Front Matter Page

IMF Country Report No. 15/294

PERU

FISCAL TRANSPARENCY EVALUATION

October 2015

This Fiscal Transparency Evaluation Report on Peru was prepared by a staff team of the International Monetary Fund. It is based on information available at the time it was completed in February 2015.

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Front Matter Page

FISCAL AFFAIRS DEPARTMENT

PERU

FISCAL TRANSPARENCY EVALUATION

Geremia Palomba, Felipe Bardella, Renaud Duplay, Delphine Moretti, Christine Richmond, Alpa Shah, Armando Zamora

October 2015

Contents

• Glossary

• Preface

• EXECUTIVE SUMMARY

• INTRODUCTION

• FISCAL REPORTING

• A. Coverage of Fiscal Reports

• B. Frequency and Timeliness

• C. Quality

• D. Integrity

• E. Conclusions and Recommendations

• FISCAL FORECASTING AND BUDGETING

• A. Comprehensiveness

• B. Orderliness

• C. Policy Orientation

• D. Credibility

• E. Conclusions and Recommendations

• FISCAL RISK ANALYSIS AND MANAGEMENT

• A. Disclosure and Analysis

• B. Risk Management

• C. Fiscal Coordination

• D. Conclusions and Recommendations

• RESOURCE REVENUE MANAGEMENT

• A. Legal and Fiscal Regime

• B. Fiscal Reporting

• C. Fiscal Forecasting and Budgeting

• D. Fiscal Risk Analysis and Management

• E. Conclusions and Recommendations

• BOXES

• 1.1. Overview of Pension Schemes for Public Employees

• 2.1. Multiannual Commitments Controls in France

• 3.1. Sub-Soil Assets and Revenue Resource Valuation: Methodology and Assumptions

• FIGURES

• 1.1. Coverage of Public Sector Institutions in Annual Fiscal Statistics

• 1.2. Public Sector Balance Sheet and Coverage in Fiscal Reports, 2013

• 1.3 Reconciliation of Cash to Accrued Expenditures, 2013

• 1.4. Tax Expenditures, 2015

• 1.5. Internal Consistency Reconciliations, 2013

• 1.6. Audit Findings, 2013

• 2.1. Institutional Coverage of Budget and Central Government Expenditures, 2013

• 2.2. Expenditure Funded with Own Revenue, 2013

• 2.3. Bias in Macroeconomic Forecasts, 2000-2013

• 2.4. Medium-Term Primary Balance Forecast History, 2000-2013

• 2.5. Average Volatility of Primary Balance in Selected Countries, 2001-2013

• 2.6. Comparability of Medium-Term Expenditure Forecasts

• 2.7. Selected Public Investment Indicators

• 2.8. Frequency of Changes in Fiscal Rules

• 2.9. Budget Execution in Selected Countries

• 2.10. Reconciliation of Budget and MMM Over-Execution of Primary Spending, 2013

• 2.11. Revisions to Capital Expenditure Forecasts

• 3.1. Indicators of Macro-Fiscal Risk, 2003-2013

• 3.2. Determinants of GDP Volatility

• 3.3. Probability Distribution of Fiscal Outcomes

• 3.4. Long-Term Fiscal Sustainability Analysis

• 3.5. Long-Term Sustainability of Pension and Health Spending for Selected Countries

• 3.6. NFPS Gross Debt, 2003-2013

• 3.7. Government Guarantees in Selected Countries

• 3.8. Value of PPPs Contracts, 2000-2016

• 3.9. Nominal Value of Rights and Obligations of the Government under PPPs, 2014

