OECD Economic Surveys: Peru 2025

Recent policy actions, including regulatory simplification, improvements in contributory pension coverage and benefits, progress in financial inclusion and digitalisation and a strong investment pipeline across infrastructure, irrigation, and mining, lay the groundwork for a more resilient and inclusive economy. But faster, inclusive, and sustainable long-term growth will also require tackling structural bottlenecks more broadly by reducing corruption and improving judicial independence and enforcement, improving the quality of education, boosting female employment, reducing informality and regulatory burdens. Increasing fiscal space for needed social and resilient infrastructure spending is also needed.

Addressing persistently high labour and business informality is particularly critical, as it cuts across all these challenges: it limits productivity, constrains fiscal capacity, weakens job quality and social protection coverage, and hampers human capital development. Reducing informality would unlock broader gains from reforms and enable a stronger, fairer, and more resilient economy. Strengthening institutions and administrative capacity is also vital to ensure effective implementation and enforcement of these reforms. Taken together, these reforms would allow Peru’s GDP per capita to reach 65% of the OECD average by 2070, compared to just 45% under current policies. This means Peru could accelerate convergence by two decades (Figure 1).

GDP growth is projected to slow to 2.8% in 2025 and 2.6% in 2026 (Table 1), with risks tilted to the downside. Inflation is expected to remain close to the Central Bank’s 2% target. The Central Bank’s broadly neutral monetary stance is appropriate and should remain cautious and data dependent. While fiscal consolidation has resumed, firmer fiscal prudence is needed to comply with the fiscal rule and to safeguard Peru’s strong macroeconomic framework. Over the medium term, supporting debt sustainability requires a clear commitment to prudent fiscal management, improving public spending efficiency and higher tax revenues to create the fiscal space for infrastructure, social and climate change transition priorities.

The economy will decelerate after rebounding in 2024. Global and domestic uncertainty will keep growth moderate by weakening business and consumer confidence. The government's push to accelerate Public-Private Partnerships (PPPs) together with streamlined permitting, and low inflation will partly offset the effects of uncertainty by supporting private investment and consumption. Government spending will moderate as fiscal consolidation resumes. Export growth is expected to slow, reflecting weaker global demand and new US tariffs imposed on Peruvian exports.

Risks are titled to the downside. Given the tightening of global financial conditions and elevated uncertainty, downside risks to growth have increased, particularly through weaker investment and external demand. A sharper-than-expected slowdown among the main trading partners, China and the United States, and weaker copper prices would weigh on Peru’s export-oriented economy, hurting government revenues and investment. Domestic political uncertainty ahead of the 2026 general elections could further dampen investment and activity, while rising crime and insecurity may further erode confidence and trigger social unrest. Increasingly frequent extreme weather events also pose risks, with potential damage to infrastructure and agriculture.

Monetary policy is appropriately broadly neutral, with inflation expectations well-anchored. Inflation is within the Central Bank target range of 1-3% since early 2024. However, caution is warranted, as external and weather-related shocks or weaker domestic demand could push inflation away from its target in either direction.

Peru’s fiscal position deteriorated in 2024, with the deficit rising to 3.5% of GDP. This marked the second consecutive breach of the deficit targets under the fiscal rule (Figure 2). The medium-term fiscal framework sets a 1% of GDP deficit ceiling, unmet since 2014, with transitional targets to guide convergence that are often revised. After a sharp deficit widening in 2020 due to the pandemic, gradual consolidation took place in 2021-2022, but fiscal performance worsened again in 2023 as revenues declined amid economic contraction, and spending increased to address climate shocks and social unrest. Continued pressures from payroll, repeated support to Petroperú, and new spending measures without adequate revenues further weakened the fiscal stance during 2024.

The government plans a gradual consolidation in the medium-term to realign the deficit with fiscal rules, but new spending measures and tax base erosion without compensatory measures undermine the credibility and feasibility of this strategy and threaten fiscal sustainability. Meeting fiscal targets in 2025 and 2026 will require additional measures of around 0.4% of GDP, despite revenue gains from high metal prices. This could be achieved through stricter payroll control and phasing out inefficient diesel subsidies and tax expenditures. A stronger commitment to fiscal discipline is needed to protect Peru’s reputation for sound macroeconomic management, ensure fiscal sustainability, and avoid higher borrowing costs and a loss of investment-grade status.

