Statement by the IMF Staff Representative on Peru July 9, 2018

2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Peru

Abstract

2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Peru

This statement provides information that has become available since the staff report was issued on June 18, 2018. This information does not alter the thrust of the staff appraisal.

1. Congress granted the special legislative powers requested by the government. The approval was granted on June 19 with 81 favorable votes (23 against), and is in line with expectations at the time the staff report was written (see paragraph 3). Once the associated regulation is published, the government will have sixty days to legislate in the following areas: economic management, taxation and competitiveness, integrity and the fight against corruption, social protection, and modernization of the public sector.

2. The new Finance Minister, Carlos Oliva, announced continuity with respect to fiscal policy. Mr. Oliva took office on June 7. In recent public statements, he has made it clear that he will continue to implement the macro-fiscal framework Peru has had in place over the last 25 years. Regarding the excise tax increases that were recently implemented, he confirmed that they will not be reversed.

3. Recent economic data releases point to a further strengthening of the economy. Monthly GDP increased by 7.8 percent in April (y-o-y), higher than expected and the fastest rate in the last five years, driven by both primary industries (fishing and agriculture) and sectors tied to domestic demand (manufacturing and construction). The trade balance (January to April) and income tax revenues (January to May) also continue to improve markedly (up over 60 and 20 percent y-o-y, respectively). As expected, headline inflation re-entered the Central Bank’s target range (1–3 percent) in June and stood at 1.4 percent (y-o-y).

4. Peru has been largely unaffected by recent market volatility. The Central Bank did not intervene in spot or non-spot FX markets in June (data available until June 28) and the exchange rate was broadly unchanged. On June 28, the Central Bank reduced the marginal reserve requirement rate on FX liabilities from 36 to 35 percent, releasing $0.17 billion in liquidity to the financial system. EMBI spreads widened by only 0.73 percent in June, less than for other EMDEs.

Peru: 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Peru
Author: International Monetary Fund. Western Hemisphere Dept.