombia: Economic Activity Index
INTERNATIONAL MONETARY FUND 23
PERU
Figure 2. Peru: Real Sector Developments
Unemployment increased sharply, particularly among
Growth was recovering in the second half of 2020. young and female.
25 40
Real GDP Unemployment Rate 2/
(Percent change , year-on-year) 35 (Percent, 3M rolling avg)
10 30
Unemployment rate
25 24 years and younger
Female
-5 20
15
-20 10
Real GDP
5
Domestic demand
-35 0
2013Q1 2014Q3 2016Q1 2017Q3 2019Q1 2020Q3 Jan-13 Aug-14 Mar-16 Oct-17 May-19 Dec-20
The central bank cut the policy rate to a historically low
…while core inflation is low.
level…
8 14
Inflation 1/ Tradable and Non-tradable Inflation
(Percent change, year-on-year) 12 (Percent change, year-on-year)
Headline inflation 10
6 Tradables
Target band
Non-tradeable ex. food
Policy rate 8
Food
Non-food and non-energy
6 Core Inflation
4
4
2
2
0
-2
0 -4
Jan-13 Aug-14 Mar-16 Oct-17 May-19 Dec-20 Jan-13 Aug-14 Mar-16 Oct-17 May-19 Dec-20
The recovery is driven by consumption and investment. Confidence indicators improved in the second half of 2020.
25 80
Contribution to Growth Business Confidence Index
(Percent change , year-on-year) 70 (Expectation for next 3 month)
10 60
50
-5 40
Private investment
Private consumption 30
Net exports
-20 20
Public investment
Public consumption
10 State of economy Sales sector
Change in inventory
GDP growth 0
-35
2013Q1 2014Q3 2016Q1 2017Q3 2019Q1 2020Q3 Jan-13 Aug-14 Mar-16 Oct-17 May-19 Dec-20
Sources: National authorities; and IMF staff calculations.
1/ Unemployment rates correspond to Metropolitan Lima.
2/ Inflation values correspond to Metropolitan Lima.
24 INTERNATIONAL MONETARY FUND
PERU
Figure 3. Peru: Fiscal Sector Developments
(Percent of GDP)
After widening sharply in 2020, the primary balance is Improving growth prospects would allow for a partial
expected to gradually improve. withdrawal of the fiscal impulse in 2021.
32 10 10 15
Selected Indicators 8 8
Selected Indicators
30 10
6 6
4 4
28 5
2 2
26 0 0 0
-2 -2
24 -5
-4 -4
Primary balance (RHS) -6 Fiscal impulse
-6
22 Output gap -10
Primary expenditures
-8 -8
Revenue Primary spending (percent, yoy, RHS)
20 -10 -10 -15
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
… while the increase in expenditures in 2020 is expected to
Tax revenues are expected to recover gradually…
reverse over the medium term.
Public Expenditure
30
Capital Current
20
10
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
… and the debt ratio would return to their respective
In the baseline scenario, both the fiscal deficit … targets of 1 percent and 30 percent of GDP beyond the
forecast horizon.
4 45
Overall Fiscal Balance Public Debt
2 40
External gross debt
35 Domestic gross debt
0
30
-2 25
-4 NFPS overall balance 20
NFPS structural balance 15
-6
10
-8 5
-10 0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Sources: National authorities; and IMF staff estimates.
1/ Net of restitutions.
INTERNATIONAL MONETARY FUND 25
PERU
Figure 4. Peru: Balance Sheet Indicators
Peru’s net international investment position remained …but fluctuation in liabilities to foreign banks increased in
stable in 2019…. 2020.
75 26
International Investment Position BIS: Foreign Bank Positions vis-à-vis Peru
50 (Percent of GDP) (Billions of U.S. dollars)
25
22
0
Assets
-25 Liabilities
18
-50
-75
Equity
-100 Debt 14
FDI
-125 Net intern at ion al investment position
Liabilities
-150 Assets
10
2001 2004 2007 2010 2013 2016 2019
Mar-13 Sep-14 Mar-16 Sep-17 Mar-19 Sep-20
…and the increase in nonresident holdings of government
Financial dollarization has continued to decline….
securities continued to increase.
10 70
Dollarization at Depository Corporations Nonresident Holdings of Securities
60 9
(Percent, at December 2014 exchange rate ) (Percent) 60
8 In percent of GDP
50
7 In percent of total (RHS) 50
40 6
40
5
30 30
4
20 3 20
Deposits 2
10 10
Private sector credits 1
0 0 0
Jun-13 Dec-14 Jun-16 Dec-17 Jun-19 Dec-20 Jun-13 Dec-14 Jun-16 Dec-17 Jun-19 Dec-20
Nonperforming loans have remained broadly stable… …while apartment prices increased slightly in mid-2020.
5 8,000 4,000
Nonperforming loans Apartment Prices in Residential
(Percent of total gross loans) Areas of Lima 1/
7,000 3,500
4 (Prices per square meter)
6,000 3,000
3
5,000 2,500
2
4,000 2,000
Brazil Colombia
1 3,000 Soles, constant prices 1,500
Chile Mexico Soles, current prices
Peru U.S dollars, current prices (RHS)
2,000 1,000
0
Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Sources: National authorities; Association of Banks; Bank for International Settlements; and IMF staff estimates.
1/ Twelve Lima districts include Barranco, La Molina, Miraflores, San Borja, San Isidro, Surco, Jesús María, Lince,
Magdalena, Pueblo Libre, San Miguel, and Surquillo.
26 INTERNATIONAL MONETARY FUND
PERU
Figure 5. Peru: Corporate Sector Financial Performance in Peru and Peer Countries
Corporate Profitability Corporate Profitability
(Return on assets; percent; median across firms) (Return on equity; percent; median across firms)
12 30
Argentina Brazil Argentina Brazil
10 Chile Colombia 25 Chile Colombia
Mexico Peru Mexico Peru
8 20
6 15
4 10
2 5
0 0
-2 -5
2006 08 10 12 14 16 18 20 2006 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Corporate Leverage Cash Ratio
(Debt to assets; percent; median across firms) (Cash to short-term liabilities; median across firms)
40 40
Argentina Brazil Chile Argentina Brazil
35 35 Chile Colombia
Colombia Mexico Peru
Mexico Peru
30
30
25
25
20
20
15
15
10
10 5
5 0
2006 08 10 12 14 16 18 20 2006 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Interest Coverage Ratio Share of Debt at Risk
(EBIT to interest expense; median across firms) (Share of debt with ICR<1; median across firms)
10 100
Argentina Brazil Argentina Brazil Chile
Chile Colombia 90
Colombia Mexico Peru
8 Mexico Peru 80
70
6 60
50
4 40
30
2 20
10
0 0
2006 07 08 09 10 11 12 13 14 15 16 17 18 19 20 2006 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Sources: Bloomberg Finance L.P.; IMF WHD Regional Economic Outlook 2020, and IMF staff calculations.
INTERNATIONAL MONETARY FUND 27
PERU
Figure 6. Peru: External Sector Developments
The trade surplus narrowed…. … despite some improvements in terms of trade ….
15 40 150
13 Trade Balance Terms of Trade
140
Trade balance, 4Q su m, billions of U S dollars 30 (2010=100) Terms of trade
11 130
12m avg exports, year-on-year change (RHS) Copper price
9 12m avg imports, year-on-year change (RHS) 120
20 Gold price
7 110
5 10 100
3 90
0 80
1
-1 70
-10
-3 60
50
-5 -20
Jun-12 Mar-13 Dec-13 Sep-14 Jun-15 Mar-16 Dec-16 Sep-17 Jun-18 Mar-19 Dec-19 Sep-20
Jun-12 Mar-13 Dec-13 Sep-14 Jun-15 Mar-16 Dec-16 Sep-17 Jun-18 Mar-19 Dec-19 Sep-20
…as both exports and imports declined significantly. Nevertheless, the current account deficit narrowed in 2020.
20 15
Balance of Payments
15
Volumes of International Trade
(Percent of GDP)
(12m average, year-on-year change) 10
10
5 5
0 0
-5
-5
-10
Services and current transfers
-15 -10 Investment in com e
Trade balance
Export volume Import volume Curr ent acc ount
-20
-15
Jun-12 Mar-13 Dec-13 Sep-14 Jun-15 Mar-16 Dec-16 Sep-17 Jun-18 Mar-19 Dec-19 Sep-20
2008 2010 2012 2014 2016 2018 2020
The financial account was driven by large public sector
Portfolio flows have been broadly stable
inflows.
20 5
Financial Account Portfolio Flows
(Rolling 4-quarter sum as a percentage of GDP) 4 (Rolling 4-quarter sum as a percentage of GDP)
15
Public sector, n et 3
Assets
Other private sector flows, net
Private port folio investment, net 2 Liabilities
10
FDI, net Net flows
Financial accou nt
1
5 0
-1
0
-2
-5
-3
Jun-12 Mar-13 Dec-13 Sep-14 Jun-15 Mar-16 Dec-16 Sep-17 Jun-18 Mar-19 Dec-19 Sep-20
Jun-12 Mar-13 Dec-13 Sep-14 Jun-15 Mar-16 Dec-16 Sep-17 Jun-18 Mar-19 Dec-19 Sep-20
Sources: National authorities; and IMF staff estimates.
28 INTERNATIONAL MONETARY FUND
PERU
Figure 7. Peru: External Debt Sustainability: Bound Tests 1/ 2/
(External debt in percent of GDP)
Baseline and historical scenarios Interest rate shock (in percent)
15 75
75 Gross financing need Baseline: 4.4
under baseline 65
65 Scenario: 4.6
(right scale)
55 Historical: 3.9
55 10
45 i-rate
45
shock
Baseline
35 30.2
35 29.8 Baseline
Historical 5
25 25 29.8
24.3
15 15
5 0 5
2014 2016 2018 2020 2022 2024 2026 2014 2016 2018 2020 2022 2024 2026
Growth shock Non-interest current account shock
(in percent per year) (in percent of GDP)
75 75
Baseline: 2.5 Baseline: 0.6
65 65
Scenario: 1.4 Scenario: -0.2
55 Historical: 4.5 55 Historical: -1.7
45 Growth 45
shock CA shock 35.2
32.2
35 35
Baseline Baseline
25 29.8 25 29.8
15 15
5 5
2014 2016 2018 2020 2022 2024 2026 2014 2016 2018 2020 2022 2024 2026
Combined shock 3/ Real depreciation shock 4/
75 75
30 %
65 65 depreciation
55 Combine 55
d shock 43.2
45 45
33.9
35 35
Baseline Baseline
25 29.8 25 29.8
15 15
5 5
2014 2016 2018 2020 2022 2024 2026 2014 2016 2018 2020 2022 2024 2026
Sources: International Monetary Fund, Country desk data, and staff estimates.
1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation
shocks. Figures in the boxes represent average projections for the respective variables in the baseline
and scenario being presented. Ten-year historical average for the variable is also shown.
2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the
information is used to project debt dynamics five years ahead.
3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current
account balance.
4/ One-time real depreciation of 30 percent occurs in 2020.
INTERNATIONAL MONETARY FUND 29
PERU
Table 1. Peru: Selected Economic Indicators
Prelim. Proj.
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Social Indicators
Life expectancy at birth (years) 76.4 76.6 … … … … … … … …
Infant mortality (per thousand live births) 12.9 12.7 … … … … … … … …
Adult literacy rate (%) 94.2 94.4 … … … … … … … …
Poverty rate (total) 1/ 24.2 22.3 21.7 27.5 … … … … … …
Unemployment rate for Metropolitan Lima (period average) 6.9 6.7 6.6 13.6 … … … … … …
(Annual percentage change; unless otherwise indicated)
Production and prices
Real GDP 2.1 4.0 2.2 -11.1 8.5 5.2 4.8 3.4 3.3 3.3
Output gap (percent of potential GDP) -1.4 -1.0 -1.7 -7.2 -3.0 -1.4 -0.1 0.0 0.0 0.0
Consumer prices (end of period) 1.4 2.2 1.9 2.0 2.0 2.0 2.0 2.0 2.0 2.0
External sector
Exports 22.5 8.0 -2.8 -11.1 27.5 3.7 3.7 3.9 4.1 4.5
Imports 10.2 8.1 -1.9 -15.6 19.9 5.0 4.8 5.0 4.8 4.5
Terms of trade (deterioration -) 7.5 -0.4 -1.7 8.2 9.9 -0.4 -0.9 -1.8 -1.7 -1.0
Real effective exchange rate (depreciation -) 2.6 -1.7 2.3 … … … … … … …
Money and credit 2/ 3/
Broad money 8.8 9.6 8.8 27.5 13.0 9.6 7.8 7.7 6.2 5.7
Net credit to the private sector 5.1 10.3 6.4 14.5 4.0 4.0 6.2 5.5 5.4 5.3
Credit-to-private-sector/GDP ratio (%) 40.4 42.1 43.0 53.3 48.4 47.0 46.9 47.1 47.3 47.5
(In percent of GDP; unless otherwise indicated)
Public sector
NFPS revenue 23.0 24.5 24.8 22.1 22.4 23.1 23.1 23.2 23.2 23.2
NFPS primary expenditure 24.9 25.5 25.0 29.3 25.6 24.7 24.0 23.7 23.6 23.3
NFPS primary balance -1.9 -1.0 -0.2 -7.2 -3.3 -1.6 -0.9 -0.6 -0.3 -0.1
NFPS overall balance -3.1 -2.3 -1.6 -8.8 -5.0 -3.4 -2.8 -2.4 -2.1 -1.8
NFPS structural balance -2.1 -1.7 -0.6 -6.4 -4.3 -3.1 -2.9 -2.5 -2.3 -2.0
NFPS structural primary balance 4/ -0.9 -0.3 0.7 -4.8 -2.6 -1.3 -1.1 -0.7 -0.5 -0.2
External sector
External current account balance -1.3 -1.7 -1.5 0.5 -0.4 -0.7 -1.0 -1.4 -1.8 -1.8
Gross reserves
In billions of U.S. dollars 63.7 60.3 68.4 74.9 75.1 75.1 75.0 74.2 71.8 71.0
Percent of short-term external debt 5/ 306 364 433 496 519 505 494 506 445 439
Percent of foreign currency deposits at banks 225 213 224 224 206 204 207 209 211 222
Debt
Total external debt 6/ 35.7 34.6 34.7 43.1 39.0 36.6 34.2 32.5 30.9 29.8
Gross non-financial public sector debt 7/ 25.4 26.2 27.1 35.4 35.4 36.2 36.7 37.2 37.5 37.4
External 8.8 8.9 8.5 15.0 14.1 13.9 13.4 12.9 12.7 12.9
Domestic 16.7 17.3 18.6 20.3 21.3 22.3 23.2 24.3 24.8 24.5
Savings and investment
Gross domestic investment 20.6 21.7 21.5 18.8 21.1 22.0 22.3 22.5 22.7 22.9
Public sector (incl. repayment certificates) 4.6 4.8 4.6 4.2 4.1 4.1 4.1 4.2 4.2 4.3
Private sector (incl. inventories) 16.0 16.9 16.8 14.6 16.9 17.9 18.2 18.4 18.5 18.7
Private sector 17.3 17.7 18.0 16.7 16.9 17.9 18.2 18.4 18.5 18.7
National savings 19.3 20.0 19.9 19.3 20.7 21.3 21.3 21.2 20.9 21.1
Public sector 1.8 2.9 3.4 -3.9 -0.1 1.4 2.0 2.5 2.8 3.1
Private sector 17.5 17.1 16.5 23.2 20.9 19.9 19.3 18.7 18.2 18.0
Memorandum items
Nominal GDP (S/. billion) 698 740 770 712 815 872 929 976 1,024 1,075
GDP per capita (in US$) 6,726 7,000 6,958 6,084 6,678 7,051 7,389 7,644 7,901 8,180
Sources: National authorities; UNDP Human Development Indicators; and IMF staff estimates/projections.
1/ Defined as the percentage of households with total spending below the cost of a basic consumption basket.
2/ Corresponds to depository corporations.
3/ Foreign currency stocks are valued at end-of-period exchange rates.
4/ Adjusted by the economic cycle and commodity prices, and for non-structural commodity revenue. The latter uses as equilibrium
commodity prices a moving average estimate that takes 5 years of historical prices and 3 years of forward prices according to
IMF World Economic Outlook.
5/ Short-term debt is defined on a residual maturity basis and includes amortization of medium and long-term debt.
6/ Includes local currency debt held by non-residents and excludes global bonds held by residents.
7/ Includes repayment certificates and government guaranteed debt.
30 INTERNATIONAL MONETARY FUND
PERU
Table 2. Peru: Nonfinancial Public Sector Main Fiscal Aggregates
Prelim. Projections
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
(In millions of soles; unless otherwise indicated)
Revenues 160,273 181,293 191,202 157,201 182,326 201,713 214,661 226,291 237,695 249,919
Taxes 93,475 107,358 113,754 95,829 114,428 126,592 135,315 143,118 151,259 159,914
Other 66,799 73,935 77,448 61,372 67,898 75,121 79,346 83,173 86,436 90,005
Primary expenditures 1/ 173,546 188,407 192,741 208,626 208,829 215,571 223,330 231,687 241,229 250,757
Current 137,665 148,512 152,588 172,975 168,982 173,183 178,381 183,823 190,490 197,424
Capital 35,881 39,895 40,154 35,651 39,847 42,387 44,948 47,864 50,739 53,333
Primary balance -13,272 -7,114 -1,539 -51,425 -26,503 -13,858 -8,669 -5,396 -3,534 -838
Interest 8,336 10,012 10,720 11,502 13,927 15,507 17,099 17,748 18,375 18,988
Overall balance -21,609 -17,126 -12,259 -62,927 -40,430 -29,364 -25,768 -23,144 -21,909 -19,827
External financing -10,415 -557 4,510 33,429 6,265 4,146 864 691 370 6,374
Domestic financing 32,023 17,683 7,749 29,498 34,165 25,218 24,904 22,453 21,538 13,452
Public Gross Debt 2/ 177,461 193,721 208,623 251,893 288,065 316,129 340,597 362,591 383,350 402,077
External 61,163 65,505 65,340 106,994 114,732 121,313 124,687 125,745 129,777 139,041
Domestic 112,749 124,938 140,515 142,409 171,143 192,926 214,320 235,556 252,583 262,345
Repayment Certificates 3,549 3,278 2,768 2,490 2,190 1,890 1,590 1,290 990 690
Public Assets 3/ 92,709 89,704 92,494 69,994 66,036 65,036 64,036 63,186 62,336 61,536
(In percent of GDP; unless otherwise indicated)
Revenues 23.0 24.5 24.8 22.1 22.4 23.1 23.1 23.2 23.2 23.2
Taxes 13.4 14.5 14.8 13.5 14.0 14.5 14.6 14.7 14.8 14.9
Other 9.6 10.0 10.1 8.6 8.3 8.6 8.5 8.5 8.4 8.4
Primary expenditures 1/ 24.9 25.5 25.0 29.3 25.6 24.7 24.0 23.7 23.6 23.3
Current 19.7 20.1 19.8 24.3 20.7 19.9 19.2 18.8 18.6 18.4
Capital 5.1 5.4 5.2 5.0 4.9 4.9 4.8 4.9 5.0 5.0
Primary balance -1.9 -1.0 -0.2 -7.2 -3.3 -1.6 -0.9 -0.6 -0.3 -0.1
Interest 1.2 1.4 1.4 1.6 1.7 1.8 1.8 1.8 1.8 1.8
Overall balance -3.1 -2.3 -1.6 -8.8 -5.0 -3.4 -2.8 -2.4 -2.1 -1.8
External financing -1.5 -0.1 0.6 4.7 0.8 0.5 0.1 0.1 0.0 0.6
Domestic financing 4.6 2.4 1.0 4.1 4.2 2.9 2.7 2.3 2.1 1.3
Public Gross Debt 2/ 25.4 26.2 27.1 35.4 35.4 36.2 36.7 37.2 37.5 37.4
External 8.8 8.9 8.5 15.0 14.1 13.9 13.4 12.9 12.7 12.9
Domestic 16.2 16.9 18.2 20.0 21.0 22.1 23.1 24.1 24.7 24.4
Repayment Certificates 0.5 0.4 0.4 0.3 0.3 0.2 0.2 0.1 0.1 0.1
Public Assets 3/ 13.3 12.1 12.0 9.8 8.1 7.5 6.9 6.5 6.1 5.7
Public Net Debt 12.1 14.1 15.1 25.5 27.3 28.8 29.8 30.7 31.4 31.7
Memorandum items
Commodity related revenues 4/ 1.0 1.9 1.4 1.3 1.8 1.7 1.7 1.7 1.7 1.7
Output gap (percent of potential GDP) -1.4 -1.0 -1.7 -7.2 -3.0 -1.4 -0.1 0.0 0.0 0.0
NFPS non-commodity structural balance -3.7 -3.9 -2.4 -7.9 -5.9 -4.7 -4.5 -4.1 -3.8 -3.5
NFPS non-commodity primary structural balance -2.5 -2.5 -1.0 -6.3 -4.2 -2.9 -2.6 -2.3 -2.0 -1.7
NFPS structural balance 5/ -2.1 -1.7 -0.6 -6.4 -4.3 -3.1 -2.9 -2.5 -2.3 -2.0
NFPS structural primary balance 5/ -0.9 -0.3 0.7 -4.8 -2.6 -1.3 -1.1 -0.7 -0.5 -0.2
Fiscal impulse (+ = expansionary) 6/ 0.2 -0.6 -1.0 5.2 -1.9 -1.2 -0.2 -0.4 -0.2 -0.3
Sources: National Authorities; and IMF staff estimates.
