Concern over fiscal target non-compliance in Peru: Experts warn of challenges for 2024

The failure to meet the fiscal target in Peru for the second consecutive year has raised concerns among experts and economic analysts. The situation, which is expected to repeat in 2024, has been attributed to a series of factors that have put pressure on both revenues and public spending in the country. The Peruvian Institute of Economics (IPE) has pointed out that the approval of laws that reduce revenue and increase public spending, as well as financial bailouts to state-owned companies like Petroperú, have contributed to this scenario. Despite a context of higher export prices and economic growth, projections indicate that the fiscal target will continue to be unmet. During 2023, Peruvian public finances were affected by a significant decrease in tax revenues, with a real decrease of 10.3%, the second worst in three decades. This decline was partly due to lower revenues from taxes such as Income Tax (IR) and General Sales Tax (IGV), leading to a reduction in government revenues as a percentage of GDP. On the other hand, despite efforts to reduce public spending, this was not enough to counteract the drop in revenue, resulting in a fiscal deficit above the established rule. For 2024, a considerable increase is projected in items related to personnel and remuneration, which could worsen the country's fiscal situation. The scenario outlined by the IPE suggests that, even with favorable external conditions, such as rising copper prices and modest economic growth, Peru may not meet the fiscal deficit target of 2.0% of GDP. This could impact the credibility and fiscal sustainability in the medium term, which in turn could raise financing costs and reduce investment. In this context, it is crucial for both the Executive and Legislative branches to take measures to ensure efficient and responsible management of public finances. Macroeconomic stability is essential for economic growth and poverty reduction in the country, so it is imperative that concrete actions are taken to reverse the current trend. The role of the new Minister of Economy will be crucial in this process, as they will have to tackle the challenge of halting costly spending initiatives and strengthening fiscal institutionality. Without reforms that promote fiscal sustainability and reduce inefficiencies, Peru risks compromising its credit rating and facing greater obstacles in closing gaps and promoting economic development. In conclusion, a firm commitment from authorities is necessary to ensure the stability and strength of public finances in the country. Fiscal credibility is an invaluable asset that must not be neglected, and its preservation is essential for Peru's economic future.