Paula Garda
OECD
OECD Economic Surveys: Peru 2025
Abstract
Annual real GDP growth averaged 3.7% of GDP between 2008 and 2024, among the fastest in Latin America. Inflation is well-anchored within the central bank’s target band, reflecting strong institutional credibility. Growth is expected to remain moderate due to global and domestic uncertainties and persistent structural challenges: low potential growth, stagnant productivity, high informality, and weak private investment. Fiscal discipline has weakened, with repeated breaches of fiscal rules, rising spending measures without adequate financing, and new tax expenditures that erode the tax base. Structural reforms to tackle informality, boost tax revenues, improve spending efficiency, and strengthen the macro-fiscal framework are needed to support long-term growth and fiscal sustainability.
The Peruvian economy has shown resilience amid a series of domestic and global shocks. Real GDP growth averaged 3.7% of GDP between 2008 and 2024, one of the highest in Latin America. Inflation surged in 2022 but has since returned within the central bank’s target band, reflecting the institution’s strong credibility. Peru's Emerging Markets Bond Index (EMBI) spread remains relatively low and stable reflecting markets’ perception of Peru as a comparatively stable credit risk among emerging economies, likely due to the strong external position, the relatively low public debt-to-GDP ratio, and the credible inflation-targeting framework.
Despite this strong track record, growth is expected to remain moderate in the next two years amid mounting macroeconomic and fiscal risks. Peru’s potential growth is low and has declined since the end of the commodity boom, held back by weak private investment, stagnant productivity, widespread worker and business informality and a large female labour force participation gap, particularly in STEM areas, and an even distribution of unpaid domestic and care responsibilities. Informality remains a major obstacle to sustainable growth and development: it both reflects and reinforces low productivity, weak institutions, poor tax design, burdensome regulations, and gaps in education and skills. It also undermines firms’ incentives to invest and innovate, erodes government revenues, limits the provision of public services, weakening trust in government. A deteriorating fiscal position and repeated breaches of fiscal rules risk undermining investor confidence, potentially raising borrowing costs and worsening the debt outlook. Ensuring fiscal sustainability is increasingly challenging amid significant social and infrastructure expenditure needs. Strengthening the macroeconomic framework, advancing structural reforms and improving institutions and administrative capacities to design, implement, and enforce reforms are needed to restore fiscal sustainability and lift long-term growth.
1.1.1. Growth rebounded in 2024 driven by public spending and external tailwinds
After a contraction of 0.4% in 2023, Peru’s economy expanded by 3.3% in 2024. Several shocks in 2023, including social protests and weather-related anomalies, caused a significant slowdown, largely due to a sharp decline in private investment. The recovery in 2024 was driven by public expenditure and robust private consumption. Headline inflation has fallen back to the 2% mid-range of the inflation target band since May 2024. Lower inflation and higher employment boosted household spending in 2024. Public investment experienced a notable increase of 14.7% in 2024, reflecting both a recovery from the low base of 2023 and a temporary boost linked to reconstruction efforts following 2023’s weather shock as well as improved budget execution by all levels of government. A higher public sector wage bill supported current expenditure. Improved business confidence and gradual monetary easing led to a moderate recovery in private investment. The normalisation of weather conditions benefited fisheries and agriculture, enhancing output and exports in these sectors. High global prices for gold and copper bolstered mining exports. Real imports increased in 2024, supported by higher private consumption and public investment. In the last quarter of 2024, GDP growth accelerated to 4.2% year-on-year. The momentum continued into early 2025, with GDP growing by 3.4% year-on-year in the first half of 2025, as stronger private consumption and investment were partly offset by weaker exports and higher imports. Despite these positive developments, economic activity remains still far below the level it would have reached had it followed its pre-pandemic trend (Figure 1.1).
Despite recent improvements, economic policy uncertainty and poor policy settings hold back investment. Total investment rates, as a percentage of GDP, declined in 2023 and 2024, continuing a trend that began a decade ago with the end of the commodity boom, primarily due to weak private investment (, panel A). Private investment started picking up in the second half of 2024 and gained momentum in the first half of 2025, supported by newly awarded Public-Private Partnerships (PPPs), improved business confidence, looser financial conditions (Figure 1.2, Panel B and C) and the government’s to cut bureaucratic barriers. However, economic policy uncertainty remains high since the pandemic, coupled with more recent international uncertainty (Figure 1.2, panel D). Even before the pandemic, uncertainty was high compared to most LAC countries, due to recurring political instability driven by political fragmentation and frequent government and congress changes, and social conflicts in mining regions (IMF, 2024[1]; World Bank, 2025[2]). Regulatory unpredictability, weak rule of law, institutional instability, corruption, prolonged tax and legal disputes, and inadequate infrastructure are often cited as obstacles for domestic and foreign investment. In addition, weak administrative capacities and burdensome and unevenly enforced regulations at the subnational level, increase transaction costs and reduce the predictability of the business environment. Public investment efficiency also remains a concern (as discussed below), requiring reforms to improve its quality.
Note: All series are seasonally adjusted. In panel A, 2019 refers to annual data. The pre-pandemic trend is defined as the average quarterly
growth rate over 2017-2019.
Source: OECD Economic Outlook database; BCRP.
The labour market has recovered more slowly than overall activity. Following a recession-related sharp slowdown in job creation in 2023, total employment grew just by 0.8% in 2024 (Figure 1.3Panel A). Unemployment stood at 5.9% in the second quarter of 2025, same rate observed in Q2-2024, but still above the pre-pandemic rate of 3.6%. The gender gap in unemployment has widened since the pandemic (Figure 1.3, Panel B), and participation rates, particularly among women, remain below pre-pandemic levels (Figure 1.3, Panel C). Labour market conditions have deteriorated particularly for youth (ages 14–24): youth employment declined significantly in 2024, and the modest recovery in formal employment did not benefit young workers. The share of young people aged 15-29 not in employment, education, or training (NEET) was 23%, well above the OECD average of 13% in 2023, according to OECD data. Pandemic-related school closures and disruptions in remote learning contributed to higher dropout rates leading to skill gaps among young labour market entrants. On a positive note, real wages increased by 2.7% year-on-year in 2024, although they remain still below pre-pandemic levels.
Widespread and persistent informality is a defining feature of Peru’s labour market, affecting 71% of workers in 2024, well above the average of 44% in the 6 largest Latin American countries (Figure 1.4). It limits access to productive, high-quality jobs, social protection, and skill development, and hinders social mobility across generations (Chapter 3). Despite an increase of formal employment, as measured by electronic payrolls, — up by 2.7% in 2024 and a further 6% year-on-year in the first quarter of 2025 — informality remains entrenched, especially among rural, young, female, and low-income workers (Figure 1.3, Panel A). Informality both stems from and reinforces a range of structural, institutional, and policy weaknesses—including low worker and firm productivity, weak enforcement of labour and tax regulations, limited state capacity, inadequate skills, and burdensome administrative procedures. Peru’s high informality persists despite policies aimed at promoting formalisation—such as reduced social contributions and simplified tax regimes for SMEs—because these measures have often created perverse incentives for firms to stay small and informal, as discussed later in this chapter.
The multidimensional nature of informality calls for a comprehensive strategy to tackle it, as highlighted in the 2023 OECD Economic Survey of Peru. Such a strategy needs to combine reforms to shift from firm-size-based to labour income-based social contribution schemes to lower non-wage labour costs for low-income workers and avoid disincentives for firms to grow and be formal, strengthen skills and legal and law enforcement, simplify labour market and businesses regulations and reinforce the rule of law and institutional accountability, while also reforming the tax system—particularly the schemes for smaller firms—to incentivise formalisation. Peru has proposed measures to address informality in the 2024–2030 Competitiveness and Productivity Plan, including simplified tax and labour regimes for small firms, digitalisation and strengthening labour inspections and employment services, with limited progress on implementation.
Note: LAC is a simple average of Argentina, Brazil, Chile, Colombia, and Mexico. Panel D: Data represent 6-month moving averages and incorporate the domestic and foreign press coverage.
Source: OECD Economic Outlook database; BCRP; Banco de España.
Poverty in Peru fell to 27.6% in 2024 from 29% in 2023, when it had risen due to high food inflation and economic recession, but it remains well above the pre-pandemic rate of 20%. Rural poverty is now below pre-pandemic levels, while urban poverty remains over 10 percentage points higher; however, rural extreme poverty, at 15% in 2024, is above pre-pandemic levels. Increases in urban poverty have been concentrated in Lima. The vulnerable population—those just above the poverty line—remains broadly unchanged, at 32% in 2024 compared to 33% in 2019, while the middle class has shrunk from 42% to 37% (Macroconsult, 2025[3]). These trends reflect persistent informality, unemployment above pre-pandemic levels and weak upward mobility.
Peru’s external sector provided important support to economic activity in 2024 through stronger trade and financial inflows. The current account surplus widened from 0.3% of GDP in 2023 to 2.2% in 2024 (Figure 1.5, Panel A), driven by improved terms of trade, a rebound in tourism, and rising remittances. The goods trade balance reached a record surplus of 9% of GDP in Q4-2024, supported by high prices for key exports, particularly copper, gold, and fishmeal, which together account for 48% of total exports (Figure 1.5, Panel D). Terms of trade improved significantly in 2024, as Chinese stimulus policies boosted industrial demand for commodities, while uncertainty increased global demand for gold as a safe-haven asset. Meanwhile, lower oil prices kept import costs contained. Remittance inflows continued to grow in 2024, driven by stronger labour markets in the United States, Chile, and Spain, supporting domestic consumption. On the financial side, net capital inflows, particularly foreign direct investment (Panel B) remained strong. In the second quarter of 2025, the current account remained in surplus at 0.9% of GDP. While terms of trade stayed strong, the trade surplus narrowed as imports grew faster than exports, offset by sustained inflows of remittances and foreign direct investment. However, Peru’s export base remains concentrated—both in products, with mining accounting for around 60% of goods exports, and in destinations, with China absorbing more than 35% of total exports—leaving the external sector vulnerable to price and demand shocks.
Note: In Panel B, data until 2021 come from the Encuesta Nacional de Hogares. From 2022, from the Encuesta Permanente de Empleo Nacional.
Source: INEI, Encuesta Nacional de Hogares; INEI Encuesta Permanente de Empleo Nacional.
Informal employment rates, 2024 or latest year available
Note: LAC is a simple average of Argentina, Brazil, Chile, Colombia, Costa Rica, and Mexico. Informal workers are defined as: self-employed in informal enterprises, contributing family workers, members of informal cooperatives, and employees without formal job contracts or social protection, including domestic workers.
Source: ILO.
Source: BCRP; UN Comtrade.