• 3.10. Natural Resource Revenue under Alternative Long-Term Scenarios

• 3.11. Fiscal Costs of Natural Disasters in Select Countries, 2003-2012

• 3.12. Sub-National Governments Initial Budget and Outturns, 2010-2013

• 3.13. Balance Sheet and Net Profits of the Largest Public Corporations, 2013

• 3.14. Overview of Public Corporations and Government Main Direct Transfers

• 4.1. Contributions of Mineral and Petroleum Sectors

• 4.2. Number of Mining Licenses Awarded, 2007-2014

• 4.3. Tax Payments Not Reported under the EITI Process, 2008-2012

• 4.4. Composition of Local Government Revenue by Region, 2013

• TABLES

• 0.1. Summary Assessment Against the Fiscal Transparency Code

• 0.2. Public Sector Financial Overview, 2013

• 0.3. Main Fiscal Reports

• 1.1. List of Fiscal Reports

• 1.2. Public Sector Institutional Composition and Finances, 2013

• 1.3. Public Sector Balance Sheet, 2013

• 1.4. Estimated Public Sector Balance Sheet, 2013

• 1.5. Public Sector Cash to Accrual Adjustments, 2013

• 1.6. Classification vs. International Standards

• 1.7. Summary Assessment of Fiscal Reporting Practices

• 2.1. Fiscal Forecasting and Budget Documents and Online Information

• 2.2. Real GDP Growth and Revenue Forecasts One-Year Ahead, 2012-2014

• 2.3. Budget Submission and Approval Dates, 2013-2015

• 2.4. New Fiscal Rules

• 2.5. Determinants of Budget Over-Execution, 2012-2014

• 2.6. Summary Assessment of Fiscal Forecasting and Budgeting Practices

• 3.1. Selected Reports Describing Fiscal Risks

• 3.2. Selected Fiscal Risks

• 3.3. Definitions of NFPS Gross Debt, 2013

• 3.4. Main Assets and Liabilities Not Covered by the Asset and Liability Management Strategy, 2013

• 3.5. Government Guarantees, 2014

• 3.6. Recent Indicators of Financial Stability in the Banking Sector in Latin America

• 3.7. Summary Assessment for Fiscal Risks Practices

• 4.1. Legal Framework for the Resource Industry

• 4.2. Results of Petroleum Licensing Rounds, 2007-2015

• 4.3. Fiscal Regimes in the Mining and Petroleum Sectors

• 4.4. Reconciliation Errors Under EITI Reporting Process, 2008-2012

• 4.5. Allocation Rules for Resource Revenue to SNG

• 4.6. Summary Assessment of Resource Revenue Management Practices

Glossary

Legend for Tables

Practice under Fiscal Transparency Code

Level of Practice	Not Met	Basic	Good	Advanced

View Table

Level of Practice	Not Met	Basic	Good	Advanced

Importance to Fiscal Management

Level Of Importance	LEVEL OF PRACTICE
	High	Medium	Low

View Table

Level Of Importance	LEVEL OF PRACTICE
	High	Medium	Low

Preface

In response to a request from the Minister of Economy and Finance, a mission from the Fiscal Affairs Department (FAD) of the International Monetary Fund (IMF) visited Lima during March 4-19, 2015 to undertake a Fiscal Transparency Evaluation (FTE). The mission also conducted a pilot assessment of current practices in managing resource revenue against the principles set in the new draft pillar of the IMF’s Fiscal Transparency Code (FTC) released for public consultation in December 2014. The mission team comprised Geremia Palomba (head), Renaud Duplay, Delphine Moretti, Christine Richmond, and Alpa Shah (all FAD), Felipe Bardella and Armando Zamora (experts). The evaluation was based on information available as of February 2015.

The mission met with Minister of Economy and Finance, Alonso Segura Vasi, Vice Minister of Economy, Giancarlo Gasha Tamashiro, Vice Minister of Finance, Carlos Oliva Neyra, Vice Minister of Mining, Guillermo Shinno Huamaní, and Laura Calderón Regjo, Rossana Polastri Clark, and Jose Valderrama Leon, members of the Study Group of the Ministry of Economy and Finance.

At the Ministry of Economy and Finance, the mission met with César Liendo Vidal, General Director of the Macroeconomic Policy Directorate; Carlos Linares Peñaloza, General Director of the Debt Policy and Treasury Department; Marco Camacho Sandoval, General Director of the Tax Policy Department; Oscar Graham Yamahuchi, General Director of the Financial Market and Public Investment Directorate; Eloy Durán Cervantes, General Director of the Public Investment Department; Jorge Noziglia Chávarri, General Director of the Revenue Management Department; Giancarlo Marchesi Velásquez, General Director of the Private Investment Promotion Department; and, Mr. Oscar Pajuelo Ramirez, General Accountant, their staff, and staff of the Budget Directorate.

