Peru commits to adhering to fiscal rules in 2024 amid varied expectations.

The Ministry of Economy and Finance (MEF) has reaffirmed its commitment that Peru will comply with its fiscal rule in 2024, an announcement that has generated various reactions and expectations in both the economic and social spheres. This statement is framed within the Multiannual Macroeconomic Framework 2025-2028 (MMM 2025-2028), presented on August 23, where the MEF details the projections and strategies that support this assertion. One of the key measures backing this declaration is Legislative Decree No. 1621, which establishes a "more gradual" reduction of the fiscal deficit, setting a limit of 2.8% of Gross Domestic Product (GDP) for the next year. This figure marks a shift from the previous norm, which stipulated a stricter limit of 2% of GDP, leading some analysts to question whether this relaxation is truly necessary or if it responds to pressures from the current economic context. The MEF has argued that, with the new fiscal trajectory, the country could maintain moderate deficits and relatively low levels of public debt, which would allow it to preserve its favorable fiscal position compared to other emerging economies and those in the region. According to the ministry, this proposed approach will also help optimize economic growth and stabilize public finances in the long term. According to the projections of the MMM, the fiscal deficit for 2024 is estimated at 2.8% of GDP, with public debt reaching 33.2% of GDP. This represents an adjustment from previous expectations, where a deficit of 2.5% of GDP was forecasted. The MEF attributes this increase to the inclusion of additional resources in the 2024 budget, totaling S/ 3 billion, aimed at economic recovery following the adverse effects of previous years. Regarding fiscal revenues, a real growth of 4% is anticipated, allowing these to reach 19.5% of GDP. This improvement is based on the projected economic recovery, expected to be 3.2% annually, as well as the elimination of temporary tax factors that affected results in 2023. Additionally, fiscal and administrative measures are mentioned that would contribute to this recovery. Public spending, on the other hand, will experience more moderate growth, estimated at a real 2.3%, placing it at 20.5% of GDP in 2024. This figure is lower than the 21% of GDP recorded in 2023 and reflects the withdrawal of extraordinary measures adopted during the previous year. The MEF has indicated that this adjustment is necessary to steer spending towards more sustainable levels, similar to those before the pandemic. However, the current context is not entirely optimistic. According to the Central Reserve Bank of Peru (BCRP), the fiscal deficit as of June 2023 remained at 4% of GDP, a figure that is far from the MEF's fiscal targets for 2024. The ministry has pointed out that this elevated deficit is due to several adverse factors that impacted public finances in the first half of the year, which are not expected to replicate in the second half. The MEF's projections suggest that the fiscal deficit will be around 2.1% of GDP in the second half of 2024, aligning with historical averages before the pandemic. This forecast is based on the expectation of recovering fiscal revenues and the elimination of extraordinary expenditures, in addition to the implementation of fiscal measures aimed at strengthening collection. As the MEF's projections are discussed, questions arise about their viability and the government's capacity to meet them in an uncertain global economic environment. Analysts and economists have expressed concern about the risks that could jeopardize these objectives, especially if economic conditions do not improve as expected. Thus, the MEF's commitment to comply with the fiscal rule in 2024 becomes a matter of national relevance, requiring both monitoring and a critical analysis of the factors that may influence its success or failure in the near future. The Peruvian economy faces significant challenges, and the government's ability to prudently manage its finances will be key in the coming years.