Peru’s Shifts From Surplus to 2.8% Deficit in 2023

The Central Bank of Peru reports a 2.8% annual fiscal deficit up to September 2023. This is 0.2% higher than last month and 1.1% more than December 2022.

In September, the deficit reached 2.417 billion soles ($629.1 million). This number far exceeds the 318 million soles ($82.8 million) deficit from September 2022.

The bank says the increased deficit stems from decreased current revenues. This dip is partly offset by reduced non-financial government spending.

Specifically, general government revenue fell by 13.3% year-over-year in September. Tax revenues also decreased, dropping by 14.3%.

Meanwhile, non-tax revenue saw a 9.7% decline. On the spending side, non-financial government outlays fell by 1.1%.

This drop includes cuts in capital expenses by 57.3% and current transfers by 20.2%. However, increases in wages and capital formation partly balance out these reductions.

The non-financial public sector showed a 6.254 billion soles deficit ($1.626 billion) from January to September.

This contrasts with the surplus of 5.820 billion soles ($1.513 billion) in the same period last year.

Background

In the past, Peru often ran a fiscal surplus, meaning it took in more money than it spent. The surplus last year’s same period was 5.820 billion soles ($1.513 billion).

However, this trend has shifted recently, leading to more deficit spending. Analysts attribute this to an economic slowdown and lower tax collection.

Tax revenues are crucial for public services and development projects. The fall in tax revenue is notable, especially in sales tax and income tax.

The government’s ability to balance the books depends heavily on economic growth.

A prolonged deficit could necessitate policy changes, like tax hikes or spending cuts, to stabilize the fiscal situation.