1.1.2. Economic growth will be modest
GDP growth is expected to slow to 2.8% in 2025 and 2.6% in 2026, while inflation is expected to stay around the 2% target (Table 1.1). Global and domestic uncertainty will keep growth moderate by weakening business and consumer confidence. Government initiatives to accelerate PPPs together with streamlined burdensome regulations (Box 1.1), and low inflation will partly offset these effects by supporting private investment and consumption. Government consumption and public investment growth are expected to moderate, reflecting a shift towards fiscal consolidation. Peru’s terms of trade are expected to remain high, supporting its external position. However, export growth will weaken reflecting the direct impact of new US tariffs on Peruvian products and the broader drag from weaker global growth.
Annual percentage change unless specified, volume (2007 prices)
1. Contributions to changes in real GDP, actual amount in the first column. 2. Consumer price index excluding food, regulated utilities, and fuel prices.
Source: OECD Economic Outlook database based on INEI data. Updated August 2025.
In March 2025, the government launched a deregulatory package (“shock desregulatorio”) to streamline procedures, reduce overregulation, and facilitate investment. The package includes 402 measures across three pillars: deregulation and regulatory quality, administrative simplification, and more efficient legislative and public sector management. Key actions include:
Elimination of nearly 300 national government’s bureaucratic barriers declared illegal or unreasonable by INDECOPI, Peru’s national competition and intellectual property authority, with a commitment to remove any future barriers INDECOPI may identify and quarterly reviews to continuously identify and remove emerging regulatory obstacles.
Incentives for subnational governments for the standardisation of prioritised administrative procedures and the elimination of bureaucratic barriers at the subnational level, targeting over 1,800 identified regulatory barriers and disincentivising the creation of future barriers.
Operationalising the already existing Movable Collateral Registry to improve SMEs’ access to credit.
Relaunch of investment monitoring roundtables dedicated to overseeing and facilitating the execution of investment projects. These teams will focus on ensuring that projects progress, addressing any obstacles that may arise during implementation.
Promotion of positive administrative silence (Silencio Administrativo Positivo) by replacing negative silence in most procedures and enabling automatic online certificates for approvals under positive silence.
Reform bill to simplify existing SMEs regimes, promote the declaration of expenses, including payroll expenses, and reduce the cost of tax compliance in order to reduce informality. The proposal is still under development.
A Public-Private Partnership reform bill in Congress to overhaul the public-private investment framework, streamlining project preparation and reducing delays.
The package is welcome as it seeks to reduce excessive regulation, a long-standing constraint on investment and project execution, particularly in infrastructure and mining, where permitting delays have stalled implementation. While the measures could support investment, firm growth and formalisation, their full impact will depend on timely approval of legislative reforms and effective enforcement, implementation and coordination across government levels. These measures should be accompanied by sustained political commitment and alignment with broader progress on structural reforms in justice, public administration, and education as discussed elsewhere in this Survey.
1.1.3. Risks around the outlook are tilted to the downside
Risks and uncertainties remain substantial and tilted to the downside (Table 1.2), but Peru has ample buffers. Externally, risks remain significant. A sharper than expected slowdown in China, Peru’s main trading partner, would weaken demand for key exports, lower commodity prices, particularly copper, government revenues and investment. Copper, the country’s main export, accounts for nearly 30% of Peru’s total exports (Figure 1.5, Panel D) and contributes to fiscal revenues, especially through corporate income tax and royalties from large mining operations. A drop in copper prices would worsen the trade balance, strain public finances, and delay planned mining investments, with broader spillovers to growth and employment, particularly in mining regions. Stricter immigration policies or economic slowdowns in key remittance-sending countries, such as Spain, the United States, or Chile, could limit remittances growth.
Rising global protectionism and trade tensions, particularly from the US, create additional uncertainty and may trigger a broader slowdown in global demand, potentially disrupting Peru’s commodity-dependent exports and deterring investment. In April 2025, the United States imposed a 10% tariff on most Peruvian imports, followed in July 2025 by a 50% tariff on semi-finished copper products such as pipes and wires, while raw copper—the bulk of Peru’s mining exports—remains exempt. The United States accounted for 12.6% of Peru’s goods exports in 2024, with mining products amounting less than 10% of these shipments. Higher tariffs are expected to weigh on key sectors such as agroindustries (Figure 1.6), reducing total exports. There is also a risk of new US tariffs targeting Peruvian exports such as raw copper which would further weigh on trade and investment prospects, especially given Peru’s high exposure to external shocks despite low average tariffs and a broad network of trade agreements that cover 90% of its trade. The impact of US tariffs on Peruvian exports may be partially mitigated by seasonal agricultural export patterns. Peruvian goods could also gain an advantage in the US market if they compete with products from countries facing tariffs above 10%. Trade diversion may also offer further benefits, but realising these gains requires addressing non-tariff barriers—such as poor infrastructure quality, weak logistics networks, and regulatory inefficiencies—that currently limit firms’ ability to scale up and redirect trade flows quickly. Tackling these bottlenecks is equally critical to supporting broader trade diversification and enhancing export resilience. Diversifying the export base also requires promoting higher-value-added sectors and expanding access to new markets. Peru is actively pursuing new trade agreements with El Salvador, India, Indonesia, Thailand, and Uruguay.
Exports to the United States by sector, %
Source: Ministerio de Comercio Exterior y Turismo, Reporte Mensual de Comercio Exterior, March 2025.
Financial market volatility poses an additional risk. A decline in global risk appetite could trigger capital outflows, raise sovereign bond spreads and financing costs. This could lead to exchange rate depreciation, tightening credit conditions and weighing on investment and growth. Additionally, a sudden currency depreciation could lead to an increase in the public debt-to-GDP ratio and worsen balance sheets for firms with unhedged exposures (see next section). Nonetheless, Peru’s strong external position including moderate external debt, substantial foreign exchange reserves, a sound financial sector, and a sustainable current account balance, provide important buffers to absorb shocks (Figure 1.7).
Note: LAC is a simple average of Chile, Colombia, Costa Rica, Mexico, Argentina, and Brazil.
Source: IMF World Economic Outlook April 2025; IMF International Financial Statistics.
Domestically, political uncertainty remains a key risk, which could be intensified as the 2026 general elections approach, dampening investor confidence and delaying reform implementation. Since 2016, Peru has had six presidents and frequent ministerial and congressional turnovers. Political fragmentation, reflected in over 40 parties registered for the first round in upcoming elections could hamper consensus on pro-growth reforms. Uncertainty may intensify as parties try to differentiate themselves and capture fragmented voter bases. While the recent approval of a bicameral legislature with separate lower and upper chambers may improve legislative processes and add more checks and balances, it is unlikely to fully resolve political fragmentation.
Rising crime and security concerns in Peru could revive social unrest and hurt investment and tourism, potentially undermining economic growth. Illegal activities such as extortion, illegal mining, especially of gold, and drug trafficking are estimated to account for 3%-4% of Peru's GDP (Aragón and .Ruiz, 2024[4]). Extortion cases surged by 370% between 2021 and 2023, particularly affecting micro, small and medium-sized enterprises (TheWorld, 2024[5]). The increase in criminal activity raises businesses’ operational costs, disrupts business activity and deters tourism, a key export.
Climate-related shocks, particularly El Niño events, continue to pose a serious threat to Peru’s economy. More frequent and intense weather events, such as droughts or floods, disrupt agriculture, damage infrastructure and strain water systems. These events can also trigger inflationary pressures and weigh on tourism and transport. For example, El Niño caused losses estimated at 1.6% of GDP in 2017 (Andrian et al., 2024[6]), and reduced GDP growth by 1.1 percentage points in 2023 (BCRP, 2023[7]). Even moderate El Niño events can diminish GDP growth by approximately 0.2 to 0.5 percentage points in the immediate months of impact (Andrian et al., 2024[6]).
On the upside, faster-than-expected growth in China or globally, or sustained higher copper prices could lift near term growth. Recently announced deregulation measures, if implemented effectively, could help crowd in private investment more than currently expected. Additionally, the new Chancay mega-port could enhance trade flows and boost logistics efficiency and attract further investment, though realising these benefits will require additional investment in infrastructure, logistics, and workforce skills.
Peru’s inflation targeting framework—anchored by an independent central bank and a 2% ± 1 percentage point target— has remained effective and credible since its adoption in 2002. The central bank (Banco Central de Reserva del Perú, BCRP) combines interest rate policy with active foreign exchange interventions and differentiated reserve requirements to manage liquidity and mitigate risks arising from high financial dollarisation, including currency mismatches and external shocks. Although the Central Bank is independent and its governance generally adheres to international best practices and provides strong constitutional guarantees for operational autonomy and accountability, its autonomy could be further strengthened. The board of directors consists of seven members. The executive branch appoints four of them, including the president, subject to Congress approval, while the Congress selects three. All board members can only be removed for cause. However, the alignment of the appointment of the president and board directors with the presidential term exposes the Bank’s autonomy to the risk of political interference, even though it has not occurred so far. Peru could also consider further additional measures which are less common among OECD members but considered as good practices by other international institutions, for example, setting requirements around the terms of Board members.
The central bank’s early decisive monetary tightening has successfully anchored inflation expectations and reduced inflation towards the target range. A tight monetary policy stance, with forward real interest rates peaking at 4.2% in August 2023, has helped reduce headline inflation from its peak of 8.8% in June 2022 to 2% in May 2024, and has remained within the central bank’s target range of 1-3% since then (Figure 1.8). Goods inflation eased significantly in 2024, supported by moderating global commodity prices, the stability and moderate appreciation of the Peruvian sol in 2023 and 2024, which contained import costs, and subdued domestic demand. In line with easing inflation and weak domestic demand, the BCRP began a cautious easing cycle in late 2023, lowering its policy rate from 7.75% in August 2023 to 5% by December 2024. Inflation declined to 1.1% in August 2025 consistent with low inflationary pressures in the economy. The decline was primarily attributed to a continued moderation in transportation costs reflecting lower international oil prices. Core inflation has declined more gradually, reaching 1.8% in August, as service inflation moderated since the start of the year. One-year ahead inflation expectations have decreased and remain near the target since the beginning of 2024, at 2.2% in August 2025.
Note: Inflation refers to Metropolitan Lima area.
Source: INEI and BCRP.