1/ Official data excludes expense accrued during the period by Repayment Certificates (CRPAOs) and Petroleum Price Stabilization Fund
(FEPC), but includes corresponding cash payments.
2/ Official data excludes stock of debt accumulated and not paid during the period by CRPAOs and FEPC.
3/ Obligations of depository corporations with the public sector.
4/ Net of tax restitutions. In 2014, excludes one-off revenue from the sale of a mine Las Bambas.
5/ Adjusted by the economic cycle and commodity prices, and for non-structural commodity revenue. The latter uses as
moving average estimate that takes 5 years of historical prices and 3 years of forward prices according to IMF World Economic
6/ Percentage points of potential GDP.
INTERNATIONAL MONETARY FUND 31
PERU
Table 3. Peru: Statement of Operations of the General Government 1/
(In percent of GDP; unless otherwise indicated)
Prelim. Projections
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Revenue 18.3 19.4 19.9 18.0 18.3 18.9 18.9 19.1 19.2 19.3
Taxes 13.4 14.5 14.8 13.5 14.0 14.5 14.6 14.7 14.8 14.9
Social Contributions 2.1 2.2 2.2 2.2 2.1 2.0 2.0 2.1 2.1 2.1
Grants 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Other revenue 2.7 2.7 2.8 2.3 2.2 2.2 2.2 2.3 2.3 2.3
Expense 2/ 16.5 16.5 16.8 21.9 18.7 17.5 16.9 16.6 16.3 16.1
Compensation of employees 6.1 6.2 6.4 7.4 6.8 6.5 6.2 6.1 5.9 5.7
Use of goods and services 6.0 5.7 5.8 6.6 6.8 6.4 6.2 6.0 5.9 5.8
Interest 1.1 1.2 1.3 1.5 1.6 1.5 1.5 1.4 1.2 1.1
Social benefits 1.7 1.9 1.8 1.9 1.8 1.7 1.7 1.6 1.6 1.6
Other 3/ 1.6 1.5 1.5 4.6 1.7 1.3 1.4 1.5 1.7 1.8
Net acquisition of nonfinancial assets 4.7 4.9 4.5 4.5 4.5 4.5 4.5 4.5 4.6 4.6
Acquistions of nonfinancial assets 4.7 4.9 4.5 4.5 4.5 4.5 4.5 4.5 4.6 4.6
Gross Operating Balance 1.8 2.9 3.2 -3.9 -0.3 1.3 2.0 2.5 2.9 3.3
Net lending (+) borrowing (-) 4/ -2.9 -2.0 -1.4 -8.4 -4.8 -3.1 -2.5 -2.0 -1.7 -1.4
Net acquistion of financial assets 5/ -1.3 -0.4 0.6 -0.7 -3.5 -2.6 -2.3 -1.9 -1.6 -0.7
By instrument
Monetary gold and SDRs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Currency and deposits 6/ -1.3 -0.4 0.6 -0.7 -3.5 -2.6 -2.3 -1.9 -1.6 -0.7
By residency
Domestic -1.3 -0.4 0.6 -0.7 -3.5 -2.6 -2.3 -1.9 -1.6 -0.7
External 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net incurrence of liabilities 7/ 1.7 1.7 1.9 7.7 1.3 0.6 0.2 0.2 0.1 0.7
By instrument
Debt securities 3.7 2.3 1.2 3.2 0.5 0.1 0.1 0.1 0.1 0.1
Loans -2.1 -0.7 0.8 4.5 0.8 0.5 0.1 0.1 0.0 0.6
By residency
Domestic 3.7 2.3 1.2 3.2 0.5 0.1 0.1 0.1 0.1 0.1
External -2.1 -0.7 0.8 4.5 0.8 0.5 0.1 0.1 0.0 0.6
Memorandum items
Central Government Net lending (+) borrowing (-) -3.2 -2.2 -2.5 -9.0 -4.7 -3.3 -2.7 -2.2 -1.7 -1.3
Regional Governments Net lending (+) borrowing (-) 0.1 0.4 0.5 -0.1 0.1 0.3 0.4 0.5 0.5 0.6
Local Governments Net lending (+) borrowing (-) -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.1 -0.1 -0.1
General Government Primary Balance -1.8 -0.8 -0.1 -6.8 -3.1 -1.6 -1.0 -0.6 -0.5 -0.2
General Government Overall Balance -2.9 -2.0 -1.4 -8.4 -4.8 -3.1 -2.5 -2.0 -1.7 -1.4
Gen. Gov. primary spending (real percentage change) 4.1 4.9 1.0 12.8 -3.1 -0.1 1.8 1.9 2.7 2.5
Of which: Current spending 3.9 3.9 3.1 19.5 -6.3 -1.6 1.0 1.3 2.3 2.1
Capital spending 4.8 8.2 -5.7 -10.2 11.3 5.9 4.4 3.9 3.9 3.9
General Government non-financial expenditures 20.1 20.2 20.0 24.9 21.5 20.5 19.9 19.7 19.7 19.6
Sources: National authorities and IMF staff estimates.
1/ Fiscal data is not fully compiled on an accrual basis.
2/ Official data excludes expense accrued during the period by Repayment Certificates (CRPAOs) and Petroleum Price Stabilzation
corresponding cash payments.
3/ Includes other transfers.
4/ Net lending (+)/ borrowing (-) is equal to gross operating balance minus net acquistions of nonfinancial assets.
5/ (+) corresponds to increase in financial assets; (-) to a decrease in financial assets.
6/ Includes Fiscal Stabilization Fund (FEF).
7/ (+) corresponds to increase in liabilities (disbursement and/or issuance); (-) to decrease in liabilities (amortizations).
32 INTERNATIONAL MONETARY FUND
PERU
Table 4. Peru: Financial Soundness Indicators 1/
(In percent; unless otherwise indicated)
2014 2015 2016 2017 2018 2019
(as of December)
Capital Adequacy
Capital to risk-weighted assets 2/ 14.2 14.3 15.1 15.2 14.8 14.7
Regulatory Tier I capital to risk-weighted assets 3/ 10.4 10.3 11.0 11.4 11.3 11.6
Nonperforming loans net of provisions to capital 4/ 0.2 -0.3 -0.4 -0.6 -0.6 -0.5
Leverage 5/ 8.3 7.9 8.7 9.4 9.8 10.2
Asset Quality
Nonperforming loans to total gross loans 4/ 2.9 2.9 3.1 3.3 3.3 3.4
In domestic currency 3.4 2.9 3.2 3.6 3.7 3.8
In foreign currency 2.1 2.9 2.8 2.6 2.4 2.3
Nonperforming, refinanced and restructured loans to total gross loans 4/ 6/ 4.0 4.0 4.4 4.8 4.9 4.9
In domestic currency 3.4 2.9 3.2 3.6 3.7 3.8
In foreign currency 2.1 2.9 2.8 2.6 2.4 2.3
Refinanced and restructured loans to total gross loans 1.1 1.1 1.3 1.5 1.6 1.5
Provisions to nonperforming loans 4/ 157.7 161.8 157.1 151.1 150.7 149.1
Provisions to nonperforming, restructured, and refinanced loans 4/ 6/ 114.4 116.5 111.1 105.0 101.6 103.3
Sectoral distribution of loans to total loans
Consumer loans 18.1 18.3 18.9 19.2 19.8 21.4
Mortgage loans 15.5 15.2 15.1 15.4 15.3 15.6
Large corporations 17.2 21.4 22.2 22.6 23.3 22.2
Small corporations 17.0 15.8 14.8 14.3 14.3 14.3
Medium size firms 18.3 16.9 16.4 15.4 14.8 13.7
Small firms 10.1 9.0 9.1 9.4 9.1 9.3
Microenterprises 3.8 3.4 3.6 3.7 3.5 3.5
Earnings and Profitability
Return on equity (ROE) 18.2 21.1 19.2 17.7 17.9 17.9
Return on assets (ROA) 1.9 2.1 2.0 2.1 2.2 2.2
Financial revenues to total revenues 85.0 85.1 85.3 84.2 83.4 83.7
Annualized financial revenues to revenue-generating assets 10.6 10.5 10.1 10.2 10.3 10.4
Liquidity
Total liquid assets to total short-term liabilities (monthly average basis) 39.4 37.7 35.4 38.5 34.6 36.4
In domestic currency 25.3 26.2 26.7 33.0 27.2 27.5
In foreign currency 55.2 47.5 44.9 45.7 45.3 50.3
Deposit-to-loan 90.5 92.0 88.4 92.1 89.4 90.9
Foreign Currency Position and Dollarization
Share of foreign currency deposits in total deposits 43.4 49.5 44.1 39.3 35.9 35.2
Share of foreign currency loans in total credit 38.4 30.1 28.8 29.4 28.5 26.5
Operational efficiency
Financing to related parties to capital 7/ 9.4 12.3 9.1 9.6 12.3 9.7
Nonfinancial expenditure to total revenues 8/ 33.0 30.9 30.8 30.7 30.7 29.9
Annualized Nonfinancial expenditure to total revenue-generating assets 8/ 4.1 3.8 3.7 3.7 3.8 3.7
Memorandum items
General Stock market index, IGBVL 14,794 9,849 15,567 19,974 19,350 20,526
EMBI+ PERU spread, basis points 181 243 170 112 137 92
Source: National authorities.
1/ These indicators correspond to depository corporations.
2/ Since July 2009, the regulatory capital requirement applied to all risks: credit, market and operational risk.
3/ Since July 2009, Banking Law component establishes that the Tier I capital have to be defined, and Risk-weighted assets include overall risks
(credit, market and operational).
4/ Nonperforming loans are overdue loans after 15 days since the due date for commercial loans, and after 30 days for small businesses loans. In
the case of mortgage, consumer and leasing loans, they are considered overdue after 30 days since the due date only for the non paid portion
and after 90 days for all the credit. The overdue loans include credits under judicial resolution. Figures are net of specific and general provisions.
5/Tier I regulatory capital / Total Exposure (on-balance sheet exposures, derivative exposures and off-balance exposures converted into credit
exposure equivalents using credit conversion factors).
6/ Includes restructured loans, refinanced loans, and arrears. Refinanced loans refer to those loans subjected to either term and/or principal
modifications with respect to the initial debt contract. Restructured loans refer to those loans whose payments have been restructured
according to the "Ley General del Sistema Concursal."
7/ Financing to related parties corresponds to those loans to individuals and firms owning more than 4 percent of the bank.
8/ Nonfinancial expenditures do not consider provisions nor depreciation.
INTERNATIONAL MONETARY FUND 33
PERU
Table 5. Peru: Balance of Payments
(In billions of U.S. dollars; unless otherwise noted)
Prelim. Projections
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Current account -2.8 -3.8 -3.6 1.0 -0.8 -1.7 -2.6 -3.7 -5.0 -5.4
Merchandise trade 6.7 7.2 6.6 7.7 12.5 12.5 12.5 12.5 12.6 13.2
Exports 45.4 49.1 47.7 42.4 54.1 56.1 58.2 60.5 62.9 65.7
Traditional 33.6 35.6 33.8 29.4 40.3 41.8 43.3 44.8 46.4 48.5
Mining 27.6 28.9 28.1 25.8 35.7 37.1 38.5 39.8 41.3 43.1
Nontraditional and others 11.9 13.4 13.9 13.0 13.7 14.2 14.9 15.7 16.5 17.3
Imports -38.7 -41.9 -41.1 -34.7 -41.6 -43.6 -45.7 -48.0 -50.3 -52.5
Services, income, and current transfers (net) -9.5 -11.0 -10.2 -6.8 -13.4 -14.2 -15.1 -16.2 -17.7 -18.6
Services -1.5 -2.8 -3.2 -4.1 -4.5 -4.5 -4.8 -5.0 -5.4 -5.7
Investment income -11.5 -11.8 -10.7 -6.7 -12.2 -13.1 -13.7 -14.6 -15.8 -16.5
Current transfers 3.6 3.6 3.7 4.0 3.3 3.4 3.5 3.5 3.5 3.6
Capital and financial account balance 3.0 1.5 10.6 9.5 1.0 1.7 2.6 2.9 2.6 4.6
Public sector 3.3 2.1 4.4 9.8 1.5 1.1 0.3 0.3 0.2 1.8
Medium-term loans 1/ -1.5 0.2 -0.3 9.0 1.7 1.1 0.2 0.2 0.1 1.7
Other public sector flows 2/ 4.1 2.1 4.5 1.1 -0.2 0.0 0.1 0.1 0.1 0.1
Short-term flows 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Private sector -0.3 -0.6 6.1 -0.3 -0.5 0.5 2.2 2.6 2.4 2.8
Foreign direct investment (net) 3/ 6.4 6.5 8.0 2.7 7.2 7.6 7.9 7.9 7.9 8.3
Medium- and long-term loans -3.7 -1.6 -2.2 -3.4 -2.4 -2.2 -2.0 -1.9 -1.8 -1.8
Portfolio investment -1.8 -3.9 -0.3 1.3 -2.5 -2.8 -3.0 -3.3 -3.5 -3.8
Short-term flows 4/ -1.2 -1.5 0.6 -0.8 -2.8 -2.1 -0.7 -0.2 -0.2 0.0
Errors and omissions 1.4 -1.3 -0.1 -4.9 0.0 0.0 0.0 0.0 0.0 0.0
Overall balance 1.6 -3.6 6.9 5.6 0.2 0.0 0.0 -0.8 -2.4 -0.8
Financing -1.6 3.6 -6.9 -5.6 -0.2 0.0 0.0 0.8 2.4 0.8
NIR flow (increase -) -1.6 3.6 -6.9 -5.6 -0.2 0.0 0.0 0.8 2.4 0.8
Change in NIR (increase -) -1.9 3.5 -8.2 -6.4 -0.2 0.0 0.0 0.8 2.4 0.8
Valuation change 0.3 0.1 1.3 0.8 0.0 0.0 0.0 0.0 0.0 0.0
(In percent of GDP)
Current account balance -1.3 -1.7 -1.5 0.5 -0.4 -0.7 -1.0 -1.4 -1.8 -1.8
Trade balance 3.1 3.2 2.9 3.8 5.5 5.2 4.9 4.7 4.5 4.5
Exports 21.2 21.8 20.7 20.8 23.9 23.3 22.8 22.7 22.6 22.6
Traditional 15.7 15.8 14.6 14.4 17.9 17.4 17.0 16.8 16.7 16.7
Mining 12.9 12.8 12.2 12.6 15.8 15.4 15.1 14.9 14.8 14.8
Nontraditional and others 5.5 6.0 6.0 6.4 6.1 5.9 5.8 5.9 5.9 5.9
Imports -18.1 -18.6 -17.8 -17.0 -18.4 -18.1 -17.9 -18.0 -18.1 -18.1
Services, income, and current transfers (net) -4.4 -4.9 -4.4 -3.3 -5.9 -5.9 -5.9 -6.1 -6.4 -6.4
Investment income -5.4 -5.2 -4.7 -3.3 -5.4 -5.4 -5.4 -5.5 -5.7 -5.7
Capital and financial account balance 1.4 0.7 4.6 4.7 0.4 0.7 1.0 1.1 1.0 1.6
Foreign direct investment (net) 3.0 2.9 3.5 1.3 3.2 3.2 3.1 3.0 2.9 2.9
Overall balance 0.8 -1.6 3.0 2.7 0.1 0.0 0.0 -0.3 -0.9 -0.3
Memorandum items (Annual percentage change)
Export value 22.5 8.0 -2.8 -11.1 27.5 3.7 3.7 3.9 4.1 4.5
Volume growth 8.0 1.6 0.6 -13.4 10.0 4.8 4.2 4.0 4.0 4.0
Price growth 13.4 6.3 -3.4 2.7 15.9 -1.0 -0.5 -0.1 0.1 0.5
Import value 10.2 8.1 -1.9 -15.6 19.9 5.0 4.8 5.0 4.8 4.5
Volume growth 4.5 1.4 -0.2 -11.1 13.8 5.6 4.3 3.2 3.0 2.9
Price growth 5.5 6.7 -1.7 -5.1 5.4 -0.6 0.4 1.7 1.8 1.5
Terms of trade 7.5 -0.4 -1.7 8.2 9.9 -0.4 -0.9 -1.8 -1.7 -1.0
Gross international reserves (in billions of US$) 63.7 60.3 68.4 74.9 75.1 75.1 75.0 74.2 71.8 71.0
Average exchange rate (S/. per US$) 3.26 3.29 3.34 3.50 3.61 3.62 3.64 3.66 3.68 3.70
Sources: National authorities and IMF staff estimates and projections.
1/ Includes financial public sector.
2/ Includes public sector's net external assets and other transactions involving Treasury bonds.
3/ Excluding privatization.
4/ Includes Financial Corporation for Development (COFIDE) and the National Bank.