The mission also met with staff from the Ministries of Energy and Mining, Justice and Human Rights, Education, and Health, Central Reserve Bank of Peru, National Fund for State Enterprise Activity (FONAFE), Private Investment Promotion Agency (Proinversion), Supervisory Agency for Investment in Energy and Mining (Osinergmin), Agency for Environmental Assessment and Enforcement (OEFA), Perupetro, SUNAT, Superintendence of Banking and Insurance, and Deposit Insurance Fund.

The mission is especially grateful for support and cooperation received from the authorities in the course of the work and especially to Rossana Polastri Clark, Wilder Ramirez and Julio Mejia for their assistance throughout the mission. The mission is also grateful to the IMF Resident Representative Office for the support received and the excellent interpretation of Veronica Gonzales, Claudia Clarkton, and Maria Nelly Cuculiza.

Executive Summary

This report assesses Peru’s fiscal transparency practices vis-a-vis the IMF’s Fiscal Transparency Code, including the new draft pillar on resource revenue management. The new pillar was released for public consultation in December 2014.

Peru’s practices meet most of the principles of the IMF’s Fiscal Transparency Code at good or advanced level (Table 0.1). Peru provides an extensive set of fiscal information with financial statements covering the entire public sector. There is a comprehensive budget supported by a solid fiscal framework with clear policy objectives embedded in numerical fiscal rules. The country has a clear and comprehensive legal and fiscal regime for the management of resource revenue.

Table 0.1.

Peru: Summary Assessment Against the Fiscal Transparency Code

Table 0.1.

Peru: Summary Assessment Against the Fiscal Transparency Code

LEVEL OF IMPORTANCE	LEVEL OF PRACTICE
	1. Fiscal Reporting	2. Fiscal Forecasting and Budgeting	3. Fiscal Risk Analysis And Management	4. Resource Revenue Management
HIGH	1.3. Coverage of Flows	1.3 Medium-Term Budget Framework	1.2 Specific Fiscal Risks	1.4 Assessment and Collection of Resource Revenue
	3.2 Internal Consistency	1.4 Investment Projects	2.2 Asset and Liability Management	4.2 Operational Risks
	4.2 External Audit	4.2 Supplementary Budget	2.4 Public-Private Partnerships
	4.3 Comparability of Fiscal Data		3.1 Sub-National Governments
			2.6 Natural Resources
MEDIUM	1.2 Coverage of Stocks	1.1 Budget Unity	1.1 Macroeconomic Risks	2.1 Disclosure of Natural Resource Rights Holdings
	1.4. Coverage of Tax Expenditures	3.1 Fiscal Policy Objectives	2.3 Guarantees	3.2 Allocation of Resource Revenues
	4.1 Statistical Integrity	4.1 Independent Evaluation	2.5 Financial Sector Exposure	4.1 Social and Environmental Risk
		4.3 Forecast Reconciliation	2.7 Environmental Risks
LOW	1.1 Coverage of Institutions	1.2 Macroeconomic Forecasts	1.3 Long-Term Fiscal Sustainability	1.1 Legal Framework for Resource Rights
	2.1 Frequency of In-Year Reporting	2.1 Fiscal Legislation	2.1 Budgetary Contingencies	1.2 Allocation of Resource Rights
	2.2 Timeliness of Annual Financial Statements	2.2 Timeliness of Budget Documents	3.2 Public Corporations	1.3 Fiscal Regime for Natural Resources
	3.1 Classification	3.2 Performance Information		2.2 Reporting by Resource Companies
	3.3 Historical revisions	3.3 Public Participation		2.3 Integrity of Resource Revenue Data
				3.1 Resource Revenue Management Objectives
				3.3 Natural Resource Funds (not assessed)

LEGEND	LEVEL OF PRACTICE
	Not Met	Basic	Good	Advanced

View Table

Table 0.1.