Peru’s tax system needs deep reform to raise more revenues to finance social, infrastructure and adaptation and mitigation spending needs, while securing fiscal sustainability. Peru’s tax revenues remain low at 17% of GDP in 2024, according to OECD data, well below regional and OECD averages, due to high evasion, informality, overreliance on indirect taxes and a narrow base. In the short term, efforts should focus on strengthening the tax administration and reducing inefficient tax expenditures. Simplifying the corporate tax system by merging the small and medium-sized enterprise regimes, would also reduce evasion, boost formalisation and productivity. In the medium term, broadening the personal income tax base while reducing social security contributions for low-income workers would improve revenue and strengthen formalisation incentives. Improving revenue collection from property, excise, and environmental taxes would diversify revenues and make the system more efficient and equitable. This should be accompanied by reforms to raise long-term growth, supporting fiscal sustainability over time.

Weaknesses in budget planning, public investment management and procurement and subnational governance undermine the effectiveness of public spending. Reducing in-year budget changes and strengthening multiannual planning would improve the quality of spending. Prioritising investment based on standardised cost-benefit analysis is key for raising the impact of public investment. Corruption remains a major obstacle to Peru’s economic and social progress, weakening government effectiveness, distorting public spending, and fostering organised crime. Stronger anti-corruption enforcement and the establishment of a National Integrity and Transparency System are needed to fully implement integrity policies, and strengthen coordination among integrity institutions. Implementing the civil service reform and strengthening judicial independence are also necessary steps to reduce corruption.

Limited access to finance is holding back investment, productivity, and the transition to a more resilient and inclusive economy. Credit penetration remains low, and underdeveloped capital markets fail to offer alternative financing options. Micro, small, and medium-sized firms (MSMEs), which make up 99.4% of firms, struggle to access affordable credit (Figure 3), with high interest rates, collateral requirements, and few financing alternatives even when formal. Most firms are largely excluded from formal credit because they are informal. Taken together, this limits firms’ ability to invest and grow. Reforms should focus on lowering financing costs, developing alternative funding sources tailored to the needs of both informal and formal MSMEs and deepening capital markets.

Broadening access to financing beyond traditional bank loans would strengthen the role of smaller firms as quality job creators and enhance their contribution to innovation, productivity and the green transition. Informal firms—often unregistered and lacking credit histories—are excluded from formal credit and rely on informal lenders or microfinance. MSMEs face high interest rates, collateral requirements, and limited financing alternatives. Improving access to finance at affordable rates requires lowering financial intermediation costs. Credit risk assessment can be improved with new technologies that exploit systemwide information on financial histories shared via open banking. Credit guarantees can further reduce risk premia by helping micro and small firms build a credit history, but should be targeted to priority sectors to be cost-effective and reduce moral hazard. Reducing administrative burdens, and promoting alternatives to bank loans such as factoring, leasing, hire purchases, and crowdfunding – and accommodating new market entrants offering such products, such as fintechs – would further enhance the supply of finance at competitive rates. These measures would also benefit informal firms by strengthening incentives to formalise and improving their access to more affordable credit, but they must be part of a broader strategy to tackle informality and boost productivity.

Deepening capital markets would complement bank lending and expand access to long-term finance for infrastructure, innovation, and climate investment. Low liquidity remains a major constraint, driven by a narrow investor base and limited tradable instruments. Supporting dynamic small and mid-sized firms with high growth potential through a business preparation programme to meet reporting and governance standards would ease their market entry, increase the supply of tradable assets, and help unlock greater market liquidity. Stronger institutional capacity for the securities regulator (SMV) and better formal coordination mechanisms amidst financial regulators would improve the capacity to modernise supervision and enforce regulations effectively.

Unlocking Peru’s full potential requires giving everyone a fair chance to succeed, no matter their background. More children are attaining higher levels of education than their parents, but educational outcomes and access to high-quality formal jobs continue to be highly dependent on socioeconomic backgrounds (Figure 4). Translating education into better outcomes requires improving access to quality education from early years, stronger school-to-work transitions, closing labour market gender gaps, and improving access to formal jobs.

