MEF announces cuts to achieve a fiscal deficit of 2% in 2024

The Ministry of Economy and Finance (MEF) has announced its intention to carry out cuts in unnecessary expenses in the public sector as part of an austerity plan aimed at achieving a fiscal deficit of 2% of the Gross Domestic Product (GDP) by the year 2024. MEF's head, José Arista, expressed during the Peru Mining Investments Summit event the need to quickly control and cut those expenses that are not relevant to public service, highlighting the importance of this "pruning, pruning, and pruning" process to prevent superfluous expenses from consuming financial space. Arista hinted at the upcoming issuance of an Urgency Decree that will provide more details on this initiative. Among the measures contemplated in the austerity plan is the limitation on the purchase of new vehicles by state entities, excluding critical sectors such as health, education, interior, and defense. Likewise, a stricter control will be sought on gasoline expenses and the hiring of consulting services, with the possibility of achieving a cut of up to 10% of expenses, as mentioned by former minister Carlos Oliva. The challenge for MEF is significant, considering that in 2023, Peru exceeded its fiscal deficit "ceiling" with 2.8% of GDP, when the target was 2.4%. Despite this non-compliance, Arista has reiterated the goal of maintaining the fiscal deficit at 2% of GDP for this year. In January of this year, the fiscal deficit decreased to 2.7% of GDP (last 12 months), a decrease explained by an increase in the general government's current revenues and a reduction in its non-financial expenses, as well as lower debt interest costs, according to the Central Reserve Bank of Peru (BCRP). MEF's commitment to implementing these austerity measures comes in a challenging economic context, where the aim is to ensure fiscal sustainability and improve the efficiency in the use of public resources to boost the country's economic growth.