The central bank’s broadly neutral monetary stance is appropriate and should remain cautious and data dependent. With anchored inflation expectations and inflation expected to remain within its target range, the BCRP cut its policy rate by 25 basis points in May 2025 to 4.5%. It maintained the rate until September 2025, when it cut again by 25 basis points to 4.25%, close to the estimated real neutral rate of 2% (BCRP, 2023[7]). The rate is expected to be maintained throughout the projection period, though caution remains warranted. Political uncertainty could contribute to weaker-than-expected domestic demand, that could suppress price levels. Conversely, upside inflationary risks include pressures from weather-related disruptions, higher for longer global interest rates, particularly in the United States, and heightened sovereign risk perception, which could impact exchange rates or raise the neutral real rate. Additionally, geopolitical uncertainties and external shocks, such as elevated oil prices or commodity market instability, could pose challenges to maintaining inflation within the target range and affect monetary policy calibration.
1.3.1. Strong capital buffers support financial stability amid rising NPLs
The financial system has remained resilient supported by strong capital buffers, ample liquidity, and robust regulatory and macroprudential oversight. The banking system, which represents almost 84% of the total financial system assets, is highly capitalised well above Basel III minimums. As of end 2023, the Tier 1 capital ratio was 13%, surpassing the 6% Basel requirement, although lower compared to other emerging and advanced economies (Figure 1.9, Panels A and B). Returns on equity and returns on assets have declined compared to 2023, reflecting weaker credit growth and higher provisioning needs due to rising non-performing loans (Panel C). However, profitability began to recover toward the end of 2024 as credit conditions improved. Stress tests by the Central Bank of Peru and the Financial Superintendency confirm that even under adverse shocks, bank capitalisation exceeds regulatory limits, reflecting the system’s robust risk management (BCRP, 2024[8]; SBS, 2024[9]).
Credit growth slowed across all loan types due to weaker economic activity in 2023 and tighter lending standards. However, it began to recover by the end 2024 in most sectors (Figure 1.9, panel D). Consumer credit expansion moderated as banks imposed stricter lending requirements and higher provisioning, leading to a decline in the household debt-to-income ratio in 2024 (BCRP, 2024[8]). The firm loan portfolio has contracted in 2024, when including loans covered by pandemic-related government guarantees (Reactiva programme) (SBS, 2024[9]). When excluding these Reactiva loans, the total credit portfolio grew by 1.5% instead of contracting 0.3% in 2024. The share of loans to micro, small, and medium-sized firms backed by government guarantees has fallen from 33% to 10% in March 2025, while pandemic-related loan restructurings, which once peaked at 50%, now represent only 1.6%. Impulso MYPERÚ, a state loan guarantee programme implemented in 2023 for micro and small firms and expanded to include medium-sized, large and corporate firms at the end of that year, supported credit to firms with over PEN 15 billion (USD 4.1 billion) in guarantees by mid-2024. In 2024, only large and corporate firms saw loan portfolio growth, driven by improved financing conditions and a gradual recovery, while lending to micro, small and medium-sized firms (MSMEs) kept falling amid weakening credit quality.
Credit quality has weakened, with non-performing loans increasing (Figure 1.10, Panel A), particularly among medium-sized firms, reflecting the lagged impact of economic stagnation in 2023. Provisions remain sufficient to absorb losses, although less ample than in other emerging and regional peers (Figure 1.10, Panel B). Asset quality deteriorated amid subdued household income growth, rising delinquencies in retail and commercial loans, and an increase in loan refinancing following the expiration of pandemic-related government support. The increase in NPLs was more pronounced among medium-sized firms, primarily attributed to the higher sensitivity of medium-sized firms to tighter financial conditions and economic fluctuations due to their limited access to alternative financing sources and higher exposure to variable interest rates, which amplify the impact of increased borrowing costs on their payment capacity (Alvarado, Hernandez and Salinas, 2024[10]). Microenterprises, while vulnerable, often operate with lower debt levels and have benefited from targeted support programmes, such as the loan guarantees programmes, mitigating the rise in their NPLs. In response to increased credit risk, Peruvian banks tightened lending standards and increased loan loss provisions. Provision coverage exceeded 100% for high-risk portfolios, with additional provisions comprising 14.4% of total reserves in August 2024 (SBS, 2024[9]).
Note: LAC is a simple average of Chile, Colombia, Mexico, Argentina, and Brazil.
Source: IMF; SBS.
The microfinance sector is facing challenges, although systemic risk for the wider financial sector remains contained (SBS, 2024[9]), especially given its small size. As of September 2024, 8 out of 24 microfinance institutions reported losses, with some showing low capital ratios. The deterioration is driven by the compounded shocks that affected the Peruvian economy over 2020-2023, including the pandemic, social conflicts and adverse weather conditions, resulting in near half of these institutions experiencing delinquency rates at or above 8% in 2023. Additionally, interest rates caps introduced in 2021, although set at over 100% in local currency, may have restricted access to credit for higher-risk clients. Several rounds of withdrawals from the national mandatory severance savings schemes added pressures on microfinance institutions, leading to reduced liquidity (BCRP, 2021[11]). To strengthen balance sheets, these institutions must secure additional capital from shareholders or strategic investors, a process closely monitored by the Superintendency of Banking, Insurance, and AFPs (SBS). In 2024, the SBS intervened two insolvent microfinance institutions preventing potential negative impacts from spreading beyond the microfinance sector, thanks to their participation in the Capital Strengthening Programmes (Fortalecimiento Patrimonial) implemented in 2021 and extended in 2023. These programmes enabled the timely transfer of assets and liabilities through targeted auctions, ensuring depositors’ funds were safeguarded and assets, particularly loans, were efficiently managed. As a result, the microfinance sector has remained stable, with no loss of depositor confidence, but continued monitoring is necessary to mitigate risks to financial stability.
Note: Firm loans are classified by firm size: large businesses have sales between PEN 20–200 million or recent capital market issuance; medium-sized businesses have sales between PEN 5–20 million or debt over PEN 300 000; small businesses have sales under PEN 5 million and debt between PEN 20 000–300 000; and microenterprises have sales under PEN 5 million and debt below PEN 20 000. LAC is a simple average of Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico.
Source: SBS; IMF.
Strengthening financial regulations and aligning with international standards will be crucial to maintaining financial stability amid emerging international risks. Peru has been progressively implementing Basel III standards, with progress on capital adequacy, countercyclical buffers, and liquidity requirements. However, gaps remain in the risk-weighted asset framework, activation rules for capital buffers, Pillar 3 disclosures, and resolution planning for systemic banks, and authorities should continue advancing regulatory reforms to fully close these gaps (IMF, 2025[12]). The SBS has enhanced financial oversight, particularly in bank recovery and resolution plans, and has adopted macroprudential tools aligned with IMF recommendations (IMF, 2024[1]), including stricter capital requirements and stress-testing frameworks. Further ex-post evaluations of financial regulations and refinements in countercyclical buffers will help ensure cost-efficient compliance and strengthen the financial system’s resilience.
Peru’s financial regulators—BCRP, SBS, and SMV—coordinate effectively through both formal (MoUs, Board-level dialogue) and informal channels. However, coordination remains ad hoc in areas such as macroprudential oversight and systemic crisis response, where no formal interagency body exists. Establishing a structured mechanism would align Peru with international good practices and strengthen institutional preparedness for future shocks. This can be done by establishing a formal interagency financial stability committee with regular and emergency meeting protocols and clear decision-making procedures, drawing on OECD practices and tailored to Peru’s institutional and legal context.
1.3.2. Further reducing unhedged dollarisation
Over the last decade, Peru has successfully reduced credit and deposit dollarisation (Figure 1.11, panel A), through a combination of strong macroeconomic policies and a comprehensive set of prudential measures. These include higher and conditional reserve requirements on foreign currency liabilities, increased capital requirements and risk weights for foreign currency (FX) loans to unhedged borrowers, and additional provisions for currency-induced credit risk. Targeted measures in sectors such as housing and vehicle loans, combined with macroprudential incentives, have been particularly effective. Despite these efforts, dollarisation remains high in Peru, both in deposits and credit. Deposit dollarisation is among the highest in the region, with most dollar deposits held by residents, reflecting a strong domestic preference for dollar-denominated assets. On the credit side, corporate dollarisation is also elevated (Figure 1.11, panel B), with near 50% of large and corporate debt in foreign currency by April 2025. Unhedged exposure is lower, at 37%, as many exporting firms are naturally hedged. However, unhedged dollar credit is concentrated among mid-sized firms (38%) while non-performing loans rates are similar for foreign and local currency loans (both at 15%). FX loan delinquency is higher among smaller firms: in 2024, it reached 19% for small firms and 21% for micro firms—more than twice the rates for local currency loans (9% and 6%), respectively. Nevertheless, these portfolios represent 4.3% of foreign currency credit. The higher FX loan delinquencies among smaller firms reflect their limited capacity to manage exchange rate risk, combined with weaker financial buffers. Evidence indicates that the strong preference for dollar deposits, coupled with banks’ practice of matching foreign currency assets and liabilities, contributes to lower interest rates on dollar loans (Gutierrez, Ivashina and Salomao, 2023[13]), which may encourage borrowing in dollars when exchange rate expectations are stable.
Source: IMF, FSI; SBS.
Starting in 2026, the SBS will implement new regulations requiring financial institutions to identify clients with foreign currency debt exposures above specified thresholds. This will standardise risk classification and improve the monitoring and mitigation of FX-related vulnerabilities. To further support de-dollarisation, the current prudential toolkit—including currency-differentiated liquidity ratios, limits on foreign exchange exposures, higher capital requirements for FX loans, caps on loan amounts relative to collateral, and differentiated reserve requirements—could be reviewed by retaining only the most effective measures to address currency mismatches risks, and, unless necessary to address particular risks, avoid measures that specifically target non-resident transactions. As highlighted in the 2023 OECD Economic Survey of Peru (Table 1.3), developing deeper and more liquid foreign exchange and derivative markets is essential to allow firms, especially mid-sized ones, to hedge currency risks effectively. This would require improvements in regulation, financial infrastructure, and financial literacy. Currently, Peru's FX-derivative market is among the most underdeveloped in the region, with an average daily turnover of about 0.3% of GDP in 2022, limiting firms' ability to hedge against currency fluctuations. These efforts could be complemented by a more flexible exchange rate regime. While the Central Bank has rightly intervened to smooth excessive volatility, especially during shocks like COVID-19 or global interest rate hikes, frequent interventions may weaken incentives for agents to internalise currency risks, slowing de-dollarisation (IMF, 2024[1]; IMF, 2019[14]). Moreover, there is evidence of dollarisation in sectors such as construction materials, machinery, and other intermediate goods, where prices are commonly set in U.S. dollars due to import dependence and industry practices. Targeted measures such as promoting soles-based pricing could support further de-dollarisation in these sectors.