Gradually expanding access to high-quality early childhood education and care would have positive effects on children's future educational outcomes. This would be particularly beneficial to children from disadvantaged backgrounds, who are more likely to experience poor-quality early learning environments. It would also help close gender gaps by easing women’s care burden and enabling greater participation in formal, better-paying employment. At the primary and secondary levels, efforts must focus on improving teaching quality and school infrastructure, while addressing rural-urban disparities and high dropout rates. Expanding coverage and improving the adequacy of conditional cash transfers linked to school attendance can help keep students in school and ensure education leads to better job opportunities.

Many young people, especially women and those in rural areas, struggle to transition into formal employment, with high not in employment, education or training (NEET) rates and informality limiting their prospects. Increasing enrolment in vocational education and training (VET) is essential to improve job opportunities and break cycles of disadvantage. Establishing a unified VET framework should be a top priority to improve quality and oversight. Strengthening pathways within the VET system, expanding flexible, digital, and modular training, and scaling up skills certification and recognition of prior learning would help more youth, particularly from vulnerable backgrounds, gain relevant qualifications and access formal employment. Greater employer involvement in the design of curricula and promoting work-based learning would help align skills with labour market needs.

Unequal and lack of widespread access to formal jobs, particularly among rural populations and women, limits upward mobility. A comprehensive strategy is needed to tackle the drivers of informality. Replacing the current social contribution system, where rates vary by firm size, with a progressive structure based on workers’ earnings—with lower rates for low-income workers—would strengthen incentives for formalisation and firm growth, remove size-related disincentives, and remain fiscally neutral. Addressing informality would also help close gender gaps, as women are overrepresented in low-wage informal jobs. Enhancing labour law and tax enforcement, lowering costs for formal firm creation, and supporting skill development and firm-productivity would all expand access to formal job opportunities.

Peru is highly vulnerable to climate change. Building resilience and reducing greenhouse gas emissions requires a profound transformation of the economy. Meeting Peru’s decarbonisation commitments rests on three main pillars: stopping and then reversing deforestation in the Amazon, decarbonising transport, and quadrupling the country’s electricity generation capacity with renewable resources. Better implementation of adaptation plans and policies, including integration across sectors and levels of government, is key to building resilience and reducing vulnerability.

Peru has undertaken bold commitments to cutting emissions and building resilience to climate change, but these commitments need to be better reflected in sectoral or subnational plans and policies to ensure implementation. This requires clear operational targets for each sector, better horizontal and vertical coordination mechanisms with a focus on implementation of climate-related plans, policies and targets, strengthening institutional and administrative capacity, and making use of a greater set of available climate instruments.

The experience from recent rainfall anomalies and natural disasters exposes the need to strengthen adaptive capacity. Rising sea temperatures, changing rainfall patterns, floods, and glacial melting threaten liveability, infrastructure, and the food-producing sector of many Peruvian regions. Responding to fast-onset disasters requires strengthening the disaster risk management framework, early warning systems, and adaptation policies. To foster resilience in the most affected regions, land use and infrastructure planning and public investment need to integrate adaptation measures.

Ending deforestation in the Amazon is the most essential part of the envisaged path to meet Peru’s decarbonisation targets (Figure 5). Deforestation contributes 50% of current emissions and is driven by the expansion of the agricultural frontier and informal and illegal logging, mining, and coca production. Tackling these causes requires a comprehensive strategy that involves better coordination across government entities and stricter enforcement, stronger property rights via simpler land titling and a modern land registry, more economic incentives including for reforestation, and empowered communities that are effective stewards of their forests.

Reducing emissions from fossil fuels and making transport emissions-free requires a massive expansion of electricity capacity from renewable energy. A recent reform of the Energy Law removed regulatory disadvantages that had stymied development of wind and solar projects for years. A fast implementation of the reform and an energy strategy that prioritises renewable energy generation, sending predictable price signals through a gradually implemented carbon tax and emissions trading system, and prioritising a fast implementation of the accumulated renewable project pipeline, should be a priority.