34 INTERNATIONAL MONETARY FUND
PERU
Table 6. Peru: Monetary Survey 1/
(In billions of nuevos soles; unless otherwise noted)
Prelim. Projections
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
I. Central Reserve Bank
Net foreign assets 150 159 170 223 213 211 267 260 251 240
(In billions of U.S. dollars) 81 73 85 88 91 92 77 77 75 77
Net international reserves 2/ 206 203 226 270 271 273 274 273 265 263
(In billions of U.S. dollars) 64 60 68 75 75 75 75 74 72 71
Long-term net external assets 0 0 0 0 0 0 0 0 0 0
Foreign currency liabilities -56 -43 -57 -48 -57 -62 -8 -12 -14 -24
Net domestic assets -93 -98 -105 -137 -120 -112 -164 -154 -141 -128
Net credit to nonfinancial public sector -65 -61 -64 -49 -45 -42 -42 -42 -42 -42
Credit to the financial sector 3/ 15 7 5 41 46 51 -9 -3 4 10
Securities issued -32 -26 -28 -89 -89 -90 -88 -84 -78 -71
Other assets (net) -11 -18 -18 -40 -31 -31 -25 -25 -25 -25
Monetary base 57 61 65 86 93 99 103 107 109 112
Currency 46 50 52 70 82 92 53 58 63 68
Reserve 11 12 12 16 11 7 49 49 46 44
II. Depository Corporations 4/
Net foreign assets 178 172 194 248 250 256 247 246 238 236
Net domestic assets 106 138 143 183 237 277 328 374 420 459
Net credit to the public sector -63 -57 -62 -37 -3 23 48 70 92 105
Credit to the private sector 282 311 331 379 394 410 436 460 484 510
Other assets (net) -114 -116 -126 -160 -155 -155 -156 -156 -156 -156
Broad money 283 310 338 431 486 533 575 619 658 695
Domestic currency 191 215 237 310 355 400 442 489 533 577
Foreign currency 92 96 101 121 132 134 133 130 125 119
III. Financial System 5/
Net foreign assets 263 262 298 365 365 363 367 366 359 358
Net domestic assets 209 236 256 342 406 459 511 563 614 658
Net credit to the public sector -24 -15 -15 11 45 70 95 117 139 152
Credit to the private sector 340 368 393 457 488 515 543 572 601 633
Other assets (net) -108 -116 -122 -126 -126 -126 -126 -127 -127 -127
Liabilities to the private sector 472 498 554 707 771 822 879 929 972 1,016
Domestic currency 361 383 428 549 610 663 722 777 828 880
Foreign currency 111 116 127 158 161 159 157 152 144 135
Monetary base 7.2 7.3 5.2 33.2 8.6 5.6 4.0 4.0 2.7 2.3
Broad money 8.8 9.6 8.8 27.5 13.0 9.6 7.8 7.7 6.2 5.7
Domestic currency 12.5 12.2 10.2 30.8 14.5 12.6 10.7 10.5 8.9 8.3
Foreign currency 1.7 4.1 5.6 19.8 8.9 1.5 -0.8 -1.6 -3.9 -5.4
Liabilities to the private sector 11.2 5.7 11.3 27.5 9.1 6.6 6.9 5.7 4.7 4.5
Domestic currency 13.9 6.1 11.8 28.3 11.2 8.6 8.9 7.7 6.5 6.3
Foreign currency 3.4 4.2 9.6 24.7 1.7 -1.1 -1.4 -3.1 -5.0 -6.1
Depository corporations credit to the private sector 5.1 10.3 6.4 14.5 4.0 4.0 6.2 5.5 5.4 5.3
Domestic currency 5.3 11.6 9.8 20.3 4.5 4.3 7.1 6.2 6.1 6.0
Foreign currency 4.6 7.1 -2.2 -2.4 2.2 2.8 2.9 2.9 2.7 2.7
Sources: National Authorities; and IMF staff estimates.
1/ Stocks in foreign currency are valued at the end-of-period exchange rate.
2/ Excludes subscriptions to the IMF and the Latin American Reserve Fund, Pesos Andinos, credit lines to other central banks,
Corporation bonds, and foreign assets temporarily held by the Central Bank as part of swap operations.
3/ Including the National Bank.
4/ Depository corporations comprise the Central Bank, the National Bank, commercial banks, the Agricultural Bank, financial
banks and credit unions.
5/ Financial system comprises depository corporations and other financial corporations. Other financial companies include
insurance companies, leasing companies, pension funds, the Financing Agency for Small and Medium-sized Enterprises and
Housing.
INTERNATIONAL MONETARY FUND 35
PERU
Table 7. Peru: External Debt Sustainability Framework, 2017–26
(In percent of GDP, unless otherwise indicated)
Actual Projections
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Debt-stabilizing
non-interest
current account 6/
Baseline: External debt 35.7 34.6 34.7 43.1 39.0 36.6 34.2 32.5 30.9 29.8 -1.3
Change in external debt -2.5 -1.2 0.2 8.4 -4.1 -2.5 -2.3 -1.7 -1.6 -1.0
Identified external debt-creating flows (4+8+9) -4.3 -1.2 -2.6 2.0 -5.0 -3.2 -2.6 -1.5 -0.8 -0.7
Current account deficit, excluding interest payments -0.1 0.2 0.2 -1.7 -1.2 -0.9 -0.5 -0.1 0.2 0.3
Deficit in balance of goods and services -2.4 -2.0 -1.5 -1.8 -3.6 -3.3 -3.0 -2.8 -2.6 -2.6
Exports 24.6 24.9 23.9 22.5 26.5 26.1 25.7 25.8 25.8 25.9
Imports 22.2 23.0 22.4 20.7 22.9 22.8 22.7 23.0 23.2 23.3
Net non-debt creating capital inflows (negative) -2.1 -1.1 -3.4 -1.9 -2.1 -2.0 -1.9 -1.8 -1.6 -1.6
Automatic debt dynamics 1/ -2.0 -0.3 0.5 5.6 -1.7 -0.3 -0.1 0.4 0.6 0.6
Contribution from nominal interest rate 1.4 1.5 1.4 1.2 1.6 1.6 1.5 1.5 1.6 1.6
Contribution from real GDP growth -0.7 -1.3 -0.8 4.4 -3.3 -1.9 -1.6 -1.1 -1.0 -1.0
Contribution from price and exchange rate changes 2/ -2.7 -0.4 -0.1 ... ... ... ... ... ... ...
Residual, incl. change in gross foreign assets (2-3) 3/ 1.7 0.0 2.8 6.5 0.9 0.8 0.2 -0.3 -0.8 -0.4
External debt-to-exports ratio (in percent) 145.2 138.5 145.1 191.9 147.2 140.2 133.0 126.2 119.7 115.4
Gross external financing need (in billions of US dollars) 4/ 22.8 19.5 20.9 12.7 15.2 16.6 17.8 18.4 21.2 21.6
in percent of GDP 10.7 8.7 9.0 6.2 6.7 6.9 7.0 6.9 7.6 7.4
Scenario with key variables at their historical averages 5/ 37.2 36.0 34.4 32.2 29.7 26.8 24.3 -4.1
Key Macroeconomic Assumptions Underlying Baseline
Real GDP growth (in percent) 2.1 4.0 2.2 -11.1 8.5 5.2 4.8 3.4 3.3 3.3
GDP deflator in US dollars (change in percent) 7.5 1.2 0.3 -0.6 2.2 1.4 1.0 1.1 1.1 1.3
Nominal external interest rate (in percent) 4.0 4.3 4.0 3.2 4.1 4.3 4.4 4.6 5.1 5.4
Growth of exports (US dollar terms, in percent) 21.3 6.6 -1.7 -17.1 30.8 5.0 4.4 4.5 4.5 4.9
Growth of imports (US dollar terms, in percent) 9.3 8.8 0.1 -18.6 23.1 5.9 5.6 5.5 5.4 5.2
Current account balance, excluding interest payments 0.1 -0.2 -0.2 1.7 1.2 0.9 0.5 0.1 -0.2 -0.3
Net non-debt creating capital inflows 2.1 1.1 3.4 1.9 2.1 2.0 1.9 1.8 1.6 1.6
1/ Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar
terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.
2/ The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency
(e > 0) and rising inflation (based on GDP deflator).
3/ For projection, line includes the impact of price and exchange rate changes.
4/ Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.
5/ The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
6/ Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP)
remain at their levels of the last projection year.
36 INTERNATIONAL MONETARY FUND
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Annex I. Implementation of Past Fund Advice
Recommendations Authorities’ Response
Fiscal policies
Ease fiscal policy in the short term through In progress. Public investments increased in
accelerating budget execution and improve early 2020 just before the COVID-19 pandemic
investment execution capacity, including hit but declined sharply in H1 2020 due to strict
through strengthening project design, better COVID-19-related containment measures. The
integrating projects with budget preparation, implementation accelerated again in the second
improving information systems for project half of the year, but bottlenecks in
execution, promoting concurrent control implementing public investments remain.
procedures, and enhancing the implementation
capacity of local and regional governments.
Introduce greater flexibility in the fiscal policy In progress. While responding to large shocks,
framework in the medium term to make it the authorities have suspended the fiscal rules
counter cyclical. in 2020-21.
Raise revenue mobilization capacity in the In progress. The 2021 budget plan and MTMF
medium term. include several revenue measures.
Monetary and exchange rate policies
Follow data-dependent policy. Ease policy Implemented. The BCRP has taken a number of
further if downside risks materialize while measures to ease monetary conditions in the
remaining vigilant against the emergence of aftermath of very large shocks and support
financial sector vulnerabilities financial stability.
Introduce greater exchange rate flexibility to In progress. The authorities continue to
absorb external shocks and promote financial implement an inflation-targeting framework
development without targeting any particular level of the
exchange rate. While the BCRP increased its
interventions to stabilize the exchange rate
during the COVID-19 and political shocks, the
Sol was allowed to depreciate more than in
some peer countries.
Limit FX interventions to cases of disorderly Partially implemented. Spot market
market conditions. interventions were limited in 2020, and
intervention using other instruments has been
two-way.
Financial policies
Reinforce the legal protection of supervisors Not implemented.
Mandate the SBS to exercise consolidated Not implemented. However, the authorities
supervision believe that the existing regulations allow the
SBS to exercise consolidated supervision.
Enhance the effectiveness of the AML/CFT In progress. A new Companies Authorization
framework Regulation has been prepared that contains
clauses on the shareholders' moral suitability,
final beneficiaries, directors, managers, and
main officials of companies. Similarly,
amendments to the Corporate Governance and
Comprehensive Risk Management Regulations
(GIR) include clauses on evaluating moral
INTERNATIONAL MONETARY FUND 37
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Recommendations Authorities’ Response
suitability. Both regulations will be published
shortly. Also, modifications to the Financial
System's Law to increase the limits on fines have
been prepared.
Implement Basel III recommendations as In progress. New methodologies were
outlined in the 2018 FSAP including increasing developed for countercyclical provisions and
capital surcharges for capital surcharges for systemic banks. A
systemic banks and countercyclical provisioning methodology for determining buffers for
for smaller banks would help to strengthen concentration and interest rate risk is being
financial sector resilience. prepared. A new provisioning scheme more
sensitive to risk has been developed, with a new
quantitative impact study planned to be
conducted in 2021.
Structural policies
Increase labor market flexibility and reduce In progress. These are priority objectives of the
economic informality. National Competitiveness Plan.
Accelerate reforms to improve governance and The National Board of Justice, which appoint
fight corruption, boost competitiveness, and judges and prosecutors, is now fully operational,
reduce informality. Other key reforms include openings of Offices
of Institutional Integrity in more than 200 public
sector entities, the launch of a platform to
collect whistleblower allegations, and the
development of an integrity index to help focus
on areas where corruption risks are higher.
Improve social protection, including by In progress. Despite early difficulties in their
reforming the pension system to ensure its delivery, cash transfers to households have
sustainability and enhance its coverage, helped absorb the COVID-19 shock. On the
providing a more equitable distribution of other hand, allowing pension withdrawals did
natural resource revenues across regions, and not provide relief to most informal workers and
deepening financial development and inclusion had adverse implications on the pension
system’s integrity. Financial deepening and
inclusion are priority objective of the National
Competitiveness Plan.
Foster economic diversification, including In progress. Improving the business climate is a
through an extension of the agriculture priority objective of the National
promotion law and further improvements in Competitiveness Plan. The new agriculture
business climate promotion law requires a gradual removal of
fiscal incentives to create a level-playing field.
38 INTERNATIONAL MONETARY FUND
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Annex II. Peru’s Health Preparedness1
1. Peru appears to lag its peer countries in terms of infrastructure and the number of
qualified medical personnel. Peru had invested a smaller part of its GDP on public health than
its peers for many years, and a large proportion of this comes out of pocket or from other private
sources. Peru has fewer doctors than in peer countries, and most of them work in richer urban
areas. Peru also had fewer ICU beds and ventilators than in peer countries before the pandemic
hit, with reports suggesting that Peru had just 100 ICU beds available for COVID-19 patients
when the pandemic struck. Furthermore, Peru underperforms its peers in terms of access to basic
sanitation and drinking water, which facilitate the spread of the virus, undermining its
containment efforts.
Socio-Economic Characteristics Health Spending in percent of GDP
120
10
100 Brazil Chile 9 Brazil Chile
Colombia Mexico
80 Colombia Peru 8 Peru
7
60
6
40
5
20 4
0 3
Informal employment Access to basic Access to drinking 2
(% of total non- sanitation (%) water (%)
agricultural 1
employment) 0
Medical Personnel and Beds ICU Beds and Ventilators
(Per 1,000 people) (Per 100,000 people)
3.5 35
Brazil Chile Colombia Mexico Peru
Brazil Chile Colombia Mexico Peru
3 30
2.5 25
2 20
1.5 15
1 10
0.5 5
0 0
Doctors Nurses and midwives Beds ICU beds Ventilators
Sources: The World Bank, World Health Organization, United Nations, OECD, IADB, websites of agencies of LA5 countries,
and Benitez and others (2020).
1
This annex is prepared based on OECD Reviews of Health Systems: Peru (2017), OECD Health at a Glance 2015
and 2019, Global Health Security Index by the EIU, “Responses to COVID-19 in five Latin American countries” by
Benitez, Velasco, Sequeira, Henriquez, Menezes, Paolucci, various media reports as well as data by the World
Bank, World Health Organization, United Nations, OECD, IADB, and websites of agencies of LA5 countries.
INTERNATIONAL MONETARY FUND 39
PERU
2. Before the pandemic hit, sizable groups of people had limited access to health
services. The distribution of infrastructure varied by region, with hospital services
overwhelmingly (97 percent) concentrated in urban areas, where populations tend to be richer.
Indigenous people, especially women, had been reported as experiencing difficulties in accessing
health services (OECD, 2015). This problem was exacerbated by high informality, with about 17
percent of the population not having health insurance. Survey data on accessibility suggest that
the health system did not meet the demand, and long waiting times were reported (OECD, 2017).
3. With five main healthcare insurers each owning and operating its own clinics and
hospitals, the highly fragmented health care system was slow to react to the
pandemic. Following the “decentralization reform,” supervision and management of health
services and financial resources were transferred to regional and local governments. However,
there were signs that the dual fragmentation of the system–– vertically by subsystem and
horizontally to regions––was causing problems for the quality of care. The persistence of high
infectious disease burden and diminishing vaccination coverages indicated that regional
authorities were not fully prepared to provide good-quality services. Low user satisfaction and
readiness to seek care outside of their insurance-covered providers and pay for care out of
pocket suggest that there were problems with quality within the subsystems (OECD, 2017).
4. There were also problems in early detection and reporting capacity. Global Health
Security Index, which is a project of the Nuclear Threat Initiative and the Johns Hopkins Center
for Health Security and was developed with The Economist Intelligence Unit, suggests that Peru
underperformed its peers in terms of
Early Detection and Reporting
early detection and reporting capacity. (Including laboratory system and epidemiology
Moreover, in the early days of the workforce)
90
pandemic, Peru predominantly used 80
70
rapid antibody tests, which cannot
60
detect early COVID-19 infections, 50
making it hard to identify and isolate the 40
30
sick quickly. Reportedly, this produced a 20
sizable number of false positives and 10
0
negatives. Brazil Chile Mexico Peru Colombia
Sources: Global health security index; and IMF staff calculation.
40 INTERNATIONAL MONETARY FUND
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Annex III. Labor Market Developments and Social Support
Programs in Peru during the COVID-19 Pandemic1
1. Peru suffered the largest contraction in employment in the second quarter of 2020
among the main economies of Latin America (LA5). As the COVID-19 pandemic began to
spread in March and the Peruvian Figure 1. Employment in Main Latin American
government established a national Economies (2019 Q4 = 100)
lockdown, employment fell slightly in 110
the last month of Q1 and subsequently
100
declined by 41 percent in Q2 relative to
2019Q4. In comparison, employment in 90
the other LA5 economies contracted 80
between 11 and 24 percent in the same
70
period. While the stronger rebound in
Q3 brought Peru in line with the other 60
Colombia
Brazil
Chile
Mexico
LA5 economies, employment remained Peru
50
some 20 percent below the pre- 2019Q4 2020Q1 2020Q2 2020Q3
pandemic level, suggesting a
Source: National Statistical Agencies and staff calculations.
potentially long path towards a full
recovery.
2. Compared to other LA5 economies, the employment contraction in Peru was more
evenly distributed across the labor force. Historically, certain groups of workers, such as
females, younger and older workers, and those in the informal sector experience larger
fluctuations in employment over the business cycle. During the pandemic, the high contact
intensity of certain occupations and the low ability to telework have exacerbated these
differences across groups (see WHD October 2020 REO). As shown in Figure 2, unlike in Chile
and Colombia, the employment decline in Q2 for Peru was more homogeneous with respect to
formality of work arrangements and age. Only with respect to gender the larger contraction for
females in Peru is consistent with developments in the other two countries.2 Informal
employment experienced a smaller fall than formal employment in Q2 and a faster recovery in
Q3. As a result, the informality share of employment rose from 71.6 percent in 2019Q3 to 73.7
percent in 2020Q3.
1
Prepared by Carlo Pizzinelli (WHD).
2
For the detailed analysis of Peru, Chile, and Colombia we use micro-data at the worker level from national
statistical agencies from 2019Q3 to 2020Q3. Namely, the Encuesta Nacional de Hogares (ENAHO) for Peru, the
Encuesta Nacional de Empleo (ENE) for Chile, and the Gran Encuesta Integrada de Hogares(GEIH) for Colombia.
INTERNATIONAL MONETARY FUND 41
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Figure 2. Job Losses by Worker Characteristic: Peru, Colombia, and Chile
(Employment loss since 2019Q4, percent)
By formality of work arrangements
Peru Chile Colombia
0 0 0
-10 -10 -10
Change p.p. Change p.p. Change p.p.
-20 -20 -20
-30 -30 -30
-40 -40 -40
2020Q1-2019Q4 2020Q2-2019Q4 2020Q1-2019Q4 2020Q2-2019Q4 2020Q1-2019Q4 2020Q2-2019Q4
-50 2020Q3-2019Q4 -50 2020Q3-2019Q4 -50 2020Q3-2019Q4
Formal Informal Formal Informal Formal Informal
By age
Peru Chile Colombia
20 20 20
2020Q1-2019Q4 2020Q1-2019Q4 2020Q1-2019Q4
10 2020Q2-2019Q4 10 2020Q2-2019Q4 10 2020Q2-2019Q4
2020Q3-2019Q4 2020Q3-2019Q4 2020Q3-2019Q4
0 0 0
Change p.p. Change p.p. Change p.p.