Peru’s rule-based fiscal framework (Box 1.2), underpinned by a commitment to fiscal sustainability, has provided macroeconomic stability and fiscal discipline over decades. However, since the COVID-19 pandemic, fiscal performance has weakened. The fiscal deficit peaked at 8.7% of GDP in 2020, due to pandemic-related emergency spending, tax relief, and large-scale social assistance programmes. Although consolidation followed in 2021-2022 (Figure 1.12), the deficit remained elevated, driven by sluggish revenue and rigid spending commitments. In 2023, the deficit rose again to 2.7% of GDP, exceeding the fiscal rule target of 2.4%, amid the economic contraction, a 10.5% real decline in fiscal revenues, and increased spending to cushion climate shocks and social conflicts. The government launched stimulus initiatives ("Con Punche Perú"), combining social assistance, tax reliefs for agriculture and tourism and the extension of pandemic-era credit guarantees. Additional substantial funds were directed towards infrastructure repairs and disaster relief.
Peru's fiscal framework established by the 1999 Fiscal Responsibility and Transparency Law has played a key role in maintaining fiscal discipline. It includes a fiscal deficit rule, which limits the non-financial public sector deficit to 1% of GDP; a public debt rule, which caps public debt of the non-financial public sector at 30% of GDP; and two expenditure growth rules based on past and forecasted GDP growth —one of which targets current spending to help safeguard public investment. Transitional deficit targets that guide convergence to the 1% of GDP deficit rule are set by decree and presented in the Medium-Term Macroeconomic Framework and its update prepared in August and April, respectively, by the Ministry of Economy and Finance. Operational ceilings are set at 2.2% of GDP in 2025, 1.8% in 2026, 1.4% in 2027, and 1.0% in 2028 (MEF, 2025[15]). Temporary deviations are allowed under emergency clauses and extraordinary circumstances, with Congressional approval and a credible return plan. The Fiscal Council gives a non-binding opinion when fiscal targets are revised. Peru’s fiscal framework counts with a Fiscal Stabilisation Fund (FEF), which was created to mitigate the impact of economic shocks and revenue volatility. The FEF accumulates resources from fiscal surpluses, 10% of government asset sales, and a share of initial payments from mining concessions. Withdrawals are allowed during periods of economic downturn, natural disasters, or other fiscal emergencies.
The fiscal position deteriorated further in 2024. Despite a modest economic recovery and strong terms of trade, the fiscal deficit rose to 3.5% of GDP in 2024, above the fiscal target of 2.8%, marking the first time since 2000 that fiscal rules were breached two consecutive years. Non-compliance happened despite the government revising the fiscal targets in the middle of 2024, delaying the return to the 1% deficit target until 2028. The slippage reflected high public investment across all levels of government, lower-than-expected revenue, and a sharp increase in the public sector wage bill, which rose by over 6% in real terms in both 2023 and 2024, when average inflation was 6.3% and 2.4%, respectively. By 2024, the wage bill reached 35% of tax revenues, well above the OECD average of 27%, limiting fiscal space for priority spending and increasing long-term rigidities if not matched by productivity gains. In response to revenue shortfalls, the government implemented various fiscal policy adjustments throughout 2024, introducing new taxes on online gaming and digital services, but these were partially offset by tax expenditures, including the extension of VAT reductions for restaurants and hotels (CF, 2025[16]). Spending controls were imposed on non-priority items, but a supplement budget approved in July ultimately increased total expenditures. Repeated capital injections to Petroperú, the state-oil company, driven by Petroperú’s financial difficulties and inability to meet its obligations, have heightened fiscal risks by adding to contingent liabilities and reducing fiscal space.
Note: The grey-shaded area depicts forecasts from 2025 onwards from the Multiyear Macroeconomic Framework 2026–2029.
Source: BCRP and Peru Ministry of Finance and Economy, Multiyear Macroeconomic Framework 2026–2029 (2025).
The government's fiscal plans aim to return to compliance with the fiscal rule, targeting an improvement in the structural primary balance of 1.3 percentage points in 2025 and 0.8 percentage points in 2026 (MEF, 2025[17]). Achieving this will require reducing primary spending by 0.9% and 0.7% of GDP in 2025 and 2026, respectively, a difficult task in a pre-electoral year, despite stronger revenues from high gold and copper prices and economic recovery (Figure 1.12, panel B). The planned adjustment relies mainly on limiting non-essential current expenditures and improving procurement efficiency under the new Public Procurement Law. However, the Fiscal Council has expressed concerns that the 2025 budget deviates from the medium-term fiscal framework, mainly due to increased payroll expenses, driven by inflation-exceeding salary hikes, new hires, and special bonuses introduced at the end of 2024. This deficit reduction also relies on a projected 0.7% of GDP increase in tax revenues, driven by higher metal prices, economic recovery and one-off factors, such as capital gains taxes from Enel (an Italian energy company) selling its local assets, and a tax amnesty. However, these revenues may be overestimated, and the amnesty could undermine incentives for tax compliance in the medium-term. Other legislative initiatives such as the creation of tax exemptions for Private Special Economic Zones (ZEEP), reduced CIT rate for agroexporting businesses and waiving tax penalties and interests for tax-amnesty participants period will reduce revenues.
Peru’s public debt-to-GDP ratio increased to 32.1% in 2024, up from 26% in 2019 (Figure 1.13, panel A). This is equivalent to 1.9 years of total revenues, that is a debt-to-revenue ratio of 1.9 in 2024 based on OECD data. Interest payments also increased reaching 1.7% of GDP in 2024 from 1.4% of GDP in 2019, reflecting the impact of higher borrowing costs. Net debt amounted to 23.5% of GDP in 2024 after increasing fast since 2014 when it reached 3% of GDP. While Peru’s public debt remains low compared to regional peers and most emerging markets (Figure 1.13, panel B), deteriorating fiscal indicators and ongoing political uncertainty led S&P to downgrade Peru’s sovereign credit rating to BBB- in 2024, just above speculative grade. Although Moody’s and Fitch maintained Peru’s investment-grade status, they emphasised the need for fiscal consolidation. Rebuilding fiscal buffers is also necessary to strengthen Peru’s capacity to respond to shocks, including natural disasters, commodity price volatility and the materialisation of contingent liabilities.
The key short-term fiscal challenge is complying with the planned fiscal consolidation and restore compliance with the fiscal rule. As of July 2025, the fiscal deficit stands at 2.6% of GDP, down from 3.5% in 2024. OECD projections indicate the deficit will exceed the fiscal rule targets in both 2025 and 2026, reaching 2.5% and 2.2% of GDP, respectively (Table 1.1), compared to targets of 2.2% and 1.8%, implying the need for additional adjustment of about 0.4% of GDP. Compliance with the fiscal rule could be achieved by better control of current spending, particularly public sector payroll, which tends to rise in the pre-electoral and electoral years. Eliminating the diesel subsidy under the Fuel Price Stabilisation Fund (FEPC) could generate up to 0.15% of GDP in fiscal space while encouraging investment in cleaner technologies and renewable energy (see Chapter 4). Further savings could come from gradually eliminating inefficient tax expenditures, as discussed below and already recommended in the 2023 OECD Economic Survey of Peru.
Source: BCRP; IMF World Economic Outlook database, April 2025.
The medium-term plan foresees a consolidation of 0.4 percentage points of GDP per year up to 2028, mainly by containing current expenditure growth, to reduce the deficit to 1.0% of GDP by 2028 and bring debt below 30% of GDP by 2035. However, recent mounting measures affecting spending and revenues make it challenging. For example, in May 2025 authorities passed a reform to redistribute part of the value-added tax (IGV) revenues away from the central government to municipalities, which could raise the fiscal deficit if not matched by spending reallocation (CF, 2025[18]). Other growing permanent spending commitments and measures that erode the tax base (as discussed in section 1.7) are increasing risks to fiscal sustainability. Without a credible fiscal medium-term strategy, there is a risk of gradual deterioration of fiscal discipline leading to deterioration of investor confidence and higher financing costs.
A stronger tax system is essential to increase revenues, promote formalisation and ensure a fairer distribution of the tax burden. While statutory tax rates are moderate, revenue collection remains low, only 17% of GDP in 2024, well below Latin American averages (24% of GDP) and far from the OECD average of 34% of GDP (Figure 1.14). This gap reflects widespread tax evasion, high informality and inefficient tax administration. Peru’s tax mix is heavily reliant on indirect taxes (primarily VAT), while personal income taxes deliver a relatively lower share of revenues, suggesting room to shift toward a more balanced and progressive system to enhance equity. Corporate income tax revenues are also relatively high compared to other Latin American countries, contributing to a significant share of total tax revenues, despite a large share of businesses operating informally, while others use tax incentives and deductions that lower the effective tax burden.
A comprehensive tax reform remains necessary to raise more revenues, broaden the tax base, reduce distortions, tax evasion and informality and increase fairness, as the one outlined in the 2023 OECD Economic Survey of Peru and discussed in the next subsections (Table 1.4). In the short-term, reform efforts should focus on strengthening the tax administration, reducing tax expenditures and simplifying the corporate tax regimes for small businesses. Streamlining the SME tax regimes would reduce evasion, and boost formalisation. Expanding the personal income tax base – by gradually lowering the exemption threshold – could increase revenues while progressive social security contributions based on labour income would improve formalisation incentives and progressivity. Progressivity can also increase by reforming the taxation of capital income. These reforms to the personal and corporate tax systems are mutually reinforcing and can jointly reduce informality, strengthen compliance, and improve both equity and revenue mobilisation. Improving revenue collection from property, excise, and environmental taxes would diversify sources and make the system more efficient and equitable.
Taken together, these measures could yield 4.2% of GDP in additional revenues (Table 1.6). To fully realise this potential, reforms must be paired with greater public spending efficiency (as discussed in next section), ensuring that new revenues lead to better social and infrastructure outcomes. To sustain fiscal sustainability, it will be crucial to ensure that tax reforms effectively generate the expected revenue when committing to permanent increases in spending. This is particularly important for tax administration reforms, which account for most of the expected revenue gains but are difficult to quantify ex ante. By implementing these reforms, along with stronger governance and a comprehensive formalisation strategy that includes lower non-wage costs for low-income workers, better quality of education and training, stronger enforcement and reduced regulatory burden (see Chapter 3), Peru could trigger a virtuous cycle of higher tax collection, lower informality, increased productivity and equity.
Note: For comparative purposes with other OECD member countries, the reported tax revenue as a percentage of GDP includes collections by national, regional, and local governments, as well as social security contributions. This may differ from figures published by the BCRP, which use a narrower definition. LAC is a simple average of Argentina, Brazil, Chile, Colombia, Costa Rica, and Mexico. Data for Australia and Japan refer to the year 2022.