Peru: Summary Assessment Against the Fiscal Transparency Code

LEVEL OF IMPORTANCE	LEVEL OF PRACTICE
	1. Fiscal Reporting	2. Fiscal Forecasting and Budgeting	3. Fiscal Risk Analysis And Management	4. Resource Revenue Management
HIGH	1.3. Coverage of Flows	1.3 Medium-Term Budget Framework	1.2 Specific Fiscal Risks	1.4 Assessment and Collection of Resource Revenue
	3.2 Internal Consistency	1.4 Investment Projects	2.2 Asset and Liability Management	4.2 Operational Risks
	4.2 External Audit	4.2 Supplementary Budget	2.4 Public-Private Partnerships
	4.3 Comparability of Fiscal Data		3.1 Sub-National Governments
			2.6 Natural Resources
MEDIUM	1.2 Coverage of Stocks	1.1 Budget Unity	1.1 Macroeconomic Risks	2.1 Disclosure of Natural Resource Rights Holdings
	1.4. Coverage of Tax Expenditures	3.1 Fiscal Policy Objectives	2.3 Guarantees	3.2 Allocation of Resource Revenues
	4.1 Statistical Integrity	4.1 Independent Evaluation	2.5 Financial Sector Exposure	4.1 Social and Environmental Risk
		4.3 Forecast Reconciliation	2.7 Environmental Risks
LOW	1.1 Coverage of Institutions	1.2 Macroeconomic Forecasts	1.3 Long-Term Fiscal Sustainability	1.1 Legal Framework for Resource Rights
	2.1 Frequency of In-Year Reporting	2.1 Fiscal Legislation	2.1 Budgetary Contingencies	1.2 Allocation of Resource Rights
	2.2 Timeliness of Annual Financial Statements	2.2 Timeliness of Budget Documents	3.2 Public Corporations	1.3 Fiscal Regime for Natural Resources
	3.1 Classification	3.2 Performance Information		2.2 Reporting by Resource Companies
	3.3 Historical revisions	3.3 Public Participation		2.3 Integrity of Resource Revenue Data
				3.1 Resource Revenue Management Objectives
				3.3 Natural Resource Funds (not assessed)

LEGEND	LEVEL OF PRACTICE
	Not Met	Basic	Good	Advanced

However, there is room for improvement in some areas. A number of items are currently not included in the public sector balance sheet and the coverage of different fiscal reports is not uniform, with information across reports difficult to compare. The practice of automatic incremental changes to the initial budget makes it difficult to connect macro-fiscal objectives set in the fiscal rules with annual and medium-term budget planning. Fiscal risk management is still in its infancy, including the analysis of fiscal risks from the natural resource sector. Looking ahead, the challenge is to implement a full reform agenda that can allow Peru to meet all fiscal transparency practices at good and advanced levels, improving further the country’s capacity to manage prudently and transparently its public finances.

Against this overall positive assessment, this evaluation provides a number of findings in each area of the IMF’s Code. Specifically:

• Fiscal reporting meets good or advanced practices against most of the Code’s principles. Fiscal reports are prepared frequently and in a timely manner and classify information according to international standards. Financial statements cover both financial and non-financial public sectors and are audited by an independent audit institution. However, taking full advantage of this wealth of data requires addressing a number of issues:

  • ➢ Internal consistency checks of reported fiscal data are limited and the quality of data at sub-national government level is not of the highest standards, with several adverse audit opinions.

  • ➢ A number of items in the balance sheet and operating statements of financial statements are either not recorded or their values should be reviewed and updated. Preliminary staff estimates of a complete balance sheet for the public sector show that (Table 0.2). In 2013, the public sector presented a negative financial worth of about 34 percent of GDP, mainly concentrated in the central government as debt securities, loans and pension liabilities more than offset the government’s large cash deposits. However, significant non-financial assets, including subsoil assets, generated a positive net worth of about 32.6 percent of GDP, 19.3 percent of GDP higher than currently reported in the financial statements.