-10 -10 -10
-20 -20 -20
-30 -30 -30
-40 -40 -40
-50 -50 -50
Age 14-24 24-44 45-64 65+ Age 14-24 24-44 45-64 65+ Age 14-24 24-44 45-64 65+
By gender
Peru Chile Colombia
0 0 0
-10 -10 -10
Change p.p. Change p.p. Change p.p.
-20 -20 -20
-30 -30 -30
-40 2020Q1-2019Q4 -40 2020Q1-2019Q4 -40 2020Q1-2019Q4
2020Q2-2019Q4 2020Q2-2019Q4 2020Q2-2019Q4
2020Q3-2019Q4 2020Q3-2019Q4 2020Q3-2019Q4
-50 -50 -50
Male Female Male Female Male Female
Sources: National Statistical Agencies and staff calculations .
3. Particularly in the informal sector, employment losses were accompanied by wage
reductions. Many informal workers who did not lose their jobs reported falls in their monthly
earnings. Figure 3 reports the non-parametric distribution of log monthly labor earnings for
42 INTERNATIONAL MONETARY FUND
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informal and formal workers over time.3 As shown in the left panel, before the pandemic about
20 percent of informal workers reported receiving no income for their labor in the reference
month. That share rose to almost 30 percent in 2020Q2. Furthermore, among those workers who
received salaries or business profits, income falls were frequent, as indicated by the shift in the
distribution to the left. By Q3, the situation had partly reverted to pre-pandemic conditions, with
both a fall in the fraction of unpaid workers and a shift to the right of the rest of the distribution.
Conversely, income losses were not common among formal workers who retained employment
(right panel). Not only is unpaid labor extremely rare among formal workers but also the rest of
the distribution did not show marked shifts during the pandemic.
Figure 3. Non-parametric Distribution of Monthly Log Earnings for Informal and
Formal Workers
Informal Formal
0.35 0.8
2019Q4 2019Q4
0.3 0.7
2020Q2 2020Q2
2020Q3 0.6 2020Q3
0.25
0.5
0.2
Density Density
0.4
0.15
0.3
0.1
0.2
0.05 0.1
0 0
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9
Log (1+ Monthly Labor Earings) Log (1+ Monthly Labor Earings)
Sources: ENAHO microdata and IMF Staff calculations.
4. The higher incidence of income shocks among informal workers is likely driven by a
tighter link between hours worked and earnings. Figure 4 reports the non-parametric
distribution of weekly hours worked before and during the pandemic for informal and formal
workers. In normal times, the distribution of weekly hours worked is more diffused for informal
than for formal workers, as the latter are more likely to work conventional schedules such as 35,
40, or 50 hours. During the pandemic, most informal workers worked fewer hours than usual,
with the peak in the distribution falling from more than 40 hours to about 20. Meanwhile, the
formal sector saw a small rise in the share of those working no hours but the peak in the
distribution remained broadly unchanged between 40 and 50 hours. Taken together, Figures 3
and 4 suggest that informal work is characterized by a tighter link between hours worked and
income. On the other hand, formal workers may benefit from greater protection of their incomes
when their hours are reduced.
3
The distribution is computed by adding 1 to monetary and non-monetary earnings from all jobs before taking
the log. This transformation allows to include in the distribution those workers who were employed without pay.
INTERNATIONAL MONETARY FUND 43
PERU
Figure 4. Non-parametric Distribution of Weekly Hours Worked for Informal and Formal
Workers
Informal Formal
0.03 0.045
0.04
0.025 2019Q4 2019Q4
0.035
2020Q2 2020Q2
0.02 2020Q3 0.03 2020Q3
0.025
Density Density
0.015
0.02
0.01 0.015
0.01
0.005
0.005
0 0
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95
Hours worked per week Hours worked per week
Source: ENAHO microdata and IMF Staff calculations.
5. Employment losses for individual workers left many households without any
income during the pandemic (Figure 5). In Q2 almost 40 percent of households reported that
at least one of their members had lost their job since the national lockdown and had not yet
returned to work. In the same period, 18 percent of households reported receiving no income
from any source —including public Figure 5. Share of Households with no Income and
and private transfers— compared with at Least One Worker Losing their Job since the
to a pre-pandemic average of 2 National Lockdown by Quarter
percent. By Q3, the shares of 0.45
Share of HH with no income
0.4
households with job losses and Share of HH with job loss
0.35
without any income had fallen to
0.3
25 and 5 percent, respectively. The
0.25
fact that the latter fell by a greater 0.2
extent may indicate that either new 0.15
income sources, including public 0.1
transfers, have offset job losses or 0.05
that the presence of multiple 0
2019Q3 2019Q4 2020Q1 2020Q2 2020Q3
workers within a household may Source: ENAHO microdata and IMF Staff calculations.
have served as a partial “insurance”
mechanism.
6. Pre-existing social safety net programs, although well targeted, were not designed
to address the short-lived shock brought about by the pandemic. Peru features a diverse set
of social safety net programs, including JUNTOS and Pensión 65. Before the pandemic, these
public transfer schemes constituted a larger fraction of total income per capita for low-income
households (Figure 6, left panel), indicating that they are generally progressive in nature and
constitute an important means of sustenance for the most vulnerable in society. However, during
the pandemic, even as labor earnings fell sharply for low-income households, there was no
offsetting rise in transfers from the traditional social safety net (Figure 6, right panel).
44 INTERNATIONAL MONETARY FUND
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Figure 6. Traditional Social Transfers and Other Income Sources Across the Household
Before and During the Pandemic
Composition of Household Income Average Income by Source for Households in
(per capita by percentile in 2019) the Bottom Quartile of the Income per Capita
Distribution
Labor Private Transfers Public Transfers Assets Income 450
Labor Private Transfers
1 400
0.9 Public Transfers Assets Income
350
0.8
0.7 300
0.6 250
0.5
200
0.4
150
0.3
0.2 100
0.1
50
0
<10th 10th-25th 25th-50th 50th-75th 75th-90th 90th < 0
Percentile range 2019Q4 2020Q1 2020Q2 2020Q3
Source: ENAHO and IMF Staff calculations.
Note: Public transfers include JUNTOS, Pension 65, retirement pension and unemployment pension. Private transfers
include remittance, divorce and window pensions,
7. After initial delays, newly created social support programs were effective in
reaching the most adversely affected households. The government enacted a wide range of
measures to support struggling households, especially those in the informal sector. Among
these, cash transfers programs, such as “Bono Yo me quedo en casa” and “Bono universal” were
particularly successful in reaching low-income households and those affected by job losses
(Figure 7). Another support measure allowed households to make temporary withdrawals from
their private pension funds. However, fewer households took advantage of this initiative which
mostly reached those in the upper end of the income distribution. As participation in individual
pension schemes is connected to the formal labor sector, the regressive nature of the pension
withdrawal initiative is likely connected to the lower incidence of formal work arrangements
among low-income households.
Figure 7. Incidence of Job Losses and Share of Households Receiving Bonos and Pension
Withdrawals Across the Income per Capita Distribution in 2020Q2 and 2020Q3
Job Loss - Covid Bonus Pension Withdrawal
1 1 1
2020Q2 2020Q2 2020Q2
0.8 0.8 0.8
Share of Households Share of Households Share of Households
2020Q3 2020Q3 2020Q3
0.6 0.6 0.6
0.4 0.4 0.4
0.2 0.2 0.2
Income Percentile Income Percentile
Income Percentile
0 0 0
10th-25th 25th-50th 50th-75th 75th-90th 10th-25th 25th-50th 50th-75th 75th-90th 10th-25th 25th-50th 50th-75th 75th-90th
90th < 90th < 90th <
No income No income No income
<10th <10th <10th
Sources: ENAHO and IMF Staff calculations.
INTERNATIONAL MONETARY FUND 45
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Annex IV. 2021 Poverty Projections under Different Scenarios1
1. Peru has been one of the countries hardest-hit by the COVID-19 crisis in terms of
job and income losses. The effect of the lockdown measures implemented in Peru had large and
negative impacts on households, especially those who depended on informal jobs in non-
essential sectors. The fact that informal workers were more likely to lose their jobs and that Peru
has one of the highest levels of labor informality in the region contribute to explain the severity
of the economic impacts (Figure 1). At the same time, women were affected disproportionately
when compared to men. This is partially explained by gender biases in family care
responsibilities, but also because female-dominated sectors tend to be more intensive in face-to-
face interactions and, thereby, hit harder by the social-distancing measures. Job-loss was less
prevalent in rural areas, but labor incomes fell more than in their urban counterparts.2
Figure 1. Employment Loss during COVID-19 and Share of Workers in Formal Wage
Employment
(Pre-lockdown, in percent)
80
Percentage of workers who lost their job
70 Bolivia
R² = 0.848
60 Peru
Honduras El Salvador
(temporary or permanent) during
Colombia Dominican Republic
50 Ecuador
Guatemala
Paraguay Mexico
40
Argentina
Costa Rica
quarantine
30 Chile
20
30 35 40 45 50 55 60 65 70 75 80
Percentage of salaried formal workers, pre-quarantine (2019)
Source: World Bank High Frequency Phone Surveys and WDI.
2. Cash transfers to households in 2020 mitigated the impact of the crisis on poverty
to a significant degree. Preliminary estimates indicate that moderate poverty (at US$5.5/day) in
2020 increased by about 6 percentage points, although it would have grown by 10 percentage
points if the emergency cash transfers to households (“bonos”) had not been implemented.
Results from a simulation model show that the impact of the crisis on poverty incidence has been
1
Prepared by Ronald Cueva (Extended Term Consultant) and Hernan Winkler (Senior Economist), Poverty and
Equity Global Practice, World Bank.
2
Cueva, R. Del Carpio, X. and Winkler, H. (forthcoming), The Labor Market Impacts of COVID-19 in Peru: Insights
from a Longitudinal Household Survey.
46 INTERNATIONAL MONETARY FUND
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dramatic, leading to an
Figure 2. Poverty Rate Headcount at US$5.5/day,
unprecedented increase in poverty
2019–21
rates (Figure 2). However, the roll-
(In percent)
out of cash transfers to poor and 35
31.4
vulnerable households helped to
30 27.5 27.2
offset such increase substantially.3
25 21.7
3. Without universal cash 20
transfers across all regions in 15
2021, poverty is expected to
10
remain 4.8 percentage points
5
above pre-crisis levels. While
0
economic growth in 2021 is
Baseline Without With measures Without
expected to rebound strongly, the measures measures
poverty rate is projected to decline 2019 2020 2020 2021
only marginally and still remain Source: Authors’ estimations based on ENAHO (2018).
close to the levels of the 2012 rate Note: “Measures” refer to the universal bonos only. It excludes other
mitigating policies such as those targeted to businesses.
headcount (Figure 2). This limited
4
progress in poverty reduction in 2021 can be explained by the large scale and progressivity of
the bonos disbursed in 2020. Although the Government of Peru has already implemented a bono
of S/.600 (US$167) for the 10 regions in lockdown5, its impact would only decrease poverty levels
by 0.7 percentage points compared to a scenario with no measures (Figure 3). The absence of
further income support for all regions in 2021 would result in many households falling again in
poverty despite strong economic rebound.
4. When evaluating alternative policies, the implementation of a bono with similar
targeting to the one rolled-out in 2020 is expected to have the largest poverty- and
inequality-mitigating impacts in 2021. As seen in Figure 3, of the four policies simulated,
another round of universal bonos would reduce poverty dramatically, even below pre-crisis
levels.6 The most generous bono, equivalent to about 2.3 percent of GDP (and S/.2,760 or US$767
per household), would have the largest impact, reducing poverty by almost 6.4 percentage
points with respect to the baseline scenario without emergency cash transfers and increasing
monthly income for the bottom decile by almost 35 percent compared to the baseline (Figure 6).
Likewise, the same bono would also reduce inequality, measured using the Gini coefficient, by 3
points and below pre-crisis levels.7 In contrast, the new bono announced by the government for
the 10 regions in lockdown is expected to have only a mild impact on poverty, reducing it by less
3
Table 1 shows the details of the targeting mechanism of Bono Universal.
4
In 2012, the poverty headcount at US$5.5/day (2011 PPP) was 26.9 percent.
5
Between February 1 to February 15.
6
Table 1 reports the full list of mitigation policies simulated.
7
In 2019, the Gini Index was 42.82.
INTERNATIONAL MONETARY FUND 47
PERU
than 1 percentage point. This is because some of the regions targeted—such as Lima—have
incomes substantially higher than excluded ones. Finally, the disbursement of bonos to those
affiliated to the ONP system and the (now-denied) measure to allow early withdrawals from ONP
would have only minimal poverty-reducing impacts, by about a percentage point or less.8 The
fiscal cost of such measure (at least 1.3 percent of GDP9) would have been similar to one of the
universal bonos considered (“Bono (1.3 percent)”). However, the latter could reduce poverty by
more than 3.6 percentage points in 2021. Figure 5 shows the coverage rates of the different
programs by income quintiles.
Figure 3. 2021 Poverty Rates including Four Scenarios of Mitigation Measures
(US$5.5/day, in percent)
70
61.5 61.2 60.6
60 54.8
49.2
50 National
Urban
Rural
40
30 27.2 26.5 26.5
23.6
20.8
20
10 17.5 16.7 16.9
14.8
12.8
0
ONP Bono (region) Bono (1.3 percent) Bono (2.3 percent)
Without With measures
Source: Author’s calculation based on ENAHO (2018).
Figure 4. 2021 Gini Index including Four Scenarios of Mitigation Measures
(in percent)
43.9
44 43.76
43.5
42.0
42
40.8
40
ONP Bono (region) Bono (1.3 percent) Bono (2.3 percent)
Without With measures
Source: Author’s calculation based on ENAHO (2018).
8
As seen in Figure 5, ONP contributors and pensioners are mostly distributed in the upper quintiles. As such,
poverty impacts from this measure would be minimal. On February 4, 2021 the Constitutional Court of Peru
(Tribunal Constitucional) declared the Congress-proposed law of ONP withdrawals to be unconstitutional.
9
According to the Fiscal Council (Consejo Fiscal), the fiscal cost of such measure would have been equivalent to
2.3 percent of GDP.
48 INTERNATIONAL MONETARY FUND
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Figure 5. Coverage of Mitigation Measures, Figure 6. Monthly Income Increase Compared
by Quintiles to no Measures for the Bottom 40
(In percent) (In Percent)
100 40
99 ONP ONP
88
90 Bono (region) Bono (region)
35
Bono (1.3 percent) Bono (1.3 percent)
80 Bono (2.3 percent)
Bono (2.3 percent) 30
67 68
70
60 25
60 55
20
50 45 46
43
40 35
15
33
30 26 10
22
20 14 5
10 5 0
0 D1 D2 D3 D4
Q1 Q2 Q3 Q4 Q5 Deciles of Household Income per capita
Source: Author’s calculation based on ENAHO (2018).
Table 1. Criteria and Amounts of the Simulated Mitigation Measures
Program Criteria Amount
ONP will provide a one-time cash transfer equivalent to 1 Remuneración
Mínima Vital (RMV) ~ S/.930 for all ONP pensioners.
Pensioner Criteria:
-To be a pensioner, a worker must have contributed to the public
pension system for at least 20 years and be 65 years or older. Early
S/.930
Bono ONP1 retirement requires 30 years of contribution.
(~US$260)
Model Criteria:
-Affiliated to the public pension system.
-Receiving a pension from ONP.
-50 years or older (in order to consider early retirement workers).
One-time refund of up to 1 unidad impositiva tributaria (UIT) ~ S/.4300
for all active and inactive contributors.
Maximum
Withdrawal Contributors Criteria:
of S/.4300
ONP 2 -Workers (dependent or independent) who are not affiliated to the
(~US$1,200)
private pension system (AFP).
-Contribute 13 percent of their monthly labor income to the public fund.
INTERNATIONAL MONETARY FUND 49
PERU
Table 1. Criteria and Amounts of the Simulated Mitigation Measures (concluded)
Program Criteria Amount
Model Criteria:
We can observe the minimum amount of money in a worker’s fund using
the time in current employment and last contribution to ONP. If the
amount surpasses S/.4300, we assign a withdrawal of S/.4300.
For affiliated people whose last contribution to ONP was prior to the
start date of their current job or are unemployed, we simulate a scenario
with a top withdrawal of S/.4300.
Simulation of a one-time cash transfer to households who: Amounts of
-Are recipients of the Juntos and Pensión 65.3 S/.1530 and
-HH in poverty conditions in urban or rural areas. S/.2760
-HH with members who are no formal waged workers 4 in the public or (US$425
Bono private sectors, and who earn below S/.3000 each (837 USD).5 and
Universal US$767) to
match 1.3
percent and
2.3 percent
of GDP.
Bono of Same criteria as for Bono Universal.
S/.600
S/.600 for
(US$167
regions in Only for households in Ancash, Apurimac, Callao, Huancavelica, Huánuco,
USD).
Lockdown Ica, Junín and Lima.
____________________
1
Based on Law No 31082 (https://busquedas.elperuano.pe/download/url/ley-que-establece-un-regimen-
especial-facultativo-de-devoluc-ley-n-31083-1909102-4). Total withdrawals from inactive workers who do not
comply requirements to be pensioners (at least 20 years of contribution to the system) are not simulated.
2
Ídem.3 Even though the Government also includes HH with members of the Contigo program, it was not
included in the simulation as question for this social program are not included in ENAHO.
4
Trabajadores en planilla.
5
Bono Independiente originally included HH with members who earned less than S/.1200, then Bono Familiar
Universal included HH whose members earned less than S/.3000.
50 INTERNATIONAL MONETARY FUND
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Annex V. Withdrawals from Pension Funds
To alleviate the hardship caused by COVID-19, three rounds of extraordinary withdrawals from private
pension funds accounts have been approved along with a one-off payment from the public pension
fund (ONP). While the private pension funds appear to have absorbed the immediate shock and the
overall financial market reaction has been muted, adverse medium-term implications are expected.
The withdrawals have likely helped support household consumption in an environment of arguably
inadequate budget support.
1. About five million members of private pension funds made withdrawals of an
estimated S/.24.3 billion in the first two rounds.1 Withdrawals of up to S/.2,000 by members who
had not contributed for six consecutive months from private pension fund accounts were authorized
under emergency decrees by the government in the context of the health emergency early in April.2
Congress-led legislation later in May allowed access of up to 25 percent of the savings accounts,
subject to a maximum of S/.12,900 (about US$3,600). Overall, about 2.8 million people made
withdrawals under the April measures amounting to about S/.5.2 billion (for an average withdrawal
of S/.1,761). In turn, some 3.7 million people made withdrawals under the May authorization
amounting to about S/.19.2 billion over the entire withdrawal window of April through July (for an
average withdrawal of S/.5,147).
2. A law authorizing a third round of withdrawals was approved by Congress in
November. The law allowed those who had not contributed to the system in the past twelve
months and others with health conditions to withdraw up to S/.17,200 from their pension accounts.
