Fiscal risks threaten the Peruvian economy in the future.

During the presentation of the Quarterly Economic Studies Report of Banco de Crédito del Perú (BCP), a concern has been raised that could significantly impact the country's economy in the coming years. Carlos Prieto, Manager of the Economic Studies Area, has warned about the risk of a new credit rating agency issuing a new downgrade to Peru, which would place the country at the minimum investment grade level by the end of 2024, joining another major evaluator. From BCP, it has been noted that if high export prices such as copper and gold are maintained, and non-primary sectors show recovery in the coming months, the fiscal deficit could decrease to around 2.8% by the end of this year. However, there are threats that could jeopardize this outlook, such as congressional spending initiatives, tax exemption benefits, the situation of Petro-Peru, and pension reform. Isaac Foinquinos, senior economist at Macroconsult, has highlighted the high probability of non-compliance with the fiscal rule for the second consecutive year, as well as the approval of measures involving increased public spending. It is projected that the fiscal deficit will be close to 3% of GDP this year, putting pressure on tax revenue and public debt servicing. Losing the investment grade would have direct repercussions on interest rates, making them higher and complicating government financing of the fiscal deficit. This could negatively impact businesses, reducing their funding capacity and increasing financing costs. Additionally, the BCP report has noted gradual advances in the Peruvian economy during the first quarter, with a growth projection of 3% for this year. Private consumption is shaping up to be the main driver of economic growth in the second half of the year, driven by improved employment performance, low inflation, and the release of pension fund savings. However, uncertainty in international financial markets, especially regarding decisions by the US Federal Reserve, poses additional challenges for the Peruvian economy. The divergence between expectations of interest rate cuts by the Fed and the Central Reserve Bank (BCR) of Peru could create a complex scenario in the short term. Despite the possibility of the BCR reducing its interest rate, factors such as higher inflation could limit its room for maneuver in this regard. Additionally, it is expected that good copper and gold prices will drive a second year of trade surplus, affecting currency appreciation and local monetary policy. In summary, the possibility of a new downgrade by a credit rating agency could have negative effects on the Peruvian economy, increasing financial volatility and market uncertainty. It is essential for economic and legislative authorities to work together in a coordinated manner to mitigate fiscal risks and promote a conducive environment for long-term investment and sustainable growth.