  • ➢ Fiscal reports differ in the definitions of institutional subsectors, making it difficult to compare information across reports.

• Fiscal forecasting and budgeting practices meet good and advanced standards in most areas. The budget covers the general government, with the exception of some social security institutions and PeruPetro. Medium-term macroeconomic and fiscal projections are detailed and comprehensive. Fiscal policy objectives are embedded in numerical and time-bound fiscal rules. The legal framework sets clear procedures for the preparation, approval and execution of the budget. Moreover, citizen’s participation to the budget has improved in recent years. However, translating Peru’s credible macro-fiscal framework into annual and medium-term budget planning requires improvements in a number of areas:

  • ➢ The institutional practice of incremental changes to the initial budget weakens the connection between macro-fiscal policy objectives and budget planning.

  • ➢ Medium-term budget planning is still in its early stage of development together with budget controls on multi-year investment spending.

  • ➢ There is no independent evaluation of the government’s fiscal performance despite frequent and significant changes to the fiscal forecasts and targets in the past.

• Fiscal risk analysis and management practices are in their infancy, like in most of the other countries that have undertaken an IMF fiscal transparency evaluation:

  • ➢ The government does not yet produce a comprehensive report that summarizes the various fiscal risks and the possible correlation between these risks. This makes it difficult to assess the relative importance of the various risks and their possible joint realizations.

  • ➢ There is no systemic focus on the evolution of public finances over the long term, despite the significant role played by exhaustible resource revenue.

  • ➢ Fiscal forecasts do not include detailed analysis of the fiscal impact of alternative macroeconomic scenarios and the uncertainty surrounding resource revenue.

• Resource revenue management practices rely on clear and comprehensive legal and fiscal regimes and open and competitive rights allocation processes that create the basis for an efficient management of the country’s natural resource wealth. Compliance with the Extractive Industries Transparency Initiative (EITI) standards provides assurances of integrity in revenue reporting and company compliance with reporting obligations. The government has numerical and measurable objectives for the distribution and use of resource revenue, and publishes information on their use. Practices in managing environmental, social, and operational risks also satisfy basic transparency requirements. However, limited coordination between sector ministries and fiscal policymakers makes it difficult to take full advantage of these strong foundations:

  • ➢ The practice of automatic increases to the initial budget allocations (through the use of cash balances and other tools) creates a misalignment between budget plans and actual use of resource revenue.

  • ➢ The lack of independent verification mechanisms for production volumes and prices reduces the effectiveness of auditing activities.

  • ➢ The fragmentation in the allocation of resources and the use of tools such as off-budget accounts and cash balances hampers the monitoring of the use of resource revenue.

Table 0.2.

Peru: Public Sector Financial Overview, 2013

(Percent of GDP)

Sources: Staff calculations, Financial Statements 2013, BCRP, Banco la Nación, Mivivienda, Agrobanco, COFIDE, FCR, ONP, EsSalud. Notes: n.d. no data available; see also notes to Table 1.3.

Table 0.2.

Peru: Public Sector Financial Overview, 2013

(Percent of GDP)

				Central Government	State Government	Local Government	General Government	Non Financial Corporations	Financial Corporations	Central Bank	Consolidation	Public Sector
Total Transactions
	Operating Balance			3.4	0.7	2.3	…	0.2	0.1	−0.4	−3.9	2.4
		Revenue		37.0	4.3	4.9	…	4.9	0.4	0.3	−9.1	42.7
		Expense		33.6	3.6	2.6	…	4.6	0.3	0.8	−5.2	40.2
Total Assets				62.0	8.5	17.5	87.1	9.7	7.7	34.7	−19.5	119.7
	Non-Financial Assets			38.7	7.3	15.1	61.1	5.6	0.1	0.3	0.0	67.0
		o/w: Unreported Subsoil Assets		25.2			25.2					25.2
	Financial Assets			23.3	1.1	2.4	26.1	4.1	7.6	34.4	−19.5	52.7
Total Liabilities				58.2	1.0	1.4	59.9	5.2	6.7	34.9	−19.5	87.1
	Reported Liabilities			50.5	2.6	1.7	54.0	5.2	6.7	34.9	−19.5	81.2
		o/w: Currencies and Dep.		0.0	0.0	0.0	0.0	0.0	5.5	29.7	−14.8	20.5
			Debt Securities	14.5	0.0	0.0	14.5	0.0	0.0	4.0	−0.5	18.1
			Loans	6.7	0.2	0.2	7.1	1.5	0.6	0.0	−3.3	5.9
			Pensions	22.3	0.0	0.0	22.3	0.2	0.0	0.0	0.0	22.5
	Unreported Liabilities			5.9	…	…	5.9	…	…	…	…	5.9
		Pensions		4.4	…	…	4.4	…	…	…	…	4.4
		Accounts Payable		1.5	…	…	1.5	…	…	…	…	1.5
		PPP Liabilities (ex certificates CRPAO)		n.d.	…	…	n.d.	…	…	…	…	n.d.
Net Financial Worth				−34.9	0.1	1.0	−33.8	−1.0	1.0	−0.5	0.0	−34.4
Net Worth				3.8	7.5	16.0	27.3	4.5	1.0	−0.2	0.0	32.6

Sources: Staff calculations, Financial Statements 2013, BCRP, Banco la Nación, Mivivienda, Agrobanco, COFIDE, FCR, ONP, EsSalud. Notes: n.d. no data available; see also notes to Table 1.3.

View Table

Table 0.2.

Peru: Public Sector Financial Overview, 2013

(Percent of GDP)

				Central Government	State Government	Local Government	General Government	Non Financial Corporations	Financial Corporations	Central Bank	Consolidation	Public Sector
Total Transactions
	Operating Balance			3.4	0.7	2.3	…	0.2	0.1	−0.4	−3.9	2.4
		Revenue		37.0	4.3	4.9	…	4.9	0.4	0.3	−9.1	42.7
		Expense		33.6	3.6	2.6	…	4.6	0.3	0.8	−5.2	40.2
Total Assets				62.0	8.5	17.5	87.1	9.7	7.7	34.7	−19.5	119.7
	Non-Financial Assets			38.7	7.3	15.1	61.1	5.6	0.1	0.3	0.0	67.0
		o/w: Unreported Subsoil Assets		25.2			25.2					25.2
	Financial Assets			23.3	1.1	2.4	26.1	4.1	7.6	34.4	−19.5	52.7
Total Liabilities				58.2	1.0	1.4	59.9	5.2	6.7	34.9	−19.5	87.1
	Reported Liabilities			50.5	2.6	1.7	54.0	5.2	6.7	34.9	−19.5	81.2
		o/w: Currencies and Dep.		0.0	0.0	0.0	0.0	0.0	5.5	29.7	−14.8	20.5
			Debt Securities	14.5	0.0	0.0	14.5	0.0	0.0	4.0	−0.5	18.1
			Loans	6.7	0.2	0.2	7.1	1.5	0.6	0.0	−3.3	5.9
			Pensions	22.3	0.0	0.0	22.3	0.2	0.0	0.0	0.0	22.5
	Unreported Liabilities			5.9	…	…	5.9	…	…	…	…	5.9
		Pensions		4.4	…	…	4.4	…	…	…	…	4.4
		Accounts Payable		1.5	…	…	1.5	…	…	…	…	1.5
		PPP Liabilities (ex certificates CRPAO)		n.d.	…	…	n.d.	…	…	…	…	n.d.
Net Financial Worth				−34.9	0.1	1.0	−33.8	−1.0	1.0	−0.5	0.0	−34.4
Net Worth				3.8	7.5	16.0	27.3	4.5	1.0	−0.2	0.0	32.6

Sources: Staff calculations, Financial Statements 2013, BCRP, Banco la Nación, Mivivienda, Agrobanco, COFIDE, FCR, ONP, EsSalud. Notes: n.d. no data available; see also notes to Table 1.3.