Source: OECD, Global tax revenue database and OECD Revenue Statistics in Latin America and the Caribbean.
1.5.1. Addressing tax evasion
Tax evasion remains high accounting for an estimated 10% of GDP in 2023 (MEF, 2025[17]), and is compounded by Peru’s large informal sector (at above 70% of employment) limiting revenue collection. Strengthening tax administration and collection efforts is crucial to reducing evasion and increasing revenues. On-going reforms, such as enhancing cross-border tax cooperation, improving risk-based auditing strategies and expanding the use of digital tools, such as electronic invoicing, digital submission of tax returns and payments, the use of big data analytics and artificial intelligence to better detect risks, and risk-based profiling of taxpayers to guide audits and control measures, must continue. The adoption of electronic invoicing and real-time reporting has helped reduce underreporting and fraud (MEF, 2025[15]), but more efforts are needed. Tax compliance remains burdensome: businesses in Peru spend 480 hours per year on tax procedures, well above the Latin American average of 317 hours, according to the World Bank’s Business Ready platform. This significant gap highlights the need for simplified tax laws and regulations, enhanced user-friendly online platforms for tax filing and payments, and progress on electronic invoicing and taxpayer support services. While electronic invoicing has been progressively implemented, ensuring proper enforcement, and integrating small businesses into the system. Fostering data interoperability between tax authorities and financial institutions would further reduce evasion and boost revenue collection. Implementing advanced data analytics and artificial intelligence can improve tax compliance and detect fraudulent activities (OECD, 2020[19]).
1.5.2. Reducing tax expenditures
Peru’s tax expenditures stand at 2.2% of GDP in 2024 above the 2% of 2023 (MEF, 2025[15]). The main exemptions include VAT breaks for agricultural products (0.4% of GDP), the Amazon (0.3%), tax expenditures for educational services (0.13%), and the drawback refund system for exporters (0.13%). However, these policies often fail to generate economic or social benefits proportional to their fiscal costs, as already highlighted in the 2023 OECD Survey of Peru. Tax exemptions in the Amazon region, intended to foster regional development have inadvertently fuelled illegal activities, such as gold mining (Barco and Foinquinos, 2025[20]). A comprehensive review of tax expenditures is needed to retain only those with a cost-effective impact on well-defined policy goals while phasing out the rest. If necessary, targeted transfers to vulnerable business and households could replace ineffective expenditures, generating significant tax revenues. A successful example is the 2005 elimination of VAT exemptions in the San Martín region, which was offset by public investment and led to higher economic growth (Barco and Foinquinos, 2025[20]).
The income tax exemptions granted to Special Economic Zones (SEZs) should be reassessed based on their effectiveness and fiscal impact. SEZs (Zonas Económicas Especiales) aim at promoting industrialisation, export diversification, and regional development through tax incentives. However, their economic benefits remain unclear (IMF, 2022[21]). In 2022, more than 90% of SEZ-related foreign trade involved imports, and SEZ exports made up just 0.1% of Peru’s total exports, far below Colombia (4.8%) and Chile (3.9%). On March 2025, the authorities announced that new SEZ will be implemented in the regions encompassing the ports of Chancay and Callao aiming to attract both domestic and foreign investment, boost employment growth, and promote technological advancements by offering businesses operating in these regions a 0% income tax rate. Carefully reviewing SEZ tax expenditures to retain only those that incentivise additional investment and high-quality formal job creation targeted in disadvantaged regions would help prevent unnecessary revenue losses and avoid competitive distortions that disadvantage firms outside the SEZs. To fully realise the potential benefits of SEZs, enhancing infrastructure and ensuring the availability of a qualified workforce is key. The global minimum tax will limit the benefits of certain tax incentives, particularly income-based incentives like the full or partial corporate tax exemptions offered in Peru’s Special Economic Zones (OECD, 2022[22]; OECD, 2023[23]). Corporate tax exemptions in Special Economic Zones that result in an effective tax rate below 15% could allow other jurisdictions to claim the difference, leading to a loss of revenue for Peru. To align Peru’s Special Economic Zones (SEZs) with international standards, the legal framework should incorporate the substance and transparency requirements established under Action 5 of the OECD/G20 BEPS Project, ensuring that tax benefits are granted only where substantial economic activity is conducted and appropriate information is disclosed to tax authorities. Peru has committed to implementing this minimum standard. If the OECD/G20 Forum on Harmful Tax Practices finds that Peru’s SEZ regime does not meet these standards, it could result in the SEZ regime being classified as harmful or Peru being listed as a non-cooperative jurisdiction, with reputational and economic consequences.
1.5.3. Improving corporate taxation
Peru's corporate tax system features a general regime with a rate at 29.5%, above the OECD average statutory rate of 21%, and three special regimes for micro, small and medium-sized enterprises (MSMEs). As highlighted in the 2023 OECD Economic Survey of Peru, this fragmentation contributes to tax arbitrage, inefficiencies and revenue losses. Peru’s tax system for MSMEs includes three regimes: the NRUS, a presumptive regime for microenterprises and self-employed workers with gross income up to about USD 25,000 that involves fixed monthly payments and minimal reporting; the RER, a turnover-based regime for those earning up to around USD 140,000; and the RMT, a MYPE simplified profit-based regime for businesses with net income up to roughly USD 2.4 million. While these regimes aim to reduce compliance costs and support small businesses, they also create strong incentives to limit firm size, divide operations, underreport revenues, or hire informally to avoid the obligations linked to larger size.
Peru could simplify the system, by phasing out inefficient special regimes for smaller taxpayers as recommended by the 2023 OECD Economic Survey of Peru. One option is to retain only one simplified regime based on cash-flow accounting, which would reduce distortions, and support formalisation. The income thresholds for the simplified regime could also be revised, as they are currently high and result in 98% of taxpayers being classified as SMEs, limiting the effectiveness of targeting. To support a smoother transition across regimes, corporate income tax (CIT) rates should be structured to avoid large tax jumps between the simplified and general regimes, which can discourage firm growth and incentivise informality. Peru could also consider combining this with a presumptive regime only for self-employed integrated with social contributions, to facilitate entry into formality. Robust monitoring mechanisms would ensure that only MSMEs benefit from simplified taxation and prevent that larger firms exploit these provisions. Additionally, setting a low tax burden when a taxpayer joins the regime and gradually increasing it over time might foster business registration (Mas-Montserrat, Colin and Brys, 2024[24]). This reform could be complemented by training programmes and formalisation services to support small firms in transitioning to the formal economy.
Peru captures relatively modest fiscal revenues from mining relative to its potential, reflecting challenges in the current tax regime’s design and application. Mining-related revenues averaged less than 1% of GDP based on direct cash tax collections, despite the sector contributing around 10% to GDP and nearly two-thirds of total exports. This comparison is limited, as it excludes other forms of fiscal contributions such as profit-sharing. Peru’s marginal effective tax rate on copper investment is 17.6%, among the lowest in the region, reflecting the limited revenue yield of the current framework (Bazel, Mintz and Reyes-Tagle, 2023[25]). The current regime consists of a mix of profit-based instruments, the special mining tax and special mining contribution and a royalty. In the context of sustained high mineral prices, the mining fiscal regime could be gradually more progressive, so that public revenues increase with profitability, particularly during commodity booms, without discouraging investment (IMF, 2022[26]; IMF, 2025[12]). Norway’s experience in taxing economic rents from oil and gas through a resource rent tax offers relevant lessons for Peru, demonstrating how a transparent, well-designed regime can raise substantial revenues while preserving investment incentives. Chile, for example, has recently strengthened the progressivity of its mining tax system by linking rates more closely to operating margins, while introducing a cap on the total tax burden to maintain investment incentives. Efforts to formalise small-scale mining and combat illegal extraction are also needed to increase revenues sustainably and creating a more predictable environment for investment. This should be accompanied by policies to improve the sector’s competitiveness and environmental sustainability (Chapter 4), while strengthening the framework for intergovernmental transfers to ensure that resource revenues are effectively used for local development without undermining fiscal discipline, as argued below and in the 2023 OECD Economic Survey.
1.5.4. Increasing personal income tax revenues and addressing informality
In the medium term, there are also opportunities to broaden the personal income tax base while boosting formalisation incentives, as discussed in the 2023 Economic Survey of Peru. The system is characterised by a narrow tax base with the burden concentrated on a small percentage of formal workers (20%), while a vast majority of potential taxpayers remain outside the system due to very high labour informality (over 70% of the labour force) and a relatively high personal income tax threshold where taxpayers start paying personal income tax (Figure 1.15). Improving labour inspection to ensure respect and enforcement of labour rights would help reduce informality and strengthen the tax base (see Chapter 3).
The reform could combine a gradual lowering of the personal income tax threshold with a shift in social security contributions from the current firm-size-based system to one linked to individual labour income, enhancing progressivity and reducing informality (see Chapter 4). Lowering the entry tax rate, currently at 8%, could ease the transition into the income tax system, while a revision of the top marginal tax rates would support greater progressivity of the tax system. Progressive social security contribution based on labour income would reduce incentives for firms to remain small or informal and support labour formalisation, particularly for low-income workers. The combined effect of this reform would be progressive, because those newly subject to the personal income tax would have higher incomes than those benefiting from a more progressive contribution structure, ensuring the overall progressivity of the reform. By reducing informality, this reform would also boost productivity and growth. Additionally, limiting or eliminating deductions and reducing tax expenditures that primarily benefit high-income individuals, by, for example, eliminating the non-taxation of the mandatory severance savings, would reduce opportunities for tax avoidance and the gap between statutory and the effective rates. Tax exemptions for private spending on health and education should also be reviewed, which often benefit disproportionately high-income groups.
Note: LAC is a simple average of Argentina, Brazil, Chile, Colombia, Costa Rica, and Mexico. Panel B: Data refer to the year 2024 for Peru (calculations are based on a monthly average labour income PEN 1 765.9 at national level in 2024; the threshold to start paying personal income taxes is PEN 37 450 annually), to the year 2020 for Argentina and Brazil, and to the year 2022 for other countries.
Source: (Acosta Ormaechea, Pienknagura and Pizzinelli, 2022[27]); OECD, Taxing wages 2023.
Reforming the unequal treatment of labour and capital income would further strengthen the equity and revenue-raising capacity of Peru’s personal income tax system. Capital income (first and second category) is taxed at a flat 5%, while labour income is subject to progressive rates from 8% to 30%, creating a regressive bias. This is especially true given that high-income individuals in Peru earn a large share of their income from capital. For comparison, dividend withholding taxes average around 18% across OECD countries, and some tax capital income under the progressive personal income tax regime. Aligning Peru’s treatment of capital income more closely with labour income would reduce inequities and increase effective taxation at the top.
