Peru faces a critical fiscal crisis after years of consuming public savings.

The Peruvian economy has gone through a period of ups and downs in managing its fiscal savings, a situation that has become critical in recent years. From 2006 to 2015, the country managed to accumulate significant public savings thanks to the boom in metal prices, which facilitated counter-cyclical fiscal policies during financial crises and the recent pandemic. However, since mid-2022, this trend has reversed, and the country is undergoing an alarming process of depleting its fiscal savings, raising serious questions about its economic sustainability. During the mentioned period, Peru increased its public sector financial assets from 8.5% of Gross Domestic Product (GDP) to 18.3%. This increase allowed the government not only to maintain adequate public spending but also to face economic adversities without resorting to excessive borrowing. The capacity of the Peruvian treasury to spend more during crisis situations was undoubtedly indicative of prudent and proactive fiscal management. However, the decline in metal prices, along with the reactivation of the economy after the pandemic, brought about a new challenge. Although fiscal savings were reduced to 12.3% of GDP just before the crisis, it was expected that they could recover with a new increase in prices. Unfortunately, this has not occurred as anticipated, and since 2022, the situation has drastically worsened. The fiscal deficit has significantly increased, rising from around 1% of GDP to an alarming 4% in just two years. This expansion of the deficit has been accompanied by a notable decline in public sector financial assets, which now stand at 9.8% of GDP, levels approaching the worst records from the early century. It is evident that the country is consuming the savings that took so much effort to accumulate. From June 2022 to December 2023, the Public Treasury has seen a significant reduction in its deposits at the Central Reserve Bank, with a loss of S/ 15.6 billion. Other reserve funds have decreased by S/ 8.2 billion, and resources from ministries and local governments have fallen by S/ 6.4 billion. In total, nearly S/ 30 billion have vanished, presenting a bleak outlook for the country’s fiscal management. Projections for the immediate future are not optimistic. Concerns about a potential failure to meet fiscal targets are palpable, with the international rating agency Moody’s warning of the risk of not achieving the goals set by the Ministry of Economy and Finance (MEF). The situation is even more complicated considering that, despite President Dina Boluarte's announcements of increased spending, it is unlikely that the fiscal deficit will significantly reduce. A key aspect to consider is that, despite expectations for an increase in revenue due to the rebound in metal prices, it is uncertain whether this revenue will reach the necessary levels to reverse the fiscal situation. There is a possibility that the incoming government, amid a fragmented political landscape, may find itself constrained in implementing reforms to stabilize the economy. In this regard, it is crucial for fiscal authorities to take decisive action to halt the depletion of savings and control the deficit. The ability to react to future external shocks is weakening, and if immediate actions are not taken, the country could face serious difficulties in dealing with subsequent crises. It is vital for public management to focus on rebuilding public finances as well as strengthening institutions that have been affected by political instability. Recent history teaches us that periods of prosperity are not eternal and that fiscal prudence is essential to ensure a sustainable future for Peru. In conclusion, the path to recovering fiscal savings and achieving economic stability will be arduous and full of challenges. The need for a change in economic management is urgent, and the commitment of future leaders will be fundamental in reversing the alarming current trend and restoring confidence in the Peruvian economy.