Based on these findings, this evaluation identifies a number of priorities and reform areas that would strengthen the overall management of public finances and fiscal risks, and further improve transparency practices. Addressing these priorities would also enhance the information base for fiscal decision-making. The policy priorities identified in each of the four areas of the Code are the following:

• Fiscal reporting—Strengthening fiscal reporting would require measures to:

  • ➢ Improve the coverage of stocks and flows by (i) including in the financial statements some of the main assets and liabilities still not recorded (e.g., subsoil, accounts payable), (ii) rectifying the accounting treatment of some specific items (e.g., pensions, liabilities related to PPPs), and (iii) updating valuation methods (e.g., for pension, infrastructure, building and land);

  • ➢ Enhance the comparability of fiscal reports, by harmonizing the institutional coverage and the definition of subsectors across fiscal reports; and

  • ➢ Strengthen internal controls and external audit functions and, in particular, (i) undertake internal consistency checks of fiscal data published, and (ii) develop capacities at the comptroller general office.

• Budgeting and forecasting—The priorities in this area are to:

  • ➢ Strengthen the annual and medium-term budget planning and, in particular, (i) preserve the stability of fiscal rules often modified in the past; (ii) reduce automatic supplementary appropriations to the initial budget (this would also help bring under better control sub-national governments’ budgets), (iii) integrate macro-fiscal planning (developed in the Multiannual Macroeconomic Framework, MMM) and medium-term expenditure planning (developed in the Multiannual Budget Plan, PMP) into a coherent medium-term budget framework;

  • ➢ Enhance budget coverage of entities and revenue flows and introduce controls on multiyear spending, in particular, by (i) including in the budget documentation tables bridging the budget and the main macroeconomic fiscal document (MMM) presentations; (ii) recording all revenues, expenditures, and savings of PeruPetro, off-budget accounts, and the Consolidated Reserve Fund (FCR); and (iii) adopting regulations and tools for monitoring the size of multiannual commitments;

  • ➢ Improve macro-fiscal forecasts and their reconciliation by reporting and explaining the reasons underlying their deviation from actual outturn; and

  • ➢ Enhance independent evaluation by making operational the already legislated independent fiscal council.

• Fiscal risk analysis and management—Priorities to improve the management of fiscal risks include measures to:

  • ➢ Disclose risks surrounding fiscal forecasts and the evolution of public finances and, in particular, (i) elaborate on risks related to possible resource revenue scenarios, and (ii) carry out long-term sustainability analysis, including assessing the fiscal value of natural resource reserves;

  • ➢ Prepare and publish, at least annually, a fiscal risk statement covering the major specific fiscal risks, including court litigations, loan guarantees, PPPs exposure, environmental disasters, callable capital, and financial sector exposure;

  • ➢ Strengthen the reporting of guarantees by publishing the list of government guarantees, including non-financial guarantees for PPP and guarantees currently recorded as debt, their gross exposure, and their probability of being called; and

  • ➢ Improve reporting of fiscal risks arising from PPPs, in particular, by (i) making public the methodology for estimating expected revenues and calculating the probability of activation of contingent claims from PPPs, and (ii) consolidating and publishing financial information on PPPs, including gross value of rights and commitments, and expected annual receipts and payments over the life of PPP contracts;

• Resource revenue management—Priorities in this area include measures to:

  • ➢ Strengthen the coordination between sector ministries and fiscal authorities, in particular, by (i) developing clear and regular audit procedures for volume measurement and price valuation, particularly in the mining sector, and (ii) integrating volume and price verifications into tax audits;

  • ➢ Improve the link between budget plans and use of resource revenue and, in particular, (i) constrain the automatic changes to the initial budget by using natural resources accumulated as cash balances (see above), (ii) register in budget and fiscal reports all flows related to resource revenues, and disclose summary tables of the initial forecasts and subsequent use of natural resources, (iii) report periodically on the use of resource revenue against objectives and revenue earmarking at sub-national level; and

  • ➢ Develop further the management of fiscal risks from resource revenue by integrating operational risk analysis and elements of social and environmental risk in fiscal revenue forecasting.