1.5.5. Improving revenue collection from property, environmental and excise taxes
Property tax revenues were 0.3% of GDP in 2023, one of the lowest in Latin America, and well below the OECD average of 1%, as highlighted in the 2023 Economic Survey of Peru. This weak performance stems from outdated property registries and valuation methods and widespread informality in land ownership. Updating the cadastre and valuation mechanisms, such as implementing a national multipurpose cadastre like Colombia's, can enhance property tax revenues and support land tenure formalisation. Moreover, strengthening local administrative capacities and enforcement mechanisms, would improve tax collection.
Environmental tax revenues remain limited in Peru, accounting for only 0.6% of GDP in 2022, compared to 2.1% of GDP on average in OECD countries. Peru does not levy an explicit carbon tax; the fuel excise tax acts as an implicit carbon tax but covers only about 25% of GHG emissions and exempts gas-based fuels. Current excise rates also differ between fuels, with diesel generally taxed at a lower effective rate per ton of CO₂ emissions than petrol, weakening environmental signals. Strengthening environmental taxation would require broadening the tax base to include gas fuels, aligning diesel and petrol taxation with carbon content, and introducing an explicit carbon tax. These reforms would better internalise environmental costs, reduce distortions, and raise additional revenues (see Chapter 4).
There is also room to improve collection from excise taxes. Peru has introduced a 1% excise tax on online gaming and sports betting, but collection on excises taxes remains low at 1% of GDP in 2022, compared to 1.8% of GDP on average in Latin America (OECD et al., 2024[28]). Increasing taxes on alcohol, tobacco, and sugar-sweetened beverages can enhance revenue and improve public health by reducing consumption of harmful products. Applying taxes on alcoholic beverages based on their alcohol content, without any preferential treatment, would also help strengthen excise revenue collection and promote healthier consumption patterns.
Peru should continue adopting good tax practices, especially those aimed at combating domestic and international tax avoidance and evasion. Since joining the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) in 2017 and the two-pillar solution on digital taxation in 2021, Peru is now aligning Double Taxation Agreements with OECD standards to prevent tax avoidance, treaty abuse, and improve dispute resolution. The recent approval in Congress of the BEPS Multilateral Instrument is a positive development in this direction. Peru should swiftly address recommendations from the Global Forum on Transparency and Exchange of Information for Tax Purposes to further reduce cross border tax evasion. Peru should also update its transfer pricing regulations to reflect evolving global standards and address new challenges in international trade. While recent reforms introduced alternative valuation methods and provisions for the rollback of bilateral Advance Pricing Agreements from 2025, ongoing updates are needed to counter increasingly complex tax avoidance strategies.
Improving the efficiency of public spending is essential for Peru to meet social and infrastructure spending needs while ensuring fiscal sustainability. Peru’s historically low tax revenues make it especially important to ensure public resources are used effectively. Gains in efficiency can also help rebuild public trust and increase support for broader fiscal reforms. However, despite recent efforts, inefficiencies remain significant – especially at the subnational level – and were estimated at around 2.5% of GDP annually in 2017 (Izquierdo and Pessino, 2018[29]).
Given fiscal constraints and low revenues, Peru faces a dual challenge: it must significantly increase spending in education, health, and social assistance to close development gaps, while also improving efficiency of existing spending. First, social spending must be better aligned with long-term economic growth and social development, ensuring funds effectively reach those who need it most. Second, avoiding inefficient allocations by addressing weaknesses in the budget process and improving public investment management. Strengthening performance-based budgeting and spending reviews can help improve budget accountability and effectiveness. Finally, improving the rule of law and reducing corruption is key to ensure public resources are used effectively and equitably. Strengthening administrative capacity is also vital to ensure effective implementation and enforcement of all reforms.
Improving spending efficiency will be necessary but not sufficient to close Peru’s development gaps. Even with significant gains in efficiency, public revenues remain too low to meet future spending needs, underscoring the need to pair efficiency reforms with efforts to broaden the tax base, as discussed above.
1.6.1. Key priorities for increasing and improving social spending
Education: aligning spending with outcomes
Public education spending in Peru is 4.2% of GDP in 2024, below the OECD average of 5.1% but represents a larger share of spending than the average LAC and OECD economy (Figure 1.16, Panel A). Yet learning outcomes remain weak compared to OECD countries (Figure 1.16, Panel B). Early childhood education remains underfunded, despite strong evidence showing high returns on investment in the early years. The quality of teaching and inadequate educational infrastructure from early years to secondary education remain major challenges (see Chapter 3). While recent reforms have focused on expanding university access and increasing higher education spending, a more effective strategy would be to reallocate resources to early childhood interventions and better target resources to the most underperforming regions, as already highlighted in the 2023 OECD Economic Survey of Peru. Additionally, introducing performance-based funding tied to learning outcomes would help align spending with education results. However, given the scale of the gaps, reallocations alone will not be enough. Increasing overall investment in education—particularly in early childhood education, teacher training, and educational infrastructure—is urgently needed to improve learning outcomes.
Health: addressing underfunding and regional disparities
Peru’s public health spending is only 4.2% of GDP in 2024, well below the OECD average of 9%, contributing to poor health outcomes, including a low life expectancy (Figure 1.16, Panel C). While health insurance coverage has expanded significantly (from 61% in 2009 to 97% in 2023), funding has not kept pace, leading to declining per capita spending contributing to overcrowded hospitals and long waiting times (Barco and Foinquinos, 2025[20]). The first level of care remains underfunded, with limited access to preventive and primary health services and large regional disparities persist in health personnel, infrastructure, and service availability between urban and rural areas (OECD, 2025[30]). Additional investment is essential to expand access to preventive and primary care, address critical infrastructure shortages, and reduce large regional disparities. Achieving universal, high-quality healthcare would require additional spending of 1.2% of GDP (Table 1.6), ideally financed through general taxation to avoid disincentives for formal employment as highlighted in the 2023 OECD Economic Survey of Peru. Reallocating resources toward strengthening the first level of healthcare, particularly in rural areas, would improve health outcomes and cost efficiency.
Social assistance: expanding coverage and targeting the most vulnerable efficiently
Peru’s social assistance programmes must balance coverage and fiscal responsibility. Income support to the working age population remains low, at around 0.2% of GDP, compared to an average of 3% of GDP in other OECD Latin American countries, according to OECD Social Expenditure database. In 2024, Peru allocated 0.9% of GDP to social programmes supporting vulnerable groups, including cash transfers, food assistance, and aid for the elderly. Many low-income households remain excluded due to budget restrictions (OECD, 2023[31]), while leakages result in benefits reaching many non-vulnerable households (Figure 1.17). For example, nearly 40% of recipients of non-contributory pensions are neither poor nor vulnerable (IMF, 2024[1]). To close protection gaps, better targeting is needed to reduce leakages and reach those in need. However, this alone will not suffice—higher budget allocations for social assistance will also be required. The 2023 Economic Survey of Peru highlights that improving coverage and adequacy would require transforming Juntos—the conditional cash transfer programme—into a guaranteed minimum income scheme at a cost of about 1.1% of GDP, and expanding non-contributory pensions at an additional cost of 1.5% of GDP (Table 1.6). Despite welcome efforts to improve targeting by enhancing the household registry during the COVID-19 pandemic, the registry remains incomplete and outdated. The goal is to expand the household registry to cover 77% of households by 2026, but by December 2023 it covered only 40% of households, with poor urban coverage. Adopting modern poverty mapping —such as satellite imagery, and mobile phone data—and expanding the registry using real-time income verification, digital tools like AI, and proactive field outreach through door-to-door visits or community engagement could improve coverage and targeting. Moreover, strengthening information systems by making them interoperable (such as inked administrative data with social registries and population surveys) would enhance programme efficiency and equity, while allowing the country to better adapt to emergencies, including weather shocks. Chile’s Social Information Registry offers a useful example, combining socio-economic and administrative data from multiple sources, including self-registration, to identify potential beneficiaries more effectively. Costa Rica’s SINIRUBE is another relevant model, integrating data from over 30 institutions to support social programme targeting, reduce duplication, and improve coordination.
Note: Panel A: Data for Peru refer to the year 2021; LAC is a simple average of Chile, Colombia, and Costa Rica. Panels B and C: LAC is a simple average of Argentina, Brazil, Chile, Colombia, Costa Rica, and Mexico.
Source: OECD National accounts; OECD Health statistics; and OECD PISA 2022.
Strengthening budget processes and planning
Weaknesses in the budget process undermine public spending efficiency by weakening project planning and limiting the ability to allocate resources where they are most needed. Continuous in year modifications of the budget – averaging a 22% increase between 2010 and 2019- lead to late-year spending spikes, rushed disbursements, and lower-quality investments, particularly in infrastructure, education, and health. For example, nearly 30% of annual public investment spending at the national level, and almost 70% at the subnational level, is not pre-defined in the initial budget. This undermines planning and delays project execution. In recent years, this pattern has eased as unspent balances from previous years are now included in the initial budget (PIA), reducing the scale of in-year budget increases: the modified institutional budget (PIM) rose by 17% in 2023 and 9% in 2024. A more credible multi-annual budgeting framework would improve continuity and align spending with strategic goals, rather than the current practice of not firmly committing resources beyond a single fiscal year. Budget rigidities also limit flexibility: most allocations repeat previous years’ allocations and are tied to specific funding sources. This limits flexibility in reallocating resources towards priority areas like health, education, and infrastructure (OECD, 2023[32]). The government has begun reducing in-year budget modifications, decoupling spending lines from specific funding sources, and implementing a multiannual budgeting framework, but continued efforts are needed.
Percentage of workers benefitting from non-contributory social protection
Note: Non-contributory social protection programmes include programmes providing universal health coverage and/or unconditional/conditional cash transfers (including non-contributory pensions). Income groups are defined by daily per capita income in USD: poor (≤6.85), near poor (6.85–15), middle class (15–70), and affluent (≥70).
Source: Estimates based on OECD (2021), Key Indicators of Informality based on Individuals and their Household (KIIbIH) (database), https://www.oecd.org/dev/Key-Indicators-Informality-Individuals-Household-KIIbIH.htm.
Performance-based budgeting has expanded to nearly half of the national budget (48% in 2023), but its impact is constrained by numerous, fragmented and often overlapping programmes, limited capacity to evaluate performance, and weak links to overall budget planning and strategic priorities. To strengthen performance-based budgeting, Peru could improve the monitoring and use of performance indicators, reduce and consolidate the number of budget programmes to focus on those with the greatest impact, and ensure a better link with strategic planning.