The expected withdrawal is S/.11.8 billion, which some 2 million potential beneficiaries. The first
tranche of withdrawals started in December and will continue into 2021. About S/.7.8 billion has
already been withdrawn. In early December, Congress passed a law authorizing exceptional
payments by the public pension fund (ONP) of up to S/.4,300. The law also authorizes additional
one-off payments to current retirees and allows those over 65 years of age that have not met the
requisites for a pension to withdraw the full amount of their contribution. The law was struck down
by the Constitutional Tribunal, which ruled against its constitutionality in February.
3. So far, pension funds appear to have managed the shock well, helped by liquidity
support from the Central Bank. Four private pension fund companies (APFs) operate in Peru. In
March, assets under management stood at about US$46 billion. APFs were able to respond to the
extraordinary demand for cash during the first round of withdrawals by using monthly contributions,
repos provided by the central bank (about S/.4.9 billion), liquidating some positions abroad (about
US$410 million), using their deposits, and selling some domestic assets.
4. The first two rounds of withdrawals did not cause major disruptions in financial
markets either (Figure). Financial markets went through turbulence before the first measure was
1
Preliminary estimate based on the variation of the system’s assets under management.
2
The benefit was later extended to furloughed workers.
INTERNATIONAL MONETARY FUND 51
PERU
adopted, but that seems to be mainly related to the onset of the COVID-19 pandemic. Asset prices
moved down in April (the exchange rate slightly depreciated, bond yields slightly increased, and
stock prices declined), but the losses were quickly reversed in the following months. The financial
system took in stride the following measures as well. Within the domestic financial sector, the
outflow of savings from the private pension funds has boosted bank deposits and liquidity. Overall,
the weakening of pension funds vis-a-vis banks is not desirable in terms of competition within the
financial sector and long-term financing availability.
5. While pension withdrawals may have helped support consumption, they have likely
benefitted mostly the relatively well-off households. Subsidies to households in response to the
crisis were relatively small. Most families benefitted from two rounds of cash transfers of S/.760, with
delays in implementation and the second round rolled out only in August. These compare with an
average pension withdrawal of S/.3,683 in the first two rounds alone. The additional provision of
cash may have provided some relief but its effect on consumption may have not been very strong.
Pension withdrawals benefitted mostly workers in the formal sector, who have higher income and
lower propensity to consume.3 Anecdotal evidence points to some households using the liquidity to
pay down existing debt or increasing their liquid assets. Most workers in the informal sector, who
are a large majority (70 percent) with lower incomes and hit harder by the crisis, do not have
pension savings to access.
6. The weakening financial position of pension systems poses challenges for the viability
of the private social insurance model and may create implicit liabilities for the state. Pensions
are already relatively low, with an average
monthly pension of below S/.440, and only Net Replacement Rate for Full-Career Average-
Wage Worker
one percent of APF members receive above (In percent)
140
S/.775 compared with average wage of
120
S/.2,283. This reflects both low coverage Mandatory Mandatory + voluntary
100
and low replacement rates (40 percent
80
average). The ad-hoc withdrawal
60
authorizations would further worsen the 40
replacement rates, which had already been 20
projected to decline to 12-34 percent in the 0
next 30 years (Freudenberg and Toscani, OECD Argentina Brazil Chile Mexico Peru
Sources: OECD, Pensions at Glance, 2019; Fredenberg and Toscani, 2019.
2019).
3
See also Annex IV, which provides estimates on the impact of pension withdrawals on poverty and inequality.
52 INTERNATIONAL MONETARY FUND
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Figure 1. Peru: Financial Indicators
Exchange Rate Index Stock Market Index
(Average 2019=100) (Jan. 2013=100)
160
Peru Chile Colombia 120
Brazil Mexico Peru
140
100
120 80
100 60
80 40
Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21
Pension Funds Stock Bond Yields
(In thousands of soles) (Zero coupon yiled; in percent)
80,000,000 8
Habitat Integra
70,000,000
Prima Profuturo
60,000,000 6
50,000,000
1Y 2Y
40,000,000 4
30,000,000 20Y 30Y
20,000,000 2
10,000,000
0 0
Jan-20 Mar-20 May-20 Jul-20 Sep-20 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21
EMBI Spreads and 5Y CDS Government Bond Yield Curve
350 250 (In percent, average of month)
6
300
EMBI 5Y CDS (RHS) 200 5
250
150 4
200
3
150 Mar-2020 Jun-2020
100
2 Sep-2020 Nov-2020
100
50
50 1
0 0 0
Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 1Y 2Y 3Y 4Y 5Y 10Y 15Y
Sources: Bloomberg; Haver; national authorities; and IMF staff calculations.
INTERNATIONAL MONETARY FUND 53
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Annex VI. External Sector Assessment
Based on preliminary estimates, Peru’s external position in 2020 is assessed as moderately stronger
than implied by fundamentals and desirable policies, nevertheless, uncertainty around the estimates is
very high. Reserve coverage remains adequate, including after accounting for dependence on
commodity prices and significant domestic FX liabilities.
Background
1. The current account balance narrowed sharply in 2020 as the COVID-19 shock took
effect. The current account deficit was 1.5 percent of GDP in 2019 (as compared to 1.7 percent in
2018). Dramatic shift in the first nine months of 2020 included a collapse of trade volumes,
commodity price volatility, and unprecedented low levels of profit repatriation, on balance leading
to a near zero deficit. The contraction of exports owed to a combination of supply and demand
factors, notably the restriction of most economic activities, including mining, especially in Q2, and
the fall of most of Peru’s export prices, including copper, partially compensated by favorable prices
for gold. Tourism related services registered unprecedented low levels. The decline of imports was
sharpest for intermediate goods in part due to lower fuel prices.
2. Both commodity exports and imports recovered strongly in Q4 with the partial
reopening of the economy and favorable terms of trade. According to preliminary data the
current account registered a surplus of 0.5 percent of GDP for the year of 2020, helped also by
temporarily higher current transfers due to income tax proceeds from the sale of shares of Luz del
Sur electric power distribution company to China Three Gorges Corporation. As recovery takes
effect, imports are expected to rebound strongly in part driven by projected larger public spending
in 2021-21 and gradual recovery of private demand. Exports are also expected to rebound, helped
by favorable prices, albeit at a slower pace. Over the medium term, the current account deficit is
expected to stabilize at about 1.8 percent of GDP.
3. The REER has increased somewhat in 2019 and 2020. The average REER in 2019 was 2.3
percent stronger than in 2018 and in 2020 it strengthened by another 1.6 percent y-o-y, mostly
driven by nominal depreciation while relative prices stayed broadly stable. The 12-month average
REER as of end- 2020 was about 5 percent higher than the 20-year average.
4. The capital and financial account in 2020 was dominated by public sector borrowing as
private sector flows diminished sharply. The impact of the COVID-19 chock was felt most
dramatically on FDI inflows, which declined by 67 percent in year-on-year. At the same time, external
borrowing by the private sector including MLT loans, portfolio investment and ST borrowing stayed
at broadly similar levels to last year. The foreign borrowing by the public sector was substantial and
included large bond issuances of US$3 billion in April and US$4 billion in November.
54 INTERNATIONAL MONETARY FUND
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5. Peru’s IIP is characterized by large foreign reserves, moderate external debt and large
FDI liabilities. After improving from a minimum of -54 percent of GDP in the late 90s to - 24
percent of GDP in 2011, Peru’s IIP has been on a declining trend, driven by the accumulation of FDI
liabilities. As of end-2019 Peru’s external assets were (57.1 percent of GDP) including sizeable
holdings of foreign assets by the central bank (29.6 percent of GDP). The assets are offset by large
FDI liabilities (50 percent of GDP), moderate external indebtedness (public and private external debt
of 35 percent of GDP) and other liabilities (9.5 percent of GDP). In 2020 the large increase in central
bank assets was offset by large fiscal borrowing and other flows, leaving the IIP balance in dollar
terms largely unchanged. These developments are expected to be short-lived and the IIP is
projected to stay broadly stable in percent of GDP in the medium term.
Current Account Balance Trade Volumes
(Percent of GDP, 4-Q sum) (Year-on-year change, 12-month average)
10 15
Trade balance Services
Investment income Current transfers 10
Current account balance 5
5
0 0
-5
-5
-10
Export volume Import volume
-10 -15
2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 2014Q4 2015Q2 2015Q4 2016Q2 2016Q4 2017Q2 2017Q4 2018Q2 2018Q4 2019Q2 2019Q4 2020Q2 2020Q4
-20
Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20
Terms of Trade Real Effective Exchange Rate
(Index, 12-month moving average) (Index, 2010=100)
40 115
Terms of Trade Monthly index
30
Export prices 110
12-m average
Copper price
20 20-year average
Import prices 105
10
100
0
-10 95
-20
90
Dec-99 Jun-01 Dec-02 Jun-04 Dec-05 Jun-07 Dec-08 Jun-10 Dec-11 Jun-13 Dec-14 Jun-16 Dec-17 Jun-19 Dec-20
-30
Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20
Sources: BCRP; IMF INS database; and IMF staff calculations.
INTERNATIONAL MONETARY FUND 55
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Net International Investment Position Net International Investment Position
(Percent of GDP) (Percent of GDP)
0 80
-10 40
-20
0
-30
-40
Peru -40
Chile -80
-50
Colombia
-120
-60
2000 2010 2017 2018 2019 2020
-70 Equity secruities FDI
ST external debt Private MLT bonds and other debt
2011Q1 2011Q4 2012Q3 2013Q2 2014Q1 2014Q4 2015Q3 2016Q2 2017Q1 2017Q4 2018Q3 2019Q2 2020Q1 2020Q4
Public MLT bonds and other debt Assets
Net IIP
Sources: Haver, BCRP and IMF staff estimates.
6. Peru’s international reserve coverage exceeds adequacy metrics. Gross international
reserves were US$74.9 billion (estimated 37.4
percent of GDP) at end-2020, or 307 percent Components of GIR and ARA Metric
(US$ billion)
of the ARA metric, well above the 100–150 80
70
percent adequacy range. Reserves also exceed 60
an augmented ARA metric that incorporates 50
40
the volatility of copper and gold prices and 30
20
Peru’s heavy reliance on commodity exports. 10
Reserves also exceed the augmented metric 0
even after subtracting large FX liabilities to the 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
commercial bank deposits public sector deposits
banking sector (reserve requirements and other NIR ARA metric
Augmented ARA metric
deposits from de-dollarization swaps).
Source: BCRP a nd IMF staff estimates.
7. The BCRP has been active in the foreign exchange market to smooth the volatility
caused by recent shocks, but as before, it does not target a specific level of the exchange rate.
While the central bank stepped in to smooth the volatility at the outset of the COVD-19 and during
later episodes of significant market pressure, the intervention was limited, and the sol continued to
depreciate along with other regional currencies. More recently, interventions were aimed at calming
the markets in the context of the heightened political uncertainty surrounding the impeachment of
the president followed by the resignation of his newly sworn-in successor after public protests.
Overall, in 2020 the BCRP has sold US$4billion (about 2 percent of GDP) in the non-spot market,
including swaps and adjustable CDs. Interventions in the spot market were limited, with net of close
to zero.
56 INTERNATIONAL MONETARY FUND
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Foreign Exchange Intervention Net position of non-spot intervention 1/
(Millions of US dollars) (Billions of US dollars)
600 3.7 5,000
CDs payable in US dollars (-) 4,500
400 4,000
3.6 Adjustable CDs
3,500
Swaps (sell minus buy)
200 3,000
3.5 Total Position 2,500
0 2,000
3.4 1,500
-200 1,000
non-spot 1/ 500
-400 3.3
spot purchases (net) 0
-500
USD/PEN (RHS)
-600 3.2 -1,000
Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20
Source: BCRP and staff estimates. Source: BCRP and Fund staff estimations.
1/ Net maturity of CDR BCRP, net maturity of FX (sell) swaps, net 1/ An increase is equivalent to a sale of foreign exchange.
issuance of CDLD and net purchases of FX (buy) swaps.
Assessment
8. Based on preliminary estimates, the external position in 2020 is assessed as
moderately stronger than implied by fundamentals and desirable policies. The EBA current
account model estimates a current account norm of -2.4 percent of GDP. After excluding the one-off
tax payment of about 0.3 percent of GDP due to foreign sales of shares of a domestic corporation,
the current account was cyclically adjusted considering the output and the terms of trade gaps,
arriving at -1 percent of GDP. Thus, the overall CA gap is about 1.4 percent of GDP pointing to an
external position in 2020 that was moderately stronger than implied by fundamentals and desirable
policy settings. Out of the CA gap of 1.4 percent of GDP, policy gaps account for 1 percent of GDP.
This is explained by stronger fiscal balances
Current Account and REER Gaps, 2020
compared to the rest of the world, implying (Percent of GDP, unless stated otherwise)
that a more supportive fiscal policy, as
REER
recommended by staff, would have helped CA regression (index) REER (level)
reduce the policy gap. REER models point Actual CA 0.5 .. ..
Actual CA, adjusted for one-off factors 0.2
to different results than the CA model: an Cyclically adjusted CA -1.0 .. ..
external position moderately weaker than Cyclically adjusted CA norm -2.4 .. ..
fundamentals in case of the REER index CA gap 1/ 1.4 .. ..
o/w Policy gaps 1.0 .. ..
model and weaker in case of the REER level Elasticity -0.2
model. Normally, the CA regression-based REER gap (in percent) 2/ -6 5.6 12.1
approach is more reliable for Peru and Source: IMF staff estimates.
therefore the assessment places more 1/ CA gap is cyclically adjusted CA minus CA norm.
2/ Positive value indicates overvaluation.
weight on this approach. Nevertheless, it
needs to be emphasized that, given the unprecedented year of 2020, uncertainty around these
estimates is very high.
INTERNATIONAL MONETARY FUND 57
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Annex VII. Risk Assessment Matrix1
Time
Likelihood Impact Policy Advice2
horizon
Domestic Risks
Unexpected shift in the Medium ST H (↓) Peru is vulnerable to a prolonged Countercyclical policies
COVID-19 pandemic. pandemic owing to low capacity in the should be recalibrated to
The disease proves health system and delays in vaccination mitigate the impact of the
harder to eradicate (e.g., plans. Repricing of risk assets and larger or more prolonged
due to vaccines’ financial market volatility may lead to shock, building on the lessons
ineffectiveness and capital outflows and depreciation learned so far. In addition to
difficulties in distribution), pressures. Lower external demand due to protecting the vulnerable,
requiring more disruption of trade and global value policies should focus on
containment efforts and chains would further reduce growth. limiting scarring and
impacting economic facilitating adjustment to the
activity directly and new normal.
through persistent
behavioral changes
(prompting costly
reallocations of
resources).
Widespread social Medium ST, MT M/H (↓) Political uncertainty and Continue institutional reforms
discontent and political /Low industrial conflict could stifle investment and strengthen
instability ahead of and economic recovery in the short-term anticorruption institutions.
general elections in 2021. (probability: M; impact: M). A Use policy space (particularly
Tensions between constitutional reform that undermines fiscal) if necessary. Persevere
executive and legislative policy frameworks underpinning prudent with structural reforms,
powers continue; policies could have significant medium- especially those aimed at
requests of higher wages term implications (probability: L; impact: increasing investment
and better working H). potential and improving
conditions lead to framework for PPPs.
industrial conflict; and
demands for a new
Constitution intensify.
Faster execution of Medium ST, MT M (↑) The rapid execution of investment Countercyclical policies
public investment. in the health sector would help address should be recalibrated. In the
Recent changes may have the needs related with the pandemic medium term, the ability to
improved the speed of while stimulating domestic demand. mobilize public investment
execution as shown by rapidly would increase the
the rapid growth of effectiveness of fiscal policy.
capital spending in the
second part of 2020.
_____________________________
1
The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. The relative likelihood is the staff’s subjective
assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between
10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level
of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly.
2
Recommended by staff.
58 INTERNATIONAL MONETARY FUND
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External Risks
Accelerating de- High MT H (↓) Given its high exposure to The exchange rate should be
globalization. Geopolitical international trade, Peru would be allowed to adjust in response
competition and fraying strongly affected. Falling commodity to permanent real shocks.
consensus about the benefits prices and export volumes would lead to Structural reforms should be
of globalization lead to further a decline of potential growth. accelerated to mitigate the
fragmentation (globally). decline in potential.
Reshoring and less trade
reduce potential growth.
Sharp rise in risk premia that Medium ST M (↓) Peru is vulnerable to a sudden exit The central bank should use
exposes financial of foreign investors, which hold a large all its tools to provide
vulnerabilities. An abrupt share of its sovereign bonds. This risk is liquidity both in soles and
reassessment of market mitigated by its large policy buffers, dollars as needed and
fundamentals (e.g., in response including the FCL and a dollar repo line maintain financial markets
to adverse COVID-19 with the NY Fed, and the financial sector functioning. Exchange rate
developments or a premature can absorb major shocks. interventions could be used
withdrawal of policy support) to prevent excessive volatility
triggers widespread risk-off but their rationale should be
events. This exposes financial clearly communicated.
vulnerabilities that have been Avoiding a premature
building up in the aftermath of withdrawal of fiscal policy
COVID-19, including in sectors support, accompanied by a
that are no longer viable after clear path of return to the
the pandemic. Risk asset prices fiscal rules in the medium
fall sharply, leading to term, would help maintain
significant losses in major confidence.
financial institutions. Higher
risk premia generate debt
service and refinancing
difficulties for leveraged firms
and households, and a wave of
bankruptcies further erode
banks’ capital buffers.
Financing difficulties extend to
vulnerable sovereigns, in the
case of Emerging and Frontier
Markets leading to capital
outflows, depreciation
pressures, and cascading debt
defaults.
Unexpected shift in the Medium ST H (↑) Given its high exposure to Countercyclical policies
COVID-19 pandemic. international trade, Peru would strongly should be recalibrated, and
Pandemic is contained faster benefit. Rising commodity prices and policy stimulus could be
than expected due to the rapid export volumes would provide an withdrawn sooner than
production and distribution of impulse to growth. expected.
vaccines, boosting confidence
and economic activity.
INTERNATIONAL MONETARY FUND 59
PERU
Higher frequency and Medium ST, MT M (↓) Peru is vulnerable to extreme Preparedness in the
severity of natural disasters weather events (El Niño) with large immediate aftermath and
related to climate change adverse impacts on human life, economic building resilience in
cause severe economic activity, and fiscal costs. economic activities and
damage, reduces GDP, and infrastructure would reduce
prompts a recalculation of risk the medium-term impact.
and growth prospects. Countercyclical policies
should be deployed as
needed.
60 INTERNATIONAL MONETARY FUND
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Annex VIII. Public Debt Sustainability Analysis
The public debt sustainability analysis (DSA) indicates that Peru’s public debt is expected to remain
sustainable given the projected recovery of the economy in the medium term, and a gradual
withdrawal of the fiscal impulse deployed to attend the COVID-19 health emergency. Under the
baseline scenario, the public debt-to-GDP ratio is forecast to stabilize at about 38 percent of GDP in
over the medium term. Gross financing needs are expected to average about 5 percent of GDP over the
forecast horizon. While historical projections have been optimistic, medium term projections are
conservative. Nonetheless, a negative growth shock represents one of the major risks to the debt
outlook. An elevated share of public debt held by non-residents stands out as the main debt profile
risk, along with moderate external financing requirements risks.
Background
1. The last DSA for Peru assessed the country’s public debt as sustainable with a high
probability (see Country Report 20/181). The COVID-19 pandemic triggered a large policy
response in 2020 that triggered an increase in the Non-Financial Public Sector (NFPS) deficit to 8.8
percent of GDP in 2020, from 1.6 percent of GDP in 2019. Public debt rose by about 8.3 percentage
points to 35.4 percent of GDP in 2020. The fiscal deficit is expected to decline to 5.0 percent of GDP
in 2021, as some of the COVID-19 transitory measures are phased out. The debt-to-GDP ratio would
peak at about 38 percent of GDP in 2025 and fall slowly thereafter.
2. Peru’s strong track record of credit worthiness has allowed it to maintain access to
both local and international capital markets. The bulk of the government’s borrowing
requirement is sourced from a highly liquid domestic market, with external public debt representing
around 40 percent of the total. About 90 percent of the debt is marketable and contracted at fixed
rates, with a half-life of 12 years (above the median for EMs).1 Peru’s sovereign debt is rated
investment grade by all major rating agencies. The credit rating sits comfortably above speculative
grade (1 full grade in the case of Moody’s, and two notches above in the case of S&P and Fitch).
Moody’s and S&P have qualified the outlook as stable. Fitch downgraded the outlook to negative
on concerns over political instability stalling progress on reforms and curbing economic growth on
December 2020.
Baseline Scenario
3. The baseline scenario is built on two main assumptions. First, the COVID-19 health
emergency is expected to remain broadly contained until a vaccine or treatment is broadly
deployed, and any health policies to address emerging outbreaks would have a limited impact on
economic activity. Second, a return to the pre-COVID-19 targets of the fiscal rules would occur
outside the forecast horizon (2021-26). Other main parameters of the macroeconomic framework
are summarized below.
1
Excluding the century bond issued in November 20, 2020.
INTERNATIONAL MONETARY FUND 61
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Real GDP Growth. Real output growth is anticipated to recover strongly in 2021-22
reflecting a post-pandemic rebound. Afterwards, real GDP growth would converge gradually
to potential GDP growth. The level of real GDP would reach pre-pandemic levels by end-
2022. A large negative output gap is expected to close by end-2024.
Consumer prices and GDP deflator. Consumer price inflation and the GDP deflator are
expected to remain anchored at about 2 percent over the forecast horizon
Fiscal strategy. The baseline scenario assumes a gradual fiscal consolidation is in place. The
primary deficit is anticipated to progressively narrow from 7.2 percent of GDP in 2020 to
reach balance in 2026. New debt issuances are assumed to principally consist of domestic
currency debt, in line with the authorities’ medium-term debt management strategy of
mitigating exchange rate, interest rate, and rollover risks.
Current Account. The current account deficit is expected to average 1.2 percent of GDP
over the medium term. The external accounts are anticipated to remain balanced, secured by
continued market access to international capital markets and support from FDI.
Public DSA Assessment
4. Public-sector debt dynamics are sustainable with a high probability both under the
baseline and historical scenarios (Figure 1 and Figure 2). Under the baseline scenario, the public
debt-to-GDP ratio is expected to reach its peak of about 38 percent of GDP in 2025, where after it
would decline gradually. The reduction in the primary deficit will be partly offset by a negative
interest rate and real GDP growth differential. Under the historical scenario (where real GDP growth,
the primary balance, and real interest rates are set at their historical average while other variables
are the same as in the baseline) the debt ratio would peak outside the forecast horizon.
5. The baseline scenario is realistic for purposes of the DSA (Figure 3). An analysis of staff’s
forecast errors shows that while estimates of real GDP growth have tended to be optimistic, these
have reflected unexpected shocks such as the commodity price downturn in 2014-2016 and climate-
related natural disasters. Partly addressing any potential bias, staff’s real GDP growth forecast is
below both the consensus and the authorities’ forecasts for 2021. On the other hand, the primary
balance, and inflation (deflator) forecast errors have been closer to the median for all countries.
Finally, the projected fiscal consolidation underpinning the debt burden trajectory looks realistic.
Stress Tests and Distribution of Risks
6. Standardized stress tests reveal that the public debt ratio is likely to remain at
manageable levels over the forecast horizon (Figure 4). In all cases, the debt ratio remains below
the 70 percent of GDP benchmark for EMs. The assessment is further confirmed by a probabilistic
analysis of the uncertainty surrounding the baseline scenario, as indicated by the Fan Charts.
62 INTERNATIONAL MONETARY FUND
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Real GDP growth shock. Lower real output growth than in the baseline by one standard
deviation for 2 years starting in 2021 would take the public debt level towards 55 percent of
GDP and public gross financing needs of about 7 percent of GDP over the medium term.
Real interest rate and real exchange rate shock. Simulations of a 200bp increase in real
interest rates or a 20 percent depreciation of the exchange rate yield similar results. Any of these
events would take the public sector debt level to about 44 percent of GDP in 2026. Gross
financing needs would stand at about 5.1 percent of GDP through 2026.
Primary balance shock. Fiscal slippage in the form of a deterioration in the primary balance of
an additional cumulative 3 percent of GDP over the 2021-26 period would take the debt ratio to
about 46 percent of GDP in 2026. Public gross financing needs would remain at about 6.1
percent of GDP during 2021-26.
Combined macro-fiscal shock. A single scenario that combines the above-mentioned shocks
would imply a debt ratio of about 60 percent of GDP by 2026. The ratio of public debt to
revenue, and public gross financing needs would remain at elevated levels over the medium
term.
COVID-19 contingent liabilities shock. Under the baseline scenario, a fifth of the guarantees
issued under Reactiva Perú will be called, amounting to 1.8 percent of GDP during the 2021-23
period. A doubling of the expected rate of materialization of these contingent liabilities issued
under Reactiva Perú, along with lower real GDP growth by 0.5 percentage points, would keep
the public debt ratio over 46 percent of GDP by 2025.
7. The risk assessment shows that debt profile vulnerabilities are limited. Risks arise
mostly from a high share of public debt held by non-residents, as the corresponding risk indicator is
close to the upper early warning threshold. Meanwhile, moderate risks arise from the share of
public debt in foreign currency and external financing requirements, which could give rise to
concerns over financial stability in the case of large exchange rate adjustments (Figure 5).
Conclusion
8. Peru’s public-sector debt level is sustainable with a high probability. The debt
sustainability analysis is broadly positive. Debt is unlikely to exceed 70 percent of GDP over the
medium term, including in the event of large shocks to key macroeconomic variables. However, in
the absence of fiscal consolidation an adverse shock could take the debt ratio close to the 70
percent of GDP benchmark. The main sources of risk arise from the high proportion of public debt
held by non-residents and real GDP growth shocks. Moderate risks from the share of public debt in
foreign currency and external financing requirements are emerging.
INTERNATIONAL MONETARY FUND 63
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Figure 1. Peru: Public Debt, Economic and Market Indicators1
(In percent of GDP unless otherwise indicated)
Debt, Economic and Market Indicators 1/
Actual Projections As of February 08, 2021
2010-2018 2/ 2019 2020 2021 2022 2023 2024 2025 2026 Sovereign Spreads
Nominal gross public debt 23.4 27.1 35.4 35.4 36.2 36.7 37.2 37.5 37.4 EMBIG (bp) 3/ 136
Public gross financing needs 2.3 4.1 9.2 5.4 4.3 4.4 4.8 4.6 5.9 5Y CDS (bp) 55
Real GDP growth (in percent) 4.8 2.2 -11.1 8.5 5.2 4.8 3.4 3.3 3.3 Ratings Foreign Local
Inflation (GDP deflator, in percent) 2.9 2.1 1.8 2.0 2.0 2.0 2.0 2.0 2.0 Moody's A3 A3
Nominal GDP growth (in percent) 8.2 4.0 -7.5 14.4 7.1 6.5 5.0 4.9 5.1 S&Ps BBB+ A-
Effective interest rate (in percent) 4/ 5.3 5.5 5.5 5.5 5.4 5.4 5.2 5.1 5.0 Fitch BBB+ BBB+
Contribution to Changes in Public Debt
Actual Projections
2010-2018 2019 2020 2021 2022 2023 2024 2025 2026 cumulative debt-stabilizing
Change in gross public sector debt -0.2 0.9 8.3 0.0 0.9 0.4 0.5 0.3 -0.1 2.0 primary
Identified debt-creating flows -1.2 1.0 9.5 1.2 1.0 0.4 0.5 0.3 0.0 3.3 balance 9/
Primary deficit -0.5 0.3 7.3 3.3 1.7 1.0 0.6 0.4 0.1 7.2 -0.2
Primary (noninterest) revenue and grants 25.7 24.7 22.0 22.3 23.0 23.0 23.1 23.2 23.2 137.8
Primary (noninterest) expenditure 25.2 25.0 29.3 25.6 24.7 24.0 23.7 23.6 23.3 145.0
Automatic debt dynamics 5/ -0.4 0.1 5.4 -1.7 -0.6 -0.5 -0.1 -0.1 -0.1 -3.0
Interest rate/growth differential 6/ -0.6 0.3 4.5 -1.7 -0.6 -0.5 -0.1 -0.1 -0.1 -3.0
Of which: real interest rate 0.5 0.8 1.2 1.1 1.1 1.1 1.1 1.1 1.0 6.5
Of which: real GDP growth -1.1 -0.6 3.3 -2.7 -1.7 -1.6 -1.2 -1.1 -1.2 -9.5
Exchange rate depreciation 7/ 0.1 -0.2 0.9 … … … … … … …
Other identified debt-creating flows -0.3 0.6 -3.2 -0.5 -0.1 -0.1 -0.1 -0.1 -0.1 -1.0
General government net privatization proceeds (negative) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Contingent liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Use of stabilization fund -0.3 0.6 -3.2 -0.5 -0.1 -0.1 -0.1 -0.1 -0.1 -1.0
Residual, including asset changes 8/ 0.9 -0.1 -1.3 -1.2 -0.1 0.0 0.0 0.0 0.0 -1.2
14
projection 20
12 Debt-Creating Flows
(in percent of GDP) 15
10
8 10
6
5
4
2 0
0 -5
-2
-10
-4
-6 -15
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 cumulative
Primary deficit Real GDP growth Real interest rate Exchange rate depreciation Other debt-creating flows Residual Change in gross public sector debt
Source: IMF staff calculations.
1/ Public sector is defined as non-financial public sector.
2/ Based on available data.
3/ EMBIG.
4/ Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.
5/ Derived as [(r - π(1+g) - g + ae(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate;
a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).
6/ The real interest rate contribution is derived from the numerator in footnote 5 as r - π (1+g) and the real growth contribution as -g.
7/ The exchange rate contribution is derived from the numerator in footnote 5 as ae(1+r).
8/ Includes asset changes and interest revenues (if any). For projections, includes exchange rate changes during the projection period.
9/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.
64 INTERNATIONAL MONETARY FUND
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Figure 2. Peru: Public DSA – Composition of Public Debt and Alternative Scenarios
Composition of Public Debt
By Maturity By Currency
(in percent of GDP) (in percent of GDP)
40 40
Medium and long-term Local currency-denominated
35 Short-term 35 Foreign currency-denominated
30 30
25 25
20 20
15 15 projection
10 projection 10
5 5
0 0
2010 2012 2014 2016 2018 2020 2022 2024 2026 2010 2012 2014 2016 2018 2020 2022 2024 2026
Alternative Scenarios
Baseline Historical Constant Primary Balance
Gross Nominal Public Debt Public Gross Financing Needs
(in percent of GDP) (in percent of GDP)
60 12
50 10
40 8
30 6
20 4
10 2
projection projection
0 0
2019 2020 2021 2022 2023 2024 2025 2026 2019 2020 2021 2022 2023 2024 2025 2026
Underlying Assumptions
(in percent)
Baseline Scenario 2021 2022 2023 2024 2025 2026 Historical Scenario 2021 2022 2023 2024 2025 2026
Real GDP growth 8.5 5.2 4.8 3.4 3.3 3.3 Real GDP growth 8.5 2.5 2.5 2.5 2.5 2.5
Inflation 2.0 2.0 2.0 2.0 2.0 2.0 Inflation 2.0 2.0 2.0 2.0 2.0 2.0
Primary Balance -3.3 -1.7 -1.0 -0.6 -0.4 -0.1 Primary Balance -3.3 -0.4 -0.4 -0.4 -0.4 -0.4
Effective interest rate 5.5 5.4 5.4 5.2 5.1 5.0 Effective interest rate 5.5 5.3 5.3 5.0 4.8 4.6
Constant Primary Balance Scenario
Real GDP growth 8.5 5.2 4.8 3.4 3.3 3.3
Inflation 2.0 2.0 2.0 2.0 2.0 2.0
Primary Balance -3.3 -3.3 -3.3 -3.3 -3.3 -3.3
Effective interest rate 5.5 5.3 5.2 5.0 4.8 4.7
Source: IMF staff calculations.
INTERNATIONAL MONETARY FUND 65
66
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Figure 3. Peru: Public DSA – Realism of Baseline Assumptions
INTERNATIONAL MONETARY FUND
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Figure 4. Peru: Public DSA – Stress Tests
Macro-Fiscal Stress Tests
Baseline Primary Balance Shock Real Interest Rate Shock
Real GDP Growth Shock Real Exchange Rate Shock
Gross Nominal Public Debt Gross Nominal Public Debt Public Gross Financing Needs
(in percent of GDP) (in percent of Revenue) (in percent of GDP)
60 250 10
9
50
200 8
40 7
150 6
30 5
100 4
20
3
50 2
10
1
0 0 0
2021 2022 2023 2024 2025 2026 2021 2022 2023 2024 2025 2026 2021 2022 2023 2024 2025 2026
Additional Stress Tests
Baseline Combined Macro-Fiscal Shock
COVID-19 Contigent Liabilities Shock
Gross Nominal Public Debt Gross Nominal Public Debt Public Gross Financing Needs
(in percent of GDP) (in percent of Revenue) (in percent of GDP)
70 280 10
260 9
60
240 8
50 7
220
40 6
200
5
30 180
4
160 3
20
140 2
10
120 1
0 100 0
2021 2022 2023 2024 2025 2026 2021 2022 2023 2024 2025 2026 2021 2022 2023 2024 2025 2026
Underlying Assumptions
(in percent)
Primary Balance Shock 2021 2022 2023 2024 2025 2026 Real GDP Growth Shock 2021 2022 2023 2024 2025 2026
Real GDP growth 8.5 5.2 4.8 3.4 3.3 3.3 Real GDP growth 8.5 0.1 -0.3 3.4 3.3 3.3
Inflation 2.0 2.0 2.0 2.0 2.0 2.0 Inflation 2.0 0.7 0.7 2.0 2.0 2.0
Primary balance -3.3 -3.2 -2.5 -0.6 -0.4 -0.1 Primary balance -3.3 -4.1 -5.0 -0.6 -0.4 -0.1
Effective interest rate 5.5 5.3 5.3 5.1 5.0 4.9 Effective interest rate 5.5 5.3 5.3 5.2 5.0 4.9
Real Interest Rate Shock Real Exchange Rate Shock
Real GDP growth 8.5 5.2 4.8 3.4 3.3 3.3 Real GDP growth 8.5 5.2 4.8 3.4 3.3 3.3
Inflation 2.0 2.0 2.0 2.0 2.0 2.0 Inflation 2.0 6.8 2.0 2.0 2.0 2.0
Primary balance -3.3 -1.7 -1.0 -0.6 -0.4 -0.1 Primary balance -3.3 -1.7 -1.0 -0.6 -0.4 -0.1
Effective interest rate 5.5 5.3 5.5 5.5 5.5 5.6 Effective interest rate 5.5 5.6 5.2 5.0 4.8 4.7
Combined Shock COVID-19 Contigent Liabilities Shock
Real GDP growth 8.5 0.1 -0.3 3.4 3.3 3.3 Real GDP growth 8.5 4.7 4.3 2.9 3.3 3.3
Inflation 2.0 0.7 0.7 2.0 2.0 2.0 Inflation 2.0 2.0 2.0 2.0 2.0 2.0
Primary balance -3.3 -4.1 -5.0 -0.6 -0.4 -0.1 Primary balance -3.3 -1.7 -1.0 -0.6 -0.4 -0.1
Effective interest rate 5.5 5.6 5.4 5.4 5.5 5.5 Effective interest rate 5.5 5.3 5.3 5.0 4.9 4.7
Source: IMF staff.
INTERNATIONAL MONETARY FUND 67
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Figure 5. Peru: Public DSA - Risk Assessment
Heat Map
Debt level 1/ Real GDP Primary Balance Real Interest Exchange Rate Contingent
Growth Shock Shock Rate Shock Shock Liability shock
Real GDP Primary Balance Real Interest Exchange Rate Contingent
Gross financing needs 2/
Growth Shock Shock Rate Shock Shock Liability Shock
External Change in the Public Debt Foreign
Market
Debt profile 3/ Financing Share of Short- Held by Non- Currency
Perception
Requirements Term Debt Residents Debt
Evolution of Predictive Densities of Gross Nominal Public Debt
(in percent of GDP)
Baseline Percentiles: 10th-25th 25th-75th 75th-90th
Symmetric Distribution Restricted (Asymmetric) Distribution
45 50
40 45
35 40
35
30
30
25
25
20
20
15 15
Restrictions on upside shocks:
no restriction on the growth rate shock
10 10 no restriction on the interest rate shock
5 5 0 is the max positive pb shock (percent GDP)
no restriction on the exchange rate shock
0 0
2019 2020 2021 2022 2023 2024 2025 2026 2019 2020 2021 2022 2023 2024 2025 2026
Debt Profile Vulnerabilities
(Indicators vis-à-vis risk assessment benchmarks, in 2020)
Peru Lower early warning Upper early warning
39%
600 15 1 45 60
42%
140 6%
200 bp 5 0.5 15 20
1 2 1 2 1 2 1 2 1 2
-0.8%
Annual Change in
External Financing Public Debt Held by Public Debt in
EMBIG Short-Term Public
Requirement Non-Residents Foreign Currency
Debt
(in basis points) 4/ (in percent of GDP) 5/ (in percent of total) (in percent of total) (in percent of total)
Source: IMF staff.
1/ The cell is highlighted in green if debt burden benchmark of 70% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not
baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.
2/ The cell is highlighted in green if gross financing needs benchmark of 15% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not
baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.
3/ The cell is highlighted in green if country value is less than the lower risk-assessment benchmark, red if country value exceeds the upper risk-assessment benchmark, yellow if
country value is between the lower and upper risk-assessment benchmarks. If data are unavailable or indicator is not relevant, cell is white.
Lower and upper risk-assessment benchmarks are:
200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in the share of short-term debt; 15 and 45
percent for the public debt held by non-residents; and 20 and 60 percent for the share of foreign-currency denominated debt.
4/ EMBIG, an average over the last 3 months, 10-Nov-20 through 08-Feb-21.
5/ External financing requirement is defined as the sum of current account deficit, amortization of medium and long-term total external debt, and short-term total external debt
at the end of previous period.
68 INTERNATIONAL MONETARY FUND
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Annex IX. Foreign Exchange Intervention––Controlling Exchange
Rate Volatility to Preserve Financial Stability
1. Since abandoning the exchange rate peg in 1990, the Central Reserve Bank of Peru has
been intervening in the foreign exchange market to smooth volatility. Over the years, the
macroeconomic policy frameworks evolved substantially, especially with the adoption of inflation
targeting in 2002, but the strong focus on the exchange rate and financial stability has persisted. The
key rationale for limiting exchange rate volatility stems from financial dollarization, which implies
that due to balance sheet mismatches, large depreciations can cause financial instability, leading in
turn to macro instability and these negative effects can outweigh the beneficial effects of
expenditure switching. Comparisons of Peru’s macroeconomic performance in terms of inflation
and output with that of other EMEs suggests that the multi-instrument framework has worked well. 1
At the same time, it is important to continuously assess policy trade-offs and costs and benefits of
active discretionary FX interventions in light of the evolution of the structural characteristics of the
economy as well as in the context of various external shocks.
2. A large share of FXI in Peru can be explained by standard metrics of disorderly market
conditions. Average daily interventions have been much higher when market conditions were
disorderly. Still, gross interventions data suggest that the BCRP tends to be active on the FX market
also on days when markets are not disorderly, although less so in the most recent past (text chart).
In part, this may reflect the “proactive” approach of the BCRP in that, in the face of uncertainty about
the permanent or transitory nature of shocks, it opts to respond to all shocks.2 Looking at specific
financial market variables that characterize market conditions, it appears that FXI has been
correlated with unusual changes in the exchange rate but not with unusual levels (text chart).
Average Daily FX Intervention, Spot and Non-Spot Average Daily FX Interventions, Spot and Non-Spot
(2007-2021) (2020-2021)
150 150
Net Purchase
100
100
Gross (all positive)
50
50
0
0
-50
-50 Net Purchase
-100
Gross (all positive)
-100 -150
Disorderly Unusual Orderly Disorderly Unusual Orderly
Sources: Bloomberg; Haver; BCRP; and IMF staff calculations.
1
Peru. Selected Issues, IMF 2020
2
Armas, A. and M. Vega “Peru: Foreign Exchange Intervention under Financial Dollarization” Chapter 12 in “Foreign
Exchange Intervention in Inflation Targeters in Latin America”, IMF, 2019.
INTERNATIONAL MONETARY FUND 69
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Total FX Intervention and Two-Day Exchange Rate Total FX Intervention and Exchange Rate Level,
Change, Normalized (since 2014) Normalized (since 2014)
800 800
FX intervention, total (spot & non-spot) FX intervention, total (spot & non-spot)
600 600 y = -5.8101x + 14.472
R² = 0.0238
400 400
200 200
0 0
-200 -200
-400 -400
-600 y = -25.689x - 5.4777 -600
R² = 0.0896
-800 -800
-15 -10 -5 0 5 10 15 20 -5 0 5 10
Sources: Bloomberg; Haver; BCRP; and IMF staff calculations.
3. Dollarization has come down significantly over the past decades, but progress may be
slower in the future. The growing credibility of macroeconomic policies as well as targeted
measures, such as higher reserve requirements for foreign currency liabilities, have led to impressive
reduction of financial dollarization. Nevertheless, the history of hyperinflation has left some
persistent scars, manifested for example in the
widespread dominant currency pricing not just for 100
Dollarization at Depository Corporations
90
exports but also for domestic activities, especially 80
(Percent, at December 2014 exchange rate )
for productive inputs. On the institutional level, the 70
60
right to have deposits in US dollars as well as in
50
domestic currency is enshrined in Peru’s 40
constitution, unlike in many EME peers. These 30
20 Deposits
factors suggest that some level of entrenched 10 Private sector credits
dollarization may need to be tolerated over the 0
Jan-00 Jan-04 Jan-08 Jan-12 Jan-16 Jan-20
medium term, with ensuing implications for the Sources: BCRP; and IMF staff calculations.
appropriate degree of foreign exchange
interventions.
4. The transparency of Central Bank’s actions has contributed to its credibility, however
communication about policy goals and tradeoffs can be improved. Publishing foreign exchange
intervention data at daily frequency by BCRP sets as high standard of transparency. The markets
have also learned from practice that the Central Bank steps in to reduce volatility of the exchange
rate and have learned to adjust their expectations and actions accordingly. While this transparency is
commendable, BCRP could go further by explaining the rationale of its actions on the FX front, how
they are conditioned by the structural characteristics of the economy and what the policy trade-offs
are. Without compromising the discretionary approach to FXI, such communication could be done
ex-post, for example by enriching the currently factual discussion of FXI in the BCRP’s inflation
reports.
70 INTERNATIONAL MONETARY FUND
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Annex X. Implementation of 2018 FSAP Recommendations
Peru: FSAP Key Recommendations
Recommendations Status
Systemic Risk and Macroprudential Policy
Increase capital surcharges for systemic banks to In progress. New methodologies were developed for
levels in line with Basel III framework; increase countercyclical provisions and capital surcharges for
countercyclical provisioning for smaller banks. (SBS) systemic banks. Currently working on the methodology
(ST) for determining buffers for concentration and interest
rate risk.
A new provisioning scheme more sensitive to risk has
been developed, with a new quantitative impact study
planned to be conducted in 2021.
Enhance the monitoring of off-balance-sheet Implemented.
exposures of banks. (SBS) (IT)
Increase foreign currency lending risk weights in line In progress. An 8-percent increase in capital surcharges
with Basel III guidelines. (SBS) (ST) is currently applied to exposures subject to credit
exchange rate risk. The SBS is assessing whether
additional surcharges are needed.
Introduce new risk-monitoring tools, such as growth- Implemented. The growth-at-risk methodology and
at-risk, systemic risk analysis, and corporate sector granular risk model for corporate debtors have been
stress testing; give enhanced mandate for incorporated in the stress test model. Heat maps for the
macroprudential policy to BCRP and SBS; implement financial system are included in the Financial Stability
Memorandum of Understanding between BCRP and Report (FSR; since November 2019). Growth-at-risk
SBS to strengthen coordination. (BCRP/SBS) (ST/MT) monitoring was discussed in the December 2019 Inflation
Report and November 2020 FSR.
Coordination among the BCRP, MEF, and SBS increased
during the pandemic mainly through virtual meetings.
Some examples of such coordination are the
implementation of the Reactiva Peru and the National
Guarantee programs for Financial Intermediaries in May
2020. The authorities believe that the current
arrangements are working well, and there is no need to
designate a formal committee for macroprudential
policy.
Financial Sector Oversight
Banks
Amend legal framework to grant SBS powers to In progress. The draft law for holding companies is in
exercise full consolidated supervision. (SBS) (MT) the process of being sent to Congress.
Enhance financial group supervisory and regulatory In progress. Draft law on supervision of holding
approach with regard to (i) group governance and companies covers issues related to corporate governance
risk-management requirements; (ii) consolidated and comprehensive risk management issues. The
capital adequacy and liquidity risk-management authorities believe that the Consolidated Supervision
assessment; (iii) establishing a lead supervisor; and (iv) Regulation already defines the company responsible for
establishing a supervisory group rating. (SBS) (ST) the consolidated information.
INTERNATIONAL MONETARY FUND 71
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Peru: FSAP Key Recommendations (continued)
Recommendations Status
Implement requirements for recovery and resolution In progress.
planning for D-SIBs, as well as for financial groups.
(SBS) (MT)
Strengthen legal protection of all SBS staff in line with Not implemented.
international best practice. (MEF) (MT)
Strengthen the SBS’s internal governance and control Partly implemented.
framework by enhancing the Internal Audit Function,
including the establishment of an Internal Audit
Committee. (SBS) (ST/MT)
Finalize the review of the current methodology for the In progress. The review of the methodology for
calculation of the additional capital requirements as activating the cyclical rule and the additional charges for
planned; enhance the activation trigger of the systemic risk was completed. The methodological review
countercyclical buffer, and enhance the systemic and of the creation of buffers for individual concentration
single name risk buffers. (SBS) (ST) risk, geographic sector, and economic sector as well as
risk propensity was also completed. The methodological
review of capital charges for the interest-rate risk in the
bank book is in process. Once this last element is
completed, a quantitative impact study of the new
additional capital scheme will be carried out.
Insurance
Implement risk-based supervision for all insurers and Partly implemented. Risk-based supervision for
brokers. (SBS) (ST) insurance companies was applied in 2019-2020. The SBS
is developing a risk-based supervision model that will be
applied to brokers.
Cooperatives
After passage of law to bring financial cooperatives Implemented. The regulation for a deposit-insurance
under supervisory umbrella of SBS, design a deposit- system has been approved. The amount of the coverage
insurance system. (BCRP, MEF and SBS) (MT) and the contribution rates to the Cooperative Deposit
Insurance Fund have been approved. The beginning of
the collection was scheduled for April 2020, but this was
postponed due to the pandemic, initially to July 2020 and
then to April 2021.
Crisis Management
Strengthen crisis preparedness and management In progress. The measures taken to maintain financial
arrangements. (MEF, BCRP, SBS, FSD) (MT) stability during the pandemic have shown that the
current crisis management arrangements have worked
effectively.
Enhance information-sharing between SBS and FSD. In progress. Work is underway to develop a proposal for
(SBS, FSD) (MT) a comprehensive bank resolution framework.
Require payout of most insured deposits within seven Partly implemented. In practice, FSD payouts are carried
working days and provide legal protection to FSD out within 48 hours.
staff/agents. (SBS, MEF) (MT)
72 INTERNATIONAL MONETARY FUND
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Peru: FSAP Key Recommendations (concluded)
Recommendations Status
Enhance the ELA framework by specifying eligibility Partly implemented. The BCRP can grant loans of last
and collateral requirements, and by providing for resort to financial institutions that need short-term
enhanced supervision, to ensure its effectiveness. liquidity and may not have high-quality collaterals used
(BCRP) (ST) for repo operations. Coordination between the BCRP and
the supervisory authority is not required to provide CRM,
but the BCRP shares information with the supervisory
authority. In addition to CRM, the BCRP can offer liquidity
using repos, for which eligible instruments are
announced.
Financial Integrity
Strengthen risk-based AML/CFT supervision In progress. A new Companies Authorization Regulation
(including sanctioning powers to enhance has been prepared that contains clauses on the moral
effectiveness) for banks and other high-risk reporting suitability of the shareholders, final beneficiaries,
entities, focusing on preventive measures for directors, managers, and main officials of companies.
mitigating risks of laundering of proceeds of Similarly, amendments to the Corporate Governance and
corruption and drug trafficking. (MEF/SBS) (ST/MT) Comprehensive Risk Management Regulations (GIR)
include clauses on the evaluation of moral suitability.
Both regulations have been published. Also, work has
been done to modify the General Law of the Financial
System to increase the limits on fines.
Financial Deepening and Pension reforms
Deepen repo markets, improve clearing and In progress. Work is going on to improve Repurchase
settlement infrastructure, prioritize medium- and Agreements related to the temporary transfer of
long-term issuance around benchmark tenors. securities in order to give greater dynamism to the public
(BCRP/MEF) (ST/MT) debt market and allow financial institutions to improve
their settlement procedures in the secondary market.
Currently, regulations for these operations have been
approved while a framework contract is being prepared.
To facilitate securities loans, a collateral management
system is being developed.
The Strategy for Global Asset and Liability Management
(EGIAP for its acronym in Spanish) aims to strengthen the
market for public debt securities in the national currency
with medium and long-term maturities. The EGIAP also
aims to achieve interconnection with Euroclear. The
implementation of phase 2 “Secondary Market Link”
would allow all bonds to be euro-clearable and can be
registered and settled in the local ICLV, improving
investors’ access to this market.
Design reforms to improve the private pension Not implemented. A Multiparty Commission of
system. (MEF) (ST/MT) Congress on the subject has been created. The
committee has proposed a reform, which has created
confusion about policy intentions.
Time Frame: IT (Immediate) = less than 1 year; ST (short term) = 1- 3 years; MT (medium term) = 3-5 years.
INTERNATIONAL MONETARY FUND 73
PERU
STAFF REPORT FOR THE 2019 ARTICLE IV
March 1, 2021 CONSULTATION—INFORMATIONAL ANNEX
Prepared By The Western Hemisphere Department
(In consultation with other departments)
CONTENTS
FUND RELATIONS ___________________________________________________________________ 2
RELATIONS WITH OTHER INTERNATIONAL FINANCIAL INSTITUTIONS _________ 4
STATISTICAL ISSUES ________________________________________________________________ 5
PERU
FUND RELATIONS
(As of January 31, 2021)
Membership Status: Joined 12/31/1945; accepted the obligations of Article VIII, Sections 2(a), 3,
and 4 on 2/15/1961.
General Resources Account: SDR Million Percent of Quota
Quota 1334.50 100.00
Fund holdings of currency 993.12 74.42
Reserve Tranche Position 341.43 25.58
SDR Department: SDR Million Percent of Allocation
Net cumulative allocation 609.89 100.00
Holdings 511.80 83.92
Outstanding Purchases and Loans: None
Latest Financial Arrangements:
Type Date of ExpirationAmount Approved Amount Drawn
Arrangement Date (SDR Million) (SDR Million)
FCL May 28, 2020 May 27, 2022 8,007.00 0.00
Stand-By Jan. 26, 2007 Feb. 28, 2009 172.37 0.00
Stand-By Jun. 09, 2004 Aug. 16, 2006 287.28 0.00
Projected Payments to the Fund:
2021 2022 2023 2024 2025
Principal 0.00 0.00 0.00 0.00 0.00
Charges/Interest 0.07 0.07 0.07 0.07 0.07
Total 0.07 0.07 0.07 0.07 0.07
Exchange Arrangements
Peru has a floating exchange rate arrangement. On January 29, 2021 the average of interbank
buying and selling rates was 3.64 soles per U.S. dollar. The exchange system is free of restrictions,
except for those maintained solely for the preservation of national or international security, and
which have been notified to the Fund pursuant to Executive Board Decision No. 144–(52/51).
2 INTERNATIONAL MONETARY FUND
PERU
Last Article IV Consultation
The 2019 Article IV consultation was concluded on January 8, 2020 (IMF Country Report No. 20/3).
FSAP and ROSCs
Several joint Fund-Bank missions visited Lima in the period September 2000–January 2001 to
conduct an FSAP for Peru. The corresponding Financial System Stability Assessment (FSSA) report
was discussed by the Executive Board on March 12, 2001. A follow-up FSAP mission was concluded
in February 2005. In April 2011, the Executive Board took note of the staff’s analysis and
recommendations in the report on Peru’s FSAP Update. More recently, Fund-Bank missions visited
Lima in the period July 2017—February 2018 to conduct another FSAP Update. Regarding ROSCs, In
October 2002, an FAD mission conducted a Fiscal ROSC for Peru (IMF Country Report No. 04/109,
4/16/04), while an STA mission conducted a Data ROSC for Peru in February 2003 (IMF Country
Report No. 03/332, 10/24/03).
Technical Assistance
FAD
Year Purpose
2014 Follow-up Macro-fiscal 7/30/2014
2014 Treasury Management 11/23/2014
2015 Follow-up on Tax and Customs Administration 1/19/2015
2015 Local Government Revenues and BEPS in Natural Resource 12/1/2015
Sector
2015 RA-GAP 7/7/2015
2016 Budget Management 2/15/2016
2017 Fiscal Reporting and Budgeting 1/16/2017
2017 Follow-up on Tax and Customs Administration - TADAT 3/7/2017
2017 Tax Administration 6/7/2017
2017 Public Investment Management 8/17/2017
2018 Treasury Management 2/20/2018
2018 Governance Pilot 9/23/2018
2019 Budgeting Investment and PIMA 4/29/2019
2019 Tax Regimes 08/12/2019
2019 Revenue Administration 11/13/2019
2019 Public Financial Management (PFM) - MTBF 12/6/2019
2020 Large Taxpayer Units 1/20/2020
2020 Customs – Risk Management 8/9/2020
2020 PFM/Treasury Management and Payments Digitalization 10/14/2020
2020 PFM/Treasury Management: Cash Flow Plans 11/24/2020
LEG
2017 Strengthening AML/CFT Supervision of the SMV 2/7/2017
STA
INTERNATIONAL MONETARY FUND 3
PERU
2018 Monetary and Financial Sector Statistics 10/22/2018
2019 Sectoral Accounts 7/15/2019
2020 National accounts (sectoral balance sheets, GDP statistics) 1/16/2020
2020 Follow-up National accounts (sectoral balance sheets, GDP 4/27/2020
statistics)
2020 CPI Weights 10/19/2020
2020 Follow-up Sectoral Accounts 11/23/2020
4 INTERNATIONAL MONETARY FUND
PERU
RELATIONS WITH OTHER INTERNATIONAL FINANCIAL
INSTITUTIONS
World Bank Group:
Country page: http://www.worldbank.org/en/country/peru
Overview of World Bank Group lending to Peru:
http://financesapp.worldbank.org/en/countries/Peru/
IBRD-IDA project operations:
http://projects.worldbank.org/search?lang=en&searchTerm=&countrycode_exact=PE
Inter-American Development Bank:
Country page: https://www.iadb.org/en/countries/peru/overview
IADB’s lending portfolio: https://www.iadb.org/en/countries/peru/projects-glance
INTERNATIONAL MONETARY FUND 5
PERU
STATISTICAL ISSUES
(As of January 29, 2021)
General. Macroeconomic statistics are broadly adequate for policy formulation, surveillance, and
monitoring. Peru subscribes to the Special Data Dissemination Standard (SDDS) since August 7,
1996. A data ROSC was prepared and published in 2003.
Despite progress in recent years, there is scope for improvement in the following areas:
(i) coordination among the agencies that compile official statistics to avoid duplication of efforts;
(ii) publishing a single official measure of inflation for Peru with component regional indexes; (iii)
redeveloping the wholesale price index (WPI) as a producer price index (PPI); (iv) finalizing the
migration to the standardized report forms for monetary data related to other financial
corporations; and (v) expanding the scope of data sources for compiling financial flows of individual
residents.
National accounts. In 2014, the National Statistics Office (INEI) released a new national accounts
series implementing the 2008 SNA and using 2007 as the base year. INEI is preparing historical
series of the quarterly GDP for the period 1980-2007. Peru has fully developed, with STA assistance,
integrated quarterly sectoral accounts and balance sheet statistics (Q1 2014 to Q3 2020) to support
domestic policymaking. INEI intends to disseminate these new series unofficially to key users by
April 2021; the data will be submitted to the STA on this date and officially to the general public by
end of 2021.
Price statistics. The official measure of inflation for Peru is the CPI for Metropolitan Lima, compiled
and published by INEI. The index is compiled using weights based on the 2008/09 Encuesta
Nacional de Presupuestos Familiares (ENAPREF) and may no longer represent current expenditure
patterns. A national level CPI (December 2011=100) has been published separately since January
2012. INEI started the 2019/20 ENAPREF in May 2019; due to the pandemic the data collection
stopped in May 2020. Currently, STA is assisting INEI to estimate the missing data of the 2019/20
ENPREF and compile new weights with this information to rebase the CPI by June 2021. INEI
compiles and publishes a WPI for Peru. Ideally, the index would be redeveloped as a PPI with
expanded coverage to improve volume estimates in the national accounts.
The BCRP, assisted by STA, has updated since 2018 the residential property price index for
apartments in Lima implementing a hedonic property-mix adjustment methodology in line with
international best practice.
Labor market statistics. There are four indicators to monitor labor market developments: open
unemployment, underemployment, employment, and remunerations. While monthly
unemployment, employment and income data for metropolitan area of Lima from INEI are timely,
only formal employment data are available from SUNAT, BCRP, and the Ministry of Labor; monthly
remuneration data for the government are timely. The nationwide unemployment and
6 INTERNATIONAL MONETARY FUND
PERU
underemployment situation are surveyed quarterly, and INEI is now publishing a broader regional
coverage of the labor market statistics based on the Encuesta Nacional de Hogares (ENAHO). It
would be useful to develop competitiveness indicators such as productivity and unit labor cost
indexes.
Government financial statistics. Following the GFSM 1986 framework, the Central Bank (BCRP)
compiles monthly government finance statistics (GFS) for the general government and its subsectors
and quarterly GFS for the nonfinancial public sector and its subsectors; financing information is only
available at the nonfinancial public sector level. Data for all subsectors are reported on a cash basis
for revenues and on accrual basis for expenditures, and financial assets and liabilities are reported at
face value. The coverage of published national budget data is narrower than the fiscal statistics
prepared for the combined public sector. The authorities report data for publication in the
Government Finance Statistics Yearbook (GFSY) using the GFSM 2014 framework. No high frequency
data is published in the International Financial Statistics (IFS) but is available from the weekly report
of the BCRP.
Monetary and financial statistics: Monetary and financial statistics are reported on a regular
monthly basis to STA using standardized report forms (SRFs) for the central bank and other
depository corporations (government owned and private banks, financial companies, savings and
loan associations and financial cooperatives). Data on other financial corporations (OFCs) have been
recently reported and are under review. OFCs comprise insurance companies, pension funds, mutual
funds, and other financial intermediaries and auxiliaries. The reported monetary statistics are broadly
in line with the methodology of the Monetary and Financial Statistics Manual (MFSM).
Financial sector surveillance: The BCRP report on quarterly basis all twelve core financial soundness
indicators (FSIs) and nine (out of thirteen) of the encouraged set for the deposit taking sector. No
FSIs are reported for other sectors and real estate markets. BCRP and SBS report data on several
series and indicators to the Financial Access Survey (FAS), including the two indicators (commercial
bank branches per 100,000 adults and ATMs per 100,000 adults) adopted by the UN to monitor
Target 8.10 of the Sustainable Development Goals (SDGs).
External sector statistics. Authorities are encouraged to resume participation in both the
Coordinated Direct Investment Survey (their latest inward data are for 2013 and outward for 2010)
and in the Coordinated Portfolio Investment Survey (their latest data pertain to 2017).
Authorities should strengthen efforts to improve: data coverage (including for manufacturing
services on physical inputs owned by others, compensation of employees, money market funds and
insurance corporations, and households); valuation (loans and debt securities are at face value
rather than at nominal and market value); instrument classification and level of detail (particularly for
other investment); delineation of reserves in IIP according with international standards (as
participations in the FLAR and BIS should be excluded from reserves). Further, authorities should
improve consistency among external sector statistics datasets (IIP and Coordinated Portfolio
Investment Survey (CPIS), and IIP and external debt).
INTERNATIONAL MONETARY FUND 7
PERU
The BCRP has been reporting since August 2001 weekly data on international reserves in accordance
with the Guidelines for a Data Template on International Reserves and Foreign Currency Liquidity.
Since August 2006, the BCRP is including the full amount of the liquidity requirements in the reserve
template both under official reserve assets and as a contingent net drain (as specified in Section III
of the Data Template). Peru disseminates quarterly data on external debt
8 INTERNATIONAL MONETARY FUND
PERU
Peru: Table of Common Indicators Required for Surveillance
(As of January 29, 2021)
Memo Items:
Data Quality
Date of Frequency Frequency Data Quality – Accuracy and
Latest Date Frequency of of Methodological Reliability7
Observation Received of data5 Reporting5 Publication5 Soundness6
Exchange Rates
Exchange Rates 1/29/21 1/29/21 D M D
International Reserve
Assets and Reserve
Liabilities of the
International Reserve Assets and Monetary
Reserve Liabilities of the Authorities1
Monetary Authorities1 1/15/21 1/22/21 D M W
Reserve/Base Money 1/15/21 1/22/21 W M W Reserve/Base
Broad Money 12/31/20 1/22/21 W M W Money
Broad Money
Central Bank Balance Sheet 12/31/20 1/22/21 W M W
Central Bank
Balance Sheet
Consolidated
Balance Sheet
Consolidated Balance Sheet of of the Banking
the Banking System 12/31/20 1/22/21 W M W O, LO, LO, LO System
December
Interest Rates2 2020 1/22/21 D M D Interest Rates2
December Consumer Price
Consumer Price Index 2020 1/07/21 M M M O, LO, LO, LO Index
Revenue,
Expenditure,
Revenue, Expenditure, Balance Balance and
and Composition of Financing- October Composition of
Central Government 2020 11/21/20 M M M O, LO, O, O Financing – CG
Revenue,
Expenditure,
Revenue, Expenditure, Balance Balance and
and Composition of Financing – Composition of
General Government Q3/2020 11/21/20 Q Q Q O, LO, O, O Financing–GG
Stocks of Central Government
and Central Government Stocks of CG
Guaranteed Debt3 Q3/2020 11/25/20 Q Q Q Debt3
International
Investment
International Investment Position4
Position4 Q3/2020 11/25/20 Q Q Q
External
Current
External Current Account Account
Balance Q3/2020 11/21/20 Q Q Q O, LO, LO, LO Balance
Exports and
Imports of
Exports and Imports of Goods Goods and
and Services Q3/2020 11/21/20 Q Q Q Services
INTERNATIONAL MONETARY FUND 9
PERU
GDP/GNP Q3/2020 11/21/20 Q Q Q LO, LO, LO, LO GDP/GNP
Gross External
Gross External Debt Q3/2020 11/21/20 Q Q Q Debt
1
Every Friday the central bank disseminates daily net international reserves, and weekly International Reserve Assets and Reserve Liabilities.
2
Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.
3
Including type of instrument, maturity and type of creditor.
4
Includes external gross financial asset and liability positions vis-à-vis nonresidents.
5
Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); Not Available (NA).
6
Reflects the assessment provided in the data ROSC published in October 2003 and based on the findings of the mission that took place during February 12–26,
2003 for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning (respectively) concepts and
definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), not observed
(NO), or not available (NA).
7
Same as footnote 7, except referring to international standards concerning (respectively) source data, statistical techniques, assessment and validation of
source data, assessment and validation of intermediate data and statistical outputs, and revision studies.
10 INTERNATIONAL MONETARY FUND
Statement by Mr. Chodos and Mr. Hendrick on Peru
March 19, 2021
Key points
• Peru remains one of the best performing economies in Latin America, maintaining a sustained
period of economic growth, low inflation, and poverty reduction for more than two decades.
• Economic growth averaged 4.6 percent from 1999-2019, but the pandemic hit economic activity
hard, leading to a temporary recession of 11.1 percent in 2020. However, double-digit growth is expected
in 2021 and pre-pandemic levels will be reached in 2022.
• Peru designed a large and comprehensive fiscal, monetary, and financial package, which was
essential to contain the impact of the pandemic, save jobs, and provide a lifeline to many small and
medium enterprises (SMEs).
• Inflation expectations remain well anchored, and headline inflation in 2021 and beyond is
expected to fluctuate around the mid-point of the inflation-targeting range of 1-3 percent.
• The external and fiscal positions are strong, with net international reserves equivalent to 37
percent of GDP in 2020. Fiscal savings accumulated during the peak of the economic cycle, providing a
substantial buffer for future shocks and countercyclical policies. The financial system remains very liquid,
profitable, and well regulated. The public debt is one of the lowest among emerging markets at 35.0
percent of GDP, despite the substantial fiscal stimulus to address the negative impact of Covid-19.
• These outstanding achievements reflect the authorities’ sustained commitment, over more than
two decades, to sound macroeconomic policies and structural reforms; accompanied by social policies to
ensure that the benefits of growth reach all segments of society. The reduction in the poverty rate from
near 59 percent in 2004 to 20.2 percent in 2019 illustrates the progress in social and financial inclusion.
• The main challenges ahead are how to sustain the economic recovery in the near term, and how to
boost potential growth in the medium term, given the uncertainty related to post-pandemic recovery and
the evolution of commodity prices. Second and third generation structural reforms are being assessed to
boost productivity, enhance the social safety net, and ensure a sustainable and equitable economic growth.
2
INTRODUCTION
1. Our Peruvian authorities would like to express their gratitude to Mr. Leo Bonato and his
team for the open and constructive policy dialogue and for their excellent work. The staff
report (SM/21/20) provides a fair and well-balanced description and analysis of recent economic
developments and policy discussions. We appreciate the focus of the consultation on the
authorities’ strategy to deal with the economic impact of the pandemic and the remaining
challenges to resume a path of steady and inclusive economic growth. Our authorities are in broad
agreement with the staff’s assessment and policy recommendations, and they consent to the
publication of the report.
2. Peru entered the pandemic with very strong fundamentals, large policy buffers, and solid
institutional policy frameworks. By end-2019, public debt was equivalent to 26.8 percent of
GDP, one of the lowest levels in the region and in the world. Public finance was in good standing
and the fiscal deficit was in line to converge to the fiscal rule of 1.0 percent in the medium term.
Steady economic growth contributed to a low unemployment rate of 6.61 percent. International
reserves reached US$68.4 billion in 2019, equivalent to almost 500 percentage of short-term
external debt defined on a residual maturity basis and includes amortization of medium and long-
term debt. The inflation-targeting framework in place since the beginning of the century resulted
in very low, single-digit inflation, reaching 1.9 percent by end-2019. The financial system
remained strong and the poverty rate was further reduced to 20.2 percent. These strong initial
conditions helped the Peruvian economy navigate the negative impact of the pandemic on the
economy, providing support to the poorest segment of the population and SMEs.
COVID-19 IMPACT AND POLICY RESPONSE
3. The pandemic had a dramatic effect on economic activity, employment, and human lives in
2020. Peru was one of the first countries in the world to impose a very strict lockdown and
curfews in early March 2020, with the main objective to contain the spread of Covid-19, while
efforts were undertaken to enhance the capacity of the health system to respond to the pandemic.
Unfortunately, as in many developing countries, due to the high share of contact-intensive sectors
and limited teleworking capacity, Covid-19 took a heavy toll on lives and livelihoods. The
economy fell 30 percent y/y in 2020-Q2, and despite a rebound in the second half of the year,
following an easing of restrictions in June and a strong policy response, real GDP growth was -
11.1 percent in 2020, a significant setback in economic activity after 20 years of continued and
sustained growth of 4.6 percent on average. The unemployment rate doubled to 13.9 percent by
end-2020, leading to an increase in informality and some reversal of the hard-won gains in the
poverty level.
1 INEI, Labor Market Indicators for Metropolitan Lima.
3
Policy Response
4. The Peruvian authorities designed a large and comprehensive fiscal, monetary, and
financial package to contain the impact of the pandemic. The size of the policy measures,
equivalent to 26.6 percent of GDP, was one of the largest in EMEs and about 19.2 percent of the
package has already been implemented.
a. The Central Bank of Peru (BCRP) had a rapid and timely response since the
beginning of the crisis. In April 2020 the policy rate was reduced 200 bps to a historic
low of 0.25 percent, the lowest in the region. To provide additional liquidity to the
system, reserve requirements were lowered, and the maturity of repo operations were
extended. The monetary authority also provided foreign currency liquidity to the market
during the period of stress. The approval of the Flexible Credit Line (FCL) in May 2020
also helped to reassure markets.
b. In coordination with the Ministry of Finance, the BCRP created the program
“Reactiva Perú”, to provide liquidity to small and medium-sized businesses. These
guaranteed-credit repo operations with banks were successful in stimulating credit growth
at low interest rates and averting widespread bankruptcies and business closures. The
payment chain was maintained, and businesses were able to pay their obligations and
survive during the crisis. This facility, together with another program aimed at micro-
enterprises, was instrumental in maintaining most of the production capacity in many
industries and saved 2.8 million jobs. Out of more than half a million firms that
participated in the program, 99 percent of the beneficiaries were small businesses. This
fiscal credit guarantee program was equivalent to 9.6 percent of GDP.
c. The large fiscal buffers accumulated in good times allowed a large and broad-based
fiscal policy response. Revenues and expenditure measures amount to 7.4 percent of
GDP. Priority was given to support the poorest segment of the population with direct
cash transfers to households, wage subsidies to businesses, and direct support to the
health system. The authorities are in the process of updating the databases used for cash
transfers and social support to improve targeting and effectiveness of the programs.
d. The Financial System Regulator eased macroprudential policies. Countercyclical
capital buffers for financial institutions were reduced, allowing banks to adjust the term
of loans to households and enterprises without changing the loan classification. As shown
in the Financial Soundness Indicators Heatmap, the financial system remains stable. Top-
down stress tests point to a resilient banking system and limited solvency problems even
under adverse scenarios.
4
OUTLOOK
5. A strong recovery is expected in 2021, with a gradual closing of the output gap and a
sustained reduction in unemployment in the medium term. As reported by staff, many
productive sectors in the economy are very close or already reached their pre-Covid levels of
production by end-2020. In fact, by the fourth quarter of 2020, Peru’s economic activity was one
of the closest to pre-
pandemic levels (see
table). Despite a 39.5
percent y/y contraction
in employment in the
second quarter of
2020, the largest
among the main
economies of Latin
America (LA5), the
contraction narrowed
to only 6.1 percent by
November 2020.2 The
authorities expect
double-digit growth in
2021, led by a strong
recovery in domestic demand,
historical high commodity prices,
and favorable terms of trade.
6. A second small wave is affecting
2021 Q1 but it is expected to be
short lived. A new set of measures
were announced in late January and
in March 2021 to provide further
support to the health system and
households, as well as a new
guaranteed-lending program for
SMEs. Early economic indicators suggest that the recovery is firmly on hold. Firms and
households have learned how to conduct business while complying with public health guidelines.
Peru has already secured vaccines for the whole population. The vaccine rollout began in
February 2021 and the vaccination process is expected to speed up with the arrival of higher
2 INEI, Labor Market information for Metropolitan Lima.
5
quantities. The main engines of growth are fully working (mining, agriculture, construction, etc.)
and industries in the services sector are gradually reopening.
7. We agree with staff that policy buffers are ample, and Peru should be able to cope with
additional adverse shocks if downside risks materialize. Despite the increase in the fiscal
deficit, due to cyclical loss of revenues and the large fiscal stimulus, public debt remains low, and
international reserves increased to about 37 percent of GDP by end-2020, equivalent to 307
percent of the ARA metric, well above the 100-150 percent adequacy range. The financial system
remains resilient and strong. Peru maintains access to international markets with low financing
costs and the two-year FCL provides additional reassurance to the markets.
THE ROAD AHEAD
8. The authorities are working hard to provide the necessary conditions for the economy to
resume a strong, sustainable, and inclusive growth. In the short term, the priority continues to
be the enhancement of the health system, a need that is clearly illustrated in Annex II, with
further improvements in the social safety net. Much work remains to be done to bring it to at least
a level similar to that in peer countries in the region. Support to small businesses will continue,
given their impact on job creation, as well as on informality and poverty reduction. For this
purpose, on March 9, the government extended the program “Reactiva Peru”, providing an
additional grace period of one year (payments were scheduled to begin in May 2021) and a period
of 36 months for repayment. Public investment in key infrastructure projects will accelerate and
large private projects, particularly in the mining sector, will continue, providing an additional
boost to economic growth and potential output.
9. The gradual withdrawal of the fiscal stimulus will be consistent with the authorities’
commitment to fiscal sustainability in the medium term. The fiscal rule was suspended for
2020-2021 to finance the large policy support demanded by the pandemic. Yet, the fiscal position
remains strong, and after a temporary increase in the public debt-to-GDP ratio of 37.5 percent by
2025, it will decline steadily towards the 30 percent target and will remain sustainable under
different shocks, as illustrated in the DSA annex. The authorities are monitoring the economic
developments and are open to providing additional assistance, as needed, both to households and
small businesses. The Fund’s expertise has been requested to identify additional revenue sources.
10. The BCRP will continue to maintain a supportive monetary policy stance until the economy
is on a solid path to recovery. Inflationary pressures are expected to be in check, given the
sizable negative output gap. In its March 2021 forward-guidance, the monetary authority
continues to state that easy monetary conditions are likely to persist for an extended period. The
BCRP stands ready to take any additional measures as needed. The authorities continue to value
exchange rate flexibility as an appropriate shock absorber for a small open economy like Peru. As
explained by staff, the exchange rate evolves in line with fundamentals and broadly follows the
6
same trend, as in peer countries but with less volatility. The monetary authority reiterates that
exchange rate policy is sufficiently transparent, including announcing in real time when it runs
operation in the FX market, unlike many other EMEs; and publishes same-day information on FX
intervention. Moreover, the rationale for intervention is fully explained in official publications,
including the Inflation Report.
11. Peru has made significant progress regarding the recommendations from the 2018 FSAP, as
detailed in Annex X. Despite many challenges and the current Covid-19 crisis, several reforms
have been fully or partially implemented, including extending oversight by the regulator to credit
unions, enhancing the emergency liquidity assistance framework, and monitoring banks’ off-
balance-sheet exposures. Some recommendations that require amendments of the banking law are
pending, while the administration seeks to build enough political support.
12. The authorities agree on the importance of additional structural reforms to address the
needs exposed by the pandemic. At the same time, they concur with staff’s acknowledgement
that sound policies and frameworks in place have underpinned a very strong macroeconomic
performance in the last 15 years. The National Plan for Competitiveness and Productivity,
launched in 2019, provides a framework to address medium-term issues, such as improving
education, enhancing infrastructure, facilitating labor relocation, and further improving the
business climate. The implementation of new structural reforms, notably the integrated review of
the pension system, will need to wait until a new administration takes office on July 28, 2021. 3
13. Further progress on strengthening governance and anti-corruption was implemented in
2020. The institutional reforms, approved with the 2019 referendum, are now operational,
including the National Board of Justice, and Offices of Institutional Integrity were created in
more than 200 public sector entities. The Comptroller’s Office monitors emergency-related
spending. Several AML/CFT regulations have been issued to guide customer due diligence
requirements for politically exposed persons. Asset declarations of public officials have been
made publicly available for the last 20 years.
Final Remarks
14. We would like to reiterate our appreciation to Management and staff for their permanent support
and critical role as trusted advisor, particularly under the current difficult global circumstances.
We take comfort and agree with staff’s assessment that Peru’s very strong economic
fundamentals and institutional policy frameworks continue to provide the basis for a sustained
track record of very strong policies, including across electoral cycles and administrations.
3 Peru’s Presidential and Congress general elections are scheduled for April 11, 2021. If none of the candidates
reach more than 50 percent of eligible votes, a run-off with the two candidates with the highest votes will take
place on June 6, 2021.
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