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Lima, Perú. October 22, 2017

Year of Good Citizen Service

Fitch: Peru growth depends on streamlining public administration

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    Photo: INTERNET/Medios

15:50.

New York (US), Feb. 15.
Peru delivered a smaller-than-expected fiscal deficit in 2016, Fitch Ratings affirmed.

However, fiscal revenues remain under pressure from weakened mining revenues and downside risks to economic growth remain.

"Removing execution bottlenecks and streamlining public administration will be key to raising public investment and growth," it suggested.

Peru's 2016 preliminary general government deficit (GG) came in at 2.4% of GDP, lower than the 2.8% Fitch had forecast.

The Andean country has run small fiscal deficits since 2014 to smooth the economy's adjustment to lower commodity prices.

While this has raised Peru's nonfinancial public-sector (NFPS) debt to 22.7% of GDP as of September 2016, Peru's debt burden still remains well below the 'BBB' peer median. GG current revenues fell to 18.5% of GDP in 2016 from their peak at 22.8% in 2012.

"The recent rise in copper prices and output from new and expanded mines should help to lift current revenues over the medium term," it added.

But increases in copper-related tax collections during 2017-2018 will lag market prices due to Peru's mining tax framework.

A nonrecurring capital revenue event worth 0.3% of GDP in December 2016, underperformance of capital expenditures, and reduced current spending in the second half of 2016 helped to offset the current revenue fall in 2016. 

The Kuczynski administration introduced changes to Peru's fiscal rule under a package of fiscal reforms and economic stimulus.

The biggest change is the adoption of a nominal fiscal target over a structural-balance target to improve transparency.

The main parameters of Peru's fiscal framework, including medium-term budgeting, a deficit ceiling set at 1% of GDP in normal years, a NFPS debt ceiling at 30% of GDP, and the fiscal council, have not changed.

The government will begin reporting on its compliance with the nominal target quarterly in March 2017.

Peru's Long-Term, Foreign-Currency Issuer Default Rating is 'BBB+/Stable'. Ratings stability depends on Peru's ability to preserve its fiscal and external buffers and policy credibility, especially amid evolving downside risks to its growth performance.

(END) NDP/MVB

Published: 2/15/2017
Editora Perú