Public spending reviews remain rare in Peru despite their potential to improve allocation. Peru has conducted public spending reviews in coordination with the World Bank in 2003 and 2017. To successfully pursue spending reviews OECD experience suggests that Peru will need to improve its governance, set up clear objectives for the reviews, foster cooperation between line ministries and carve out high level political support (Tryggvadottir, 2022[33]). Establishing a steering committee of senior officials and a working group comprising relevant officials from the Ministry of Finance and line ministries will also help. Moreover, Peru needs to integrate spending assessments into the government budget planning, particularly within its medium-term framework, to promote spending transparency and help reduce wasteful spending, aligning with OECD best practices. Setting clear targets for spending cuts or reallocation measures has proven to be a key success factor in OECD countries, as it facilitates monitoring when implementing the results of the spending review. Spending prioritisations and reallocations will become increasingly important as population ageing will gradually put further pressure on some categories of social spending, particularly pensions.
1.6.2. Improving public investment efficiency
Peru invests more in public investment (5.2% of GDP in 2024) than the OECD average (3.5% of GDP), however, the quality and efficiency of investment remains poor (Figure 1.18). Up to 40% of public investment could be used more effectively without increasing expenditure (Barco and Foinquinos, 2025[20]). Peru ranks below OECD and regional peers in infrastructure quality, particularly in transport and logistics. Peru’s infrastructure gap was estimated at 50% of GDP in 2019; reflecting the investment needed to bring infrastructure quality up to OECD averages across most sectors and to regional standards in domestic transport (MEF, 2019[34]).
Note: LAC is a simple average of Brazil, Chile, Colombia, Costa Rica, and Mexico. Data on public investment refer to the year 2024 (Peru), 2023 (Costa Rica, Mexico), 2022 (Chile, Colombia), and 2021 (Brazil). Data on infrastructure quality refer to the year 2019.
Source: OECD Government at a Glance indicators; BCRP; World Economic Forum, Global competitiveness index.
Investment project planning and evaluation require reform. Although Peru has a National Infrastructure Plan, it is weakly linked to project selection and the multi-annual budget framework, as highlighted in the 2023 OECD Economic Survey of Peru. It also lacks systematic incorporation of climate resilience and environmental sustainability criteria in project selection and design (Chapter 4). Projects are not assured funding across years, with each fiscal year requiring re-justification and allocation of resources for continuing projects, resulting in delays and inefficiencies. Implementing multi-year budgeting linked to the infrastructure plan would allow the government to commit resources to investment projects over several years, providing predictability.
Subnational governments manage over half of public investment projects and execute over 30% of total public spending (OECD, 2023[31]), but often face low budget execution rates, particularly for infrastructure. A key issue lies in the design of intergovernmental transfers, which are the main source of subnational revenue. Intergovernmental transfers are largely discretionary and based on inertia rather than need or performance (Barco and Foinquinos, 2025[20]). Formula-based transfers have complex distribution mechanisms that lack transparency, overlook fiscal capacity, and do not usually include performance-based incentives. A recent reform introduces per capita fiscal capacity into the FONCOMUN, the main municipal equalisation fund, allocation formula to better target small, resource-poor municipalities, and foresees a gradual increase in its funding for capital expenditures starting in 2026 linked to minimum requirements. However, as the increase is financed with central government resources, it implies a significant redistribution of funds across levels of government. To address concerns about the weak administrative and technical capacity of many local governments to use the additional resources effectively, the “Punche Gerente” programme to support municipalities with professional managers is being reinforced.
Formula-based transfers also create perverse incentives, encouraging the creation of new small municipalities to access more funds (Barco and Foinquinos, 2025[20]). Their limited size also makes them insufficient to counterbalance the significant territorial disparities driven by the concentration of canon and royalties revenues in resource-rich regions. Transfers should be simplified and linked to socioeconomic needs and performance, as recommended in the 2023 OECD Economic Survey for Peru (Table 1.4). In parallel, giving regional governments more tax collection powers, while reducing discretionary transfers, would increase accountability and strengthen incentives for higher quality investment, especially if accompanied by efforts to reduce informality, improve cadastres, and strengthen subnational tax administration capacities.
Small, fragmented municipalities often lack technical capacity, leading to disperse and low-impact projects, and more generally lead to limited administrative capacity to implement reforms. High turnover among officials and a shortage of technically skilled personnel have further hindered effective coordination between regional and local governments. Strengthening local technical and administrative capacities, offering incentives for municipal consolidation, stronger coordination across government levels, and clearer definition of responsibilities across levels of government would improve public service delivery.
Project evaluation suffers from low-quality technical studies and poor oversight. Technical studies are often produced by the same entity that approves them, leading to poor project selection (World Bank, 2025[2]). Many investment projects lack rigorous cost-benefit analysis leading to misallocated funding and low returns (Barco and Foinquinos, 2025[20]). Following international best practices, project selection should be guided by standardised cost-benefit analysis aligned with a national infrastructure strategy (Box 1.3). To improve quality control, project formulation, evaluation and approval should be carried out by separate entities, rather than being concentrated within the same entity, as is currently the case. At least for large and complex projects, independent reviews and quality filters should be introduced during the formulation phase to ensure evaluations follow a value-for-money approach. The newly created Organism for Investment Project Design and Studies (OEDI), established in 2024 under the Council of Ministers, aims to improve the quality of pre-investment studies and technical designs for medium-complexity projects at the regional and local levels. The creation of real-time digital monitoring platforms could improve transparency and accountability, by tracking project approval, execution, and financial performance. The Autoridad Nacional de Infraestructura (ANIN), created in 2023, was established to centralise and accelerate the execution of large-scale public investment projects by providing stronger technical capacity and oversight. While the consolidation of investment programmes under ANIN aims to improve efficiency and reduce duplication, its current institutional design does not fully separate project formulation from evaluation and approval. Also in 2023, the Advisory Commission for the Development of National Infrastructure was created to strengthen infrastructure governance—particularly for PPPs—by issuing proposals and recommendations, inspired by the UK’s National Infrastructure Commission. Implementing the National Digital Transformation Policy would help streamlining administrative procedures and developing digital public key infrastructures.
Public procurement, accounting for nearly 50% of public spending, is a major driver of inefficiencies in public investment. Weak transparency, excessive bureaucracy, and insufficient competition in bidding processes result in higher costs, project delays, and suboptimal public service delivery. A new public procurement law coming into force in April 2025, introduces major reforms aligned with OECD recommendations (OECD, 2017[35]). Key changes include a shift from price-based selection criteria to a "value for money" approach, the professionalisation of procurement officials, the introduction of new contracting modalities, and the integration of digital procurement systems under a new digital platform. The law also introduces new standards as integrity pacts (an ethical and mandatory commitment signed by contractors to promote transparency), anticorruption clause, performance evaluation tools to monitor supplier reliability and project execution, enhancing accountability, oversight initiatives, whistleblowing and compliance. Additionally, the law includes the regulation of minor contracts, those for small purchases with easier selection process in which suppliers are invited directly, that is expected to reduce discretionary spending and corruption risks while allowing small-value purchases to remain flexible.
Effective implementation will require a clear roadmap, strong enforcement, enhanced coordination between agencies, and ongoing evaluation (Barco and Foinquinos, 2025[20]). Publishing regular procurement reports could improve transparency, accountability, and decision-making by tracking progress and identifying inefficiencies. Strengthening procurement as a standalone profession through training, certifications, and civil service integration is crucial for long-term improvements.
Strategic planning and prioritisation: A national investment strategy should align projects with long-term economic and social goals. Countries like the UK have established independent commissions to evaluate infrastructure needs and advise on investment priorities, ensuring that decisions are based on technical rather than political consideration.
Ex-ante evaluation and project selection: Ex-ante evaluations assess project feasibility, risks, and expected outcomes before approval. In South Korea, Japan, and Chile, ex-ante evaluations are conducted by independent agencies. The most used evaluation method is social cost-benefit analysis. However, when benefits are difficult to quantify, cost-effectiveness and multi-criteria analysis are applied. In the UK, the "Green Book" guides investment appraisal across all government ministries, integrating economic, social, and environmental assessments. South Korea uses an analytical hierarchy process combined with regional balance considerations to prioritise projects. Many countries apply proportionality principles, setting different evaluation thresholds based on project cost and complexity.
Monitoring, evaluation, and accountability: Real-time project monitoring systems help track progress, control costs, and prevent inefficiencies. Countries such as Canada and Sweden have integrated digital tracking tools to improve public investment oversight. Ex-post evaluations, such as Japan’s Government Performance Evaluation System, assess project effectiveness and guide future decisions. Public reporting and citizen participation platforms, like those used in New Zealand and Finland, increase transparency and trust in investment projects.
Strengthening institutional capacity: Effective investment management requires skilled personnel in government agencies. In many Latin American countries, particularly at the subnational level, municipalities lack technical expertise. Countries like Chile and South Korea invest in specialised training for officials handling project formulation and evaluation.
1.6.3. Reducing and preventing corruption
Corruption significantly hinders Peru's economic and social progress by weakening government effectiveness, eroding institutional trust, and limiting the delivery of quality public services. It impairs law enforcement, distorts public spending priorities, and fosters organised crime. High-profile scandals involving public officials and private sector actors have exposed vulnerabilities in public procurement, infrastructure contracts, and political financing. In 2023, corruption affected 12.7% of public spending (2.4% of GDP), with higher shares in public investment (17.5%) and at local (13.1%) and regional (15.4%) government levels (CGR, 2024[39]). The OECD Public Integrity Indicators results from 2023 place Peru above the OECD average in both the minimum content and the coverage of its strategic framework, reflecting the ambition of its national policy on integrity and anti-corruption (Figure 1.19). However, enforcement gaps, weak internal controls, and persistent integrity risks, particularly at the subnational level, continue to challenge the effectiveness of these policies (OECD, 2024[40]).
Peru's efforts to strengthen its anti-corruption framework face significant challenges due to enforcement gaps and coordination issues among public integrity institutions responsible for prevention, detection, and sanctioning of corruption (OECD, 2024[41]). Despite the establishment of the Integrity Model and Institutional Integrity Offices, their implementation is inconsistent, particularly in municipalities with limited administrative capacity and oversight. A pilot project to implement the Integrity Model began in 2023 with fewer than 30 municipalities, expanded to 41 in 2024, and it is expected to reach at least 100 municipalities in 2025. Since 2024, Peru has taken steps to strengthen regional anti-corruption coordination, including issuing 115 recommendations to regional commissions, expanding training, launching a digital monitoring system, and increasing technical assistance, though implementation remains uneven and ongoing in many regions. This is exacerbated by limited inter-institutional coordination, leading to fragmented anti-corruption efforts. Peru could benefit from establishing a comprehensive National Integrity and Transparency System to improve coordination among public integrity institutions and subnational governments, strengthen oversight mechanisms, and ensure effective implementation of integrity policies at all levels of government, thereby improving the fight against corruption. Ensuring the proper functioning of this system requires strengthening complementary elements, linked to internal control reforms and advancing the civil service reform (OECD, 2024[40]). OECD Public Integrity Indicators show that Peru meets only four criteria on internal control and risk management and lacks a central body to coordinate and oversee internal control and audit activities. A dedicated administrative system—led by a new national authority—could be established to design and standardise preventive anti-corruption measures, creating a second line of defence within public entities. This system must function independently from the National Control System and the Supreme Audit Institution (SAI).
