A government committee observed that Peru might miss its fiscal deficit targets for both this year and the next.
They note that the public revenue is falling short of expectations. Carlos Oliva, who leads Peru’s Fiscal Council, shared this news.
He attributes the shortfall to overly optimistic projections about economic growth. Oliva warns that the Ministry of Economy is making similar errors for the year 2024.
Initially, the government aimed for a fiscal deficit of 2.4% of GDP this year. They had a target of 2% for 2024.
However, the gap widened to 2.8% in September. Several factors contribute to this increase.
One main reason is an economic downturn, which has reduced tax collections. Additionally, the El Niño weather pattern is likely to strain the economy further.
This pattern could pressure the government into increasing spending.
The economy of Peru is struggling. It used to be among the fastest-growing in Latin America.
Now, it is weakening due to years of political instability. Additionally, the country is grappling with the effects of a recession this year.
Large-scale protests and the El Niño weather pattern have aggravated the situation.
Barclays, a financial firm, anticipates a 0.6% contraction in Peru’s economy this year. The firm identifies growing risks to Peru’s fiscal health and credit rating.
Currently, the country holds a BBB credit rating. Both S&P Global Ratings and Fitch Ratings give it this second-lowest investment grade.
Ambitious Goals
Oliva warns that the government’s overly ambitious goals could damage its credibility.
He points out that the Ministry of Economy has been promising unrealistically high growth rates.
Specifically, Economy Minister Alex Contreras had forecasted strong economic recovery. This prediction has not come true.
In August, the Ministry revised its 2023 growth projection downward, from 2.5% to 1.1%. This new estimate remains more optimistic than the market consensus.
In conclusion, the Ministry of Economy needs to restore its credibility. Their overly optimistic forecasts are putting it at risk, according to Oliva.