Fully implementing the civil service reform is crucial to reduce corruption, but also to enhance public spending efficiency and strengthen subnational government technical and administrative capacities as discussed above. There have been renewed efforts to advance civil service reform, notably through a 2023 legislative decree that simplified procedures, mandated implementation in the Executive Branch, and introduced enforcement tools, but full implementation will require sustained political commitment and coordination across all levels of government. Strengthening administrative capacity will also require investing in digital systems, improving human resource management, building skills through targeted training, and enhancing data use for planning and oversight. Furthermore, simplifying administrative procedures, reforming public procurement, decentralisation, and ensuring effective judicial enforcement are all critical for a comprehensive anti-corruption strategy.
Peru's constitution safeguards judicial independence, yet challenges persist. Current appraisal and evaluation processes and the high reliance on provisional judges compromises judges' independence and impartiality, while affects the consistency and quality of judicial decisions (OECD, 2024[40]). In 2024 and 2025, the National Justice Board issued several calls to appoint permanent judges and prosecutors, aiming to reduce this reliance and strengthen the judiciary’s stability. The lack of coordination among various judicial bodies leads to inefficiencies and vulnerabilities to external pressures. Enhancing the autonomy of judicial institutions, improving their coordination and establishing robust oversight mechanisms is essential to prevent undue influence and to uphold judicial integrity and accountability. Recent legislative proposals concerning cooperation agreements and asset forfeiture have raised concerns among prosecutors about their potential to hinder anti-corruption efforts (OECD, 2025[42]). Additionally, limited expertise in financial crime investigations, and weak case management systems hinder corruption prosecutions, as already highlighted in the 2023 OECD Economic Survey of Peru (Table 1.5).
Regulating and ensuring transparency in lobbying and political finance can enhance public spending efficiency and reduce corruption. By reducing policy capture by special interests, these measures can help align public expenditures with the broader public interest, preventing the diversion of resources for private benefit. Peru has improved political financing transparency by banning anonymous donations and foreign contributions, performing slightly above OECD averages on political finance regulations according to the OECD Public Integrity Indicator. However, the National Office for Electoral Processes (ONPE) lacks sufficient capacity to audit campaign finances and enforce compliance, particularly at the subnational level, where illicit financing risks remain high (OECD, 2023[31]), and not all political parties have submitted their accounts within the timelines defined by national legislation. A 2019 reform criminalised illegal political financing, but weak enforcement due to resource constraints undermines its impact. Strengthening ONPE’s auditing powers, enforcing illegal campaign finance regulations, and increasing the capacity of prosecutors and judges to investigate and sanction violations remain key priorities.
Peru’s lobbying regulations perform above OECD average in the OECD Public Integrity indicators but lack comprehensive oversight. The 2018 lobbying law update introduced new requirements but faces implementation gaps. There is no central authority to oversee compliance, no unified lobbying register, and no available information on investigations or sanctions. Disclosure obligations only apply to face-to-face meetings, excluding written communications and indirect lobbying. Strengthening oversight, creating a comprehensive register, expanding transparency obligations and supervision of lobbying activities are needed to reduce undue influence in policymaking, as already highlighted in the 2023 Economic Survey.
Note: Panel B shows the point estimate and the margin of error. Panel D shows ratings from the FATF peer reviews of each member to assess levels of implementation of the FATF Recommendations. The ratings reflect the extent to which a country's measures are effective against 11 immediate outcomes. "Investigation and prosecution¹" refer to money laundering. "Investigation and prosecution²" refer to terrorist financing. LAC is a simple average of Argentina, Brazil, Chile, Colombia, Costa Rica, and Mexico.
Source: Panel A: Transparency International; Panels B: World Bank; Panel C: OECD Public Integrity Indicators (database); Panel D: OECD, Financial Action Task Force (FATF).
Medium term risks to fiscal sustainability are rising, underscoring the need for prudence. Commitments to expand spending – particularly pensions and climate adaptation – are not currently matched by new sources of revenue. In 2024, Congress approved a major pension reform without a clear financing plan, which the Fiscal Council (2024[43]) warned will significantly increase fiscal costs by about 0.4% of GDP in the short-term (Box 1.4). The National Adaptation Plan 2021–2030 estimates climate adaptation spending needs of around 0.7% of GDP per year, while current spending is only 0.2% of GDP (see Chapter 4). OECD projections suggest that, without further policy action, Peru’s public debt ratio will keep increasing significantly, when accounting for already committed spending needs for pensions and climate adaptation (Figure 1.20, red line).
Broader pressures on public finances are also mounting. A 2022 ruling from the Constitutional Court broadened the scope for legislative involvement in fiscal matters. While the 1993 Constitution limits Congress’s authority to increase spending or approve tax benefits without prior analysis from the Ministry of Finance, the ruling allows such initiatives if their fiscal effects apply to future budgets. This has contributed to more frequent fiscal policy proposals from various political actors.
Several recent initiatives risk creating permanent spending commitments without clearly identified financing. For instance, the creation of 20 new universities and expanded public sector benefits carry long term costs (CF, 2024[44]; CF, 2025[18]). Additional measures that erode the tax base stem from current proposals to expand tax-exemptions, such as for special economic and tourist zones. As of May 2025, there are at least 242 bills in Congress with negative fiscal impacts: 42 would reduce public revenues (including 32 granting new tax benefits), 184 would increase public spending, and 22 would affect subnational finances. Most lack cost assessments. In parallel, large on-going infrastructure projects, including those under public-private partnerships and government-to-government contracts could generate fiscal commitments estimated at up to 19% of GDP (CF, 2024[43]). Continued fiscal support to Petroperú remains a major risk unless credible strategy is implemented to restore Petroperu's viability, in line with OECD Guidelines on Corporate Governance of State-Owned Enterprises, and for example integrate Petroperú under FONAFE’s ownership framework, as recommended in the 2023 Economic Survey. FONAFE is the public holding company that oversees most Peruvian SOEs and is broadly aligned with OECD best practices, but its mandate and capacity should be strengthened to enhance strategic ownership, professionalise board appointments, and implement performance-based oversight more effectively.
These mounting pressures significantly increase the risks to the sustainability of public finances in the absence of offsetting measures. A firm and credible commitment to prudent fiscal management is needed to safeguard macroeconomic stability, protect investment-grade credit ratings, and preserve the country’s capacity to respond to future shocks. Without such commitment, Peru risks eroding the robust and rules-based macroeconomic framework for which it has long been recognised.
At the same time, Peru needs to increase public spending to achieve a more sustainable and inclusive growth (Table 1.6). Achieving net-zero emissions by 2050 (see Chapter 4), improving education outcomes, strengthening social protection, including expanding non-contributory pensions, increasing health sector funding to improve coverage and service quality, and broadening the reach and adequacy of the Juntos conditional cash transfer programme, will require higher spending, as already highlighted in the 2023 OECD Economic Survey of Peru. Achieving this while keeping debt in a sustainable path will require ambitious efforts to raise tax revenues and improve spending efficiency (Figure 1.20, orange line), and as discussed in detail in the previous sections. An ambitious package of structural reforms to enhance growth – such as strengthening the rule of law, reducing informality, enhancing education - would support a faster return of the debt ratio to the 30% target by 2040 (Figure 1.20, green line, and Table 1.7).
In late 2024, Congress approved the Modernisation of the Pension System Law, introducing a four-pillar model to improve coverage and adequacy. The implementing regulation expected for the second half of 2025. Key changes include:
Contributory pillar: Mandatory enrolment in either the public (pay-as-you-go) or private (pension funds) scheme, with automatic enrolment in the public scheme by default. The public scheme will transition to a notional defined contribution model by 2030. Self-employed workers—who were previously not required to contribute—will be mandated to contribute 2% of their income, gradually increasing to 5% starting in the third year after the implementing regulation is published, while employees will continue contributing 13% in the public scheme and 10% to the private scheme plus fees and insurance. The retirement age remains 65, but with periodic revisions. Extraordinary early withdrawals from private pension funds are forbidden.
Semi-contributory pillar: A minimum pension is raised, and equalised across schemes, to PEN 600 (53% of the minimum wage) for those with over 20 years of contributions but without sufficient savings, with proportional benefits for those with 10–19 years; this minimum benefit includes government subsidies.
Non-contributory pillar: Gradual expansion of Pension 65 to all elderly in poverty, with benefits capped at 25% of the minimum pension, subject to budget availability.
Voluntary pillar: Includes a state-funded supplementary contribution equal to 1% of the value of electronic purchases made with an electronic sales receipt linked to the contributor’s national ID, with two caps: per purchase and annual spending. Also provides, subject to budget availability, a state-funded matching contribution for low-income affiliates, up to a fixed annual cap.
This reform aligns with several OECD recommendations: mandatory enrolment, higher minimum pensions and expanded non-contributory pensions. However, it does not fully resolve low coverage due to informality and infrequent contributions and non-contributory pensions remain inadequate. Further measures are needed to expand coverage, raise benefit adequacy, and strengthen incentives for formalisation, such as proportional pension benefits for contributors with under 10 years for those in the public scheme and progressive contributory rates (lower for low-income workers), accompanied by a universal minimum pension, as already highlighted in the 2023 OECD Economic Survey of Peru. Better integration of public and private schemes would also improve the system, more precise rules for updating the minimum pension and effective enforcement of the ban on extraordinary withdrawals (see Chapter 2).
The estimated fiscal costs of the pension reform
The reform introduces significant fiscal costs (CF, 2024[45]). One of the main cost drivers is the higher minimum pension, which will also cover individuals who withdrew funds from their private pension funds (see Chapter 2) and independent workers contributing at a lower rate than formal employees. The consumption-based contribution may cost 0.2-0.3% of GDP annually. Additionally, an increase in benefits for the military and police pension system is estimated to cost PEN 3 billion (USD 0.83 billion). Combined, these reforms are expected to cost approximately 0.4% of GDP in the first year of implementation, nearly doubling in 20 years and tripling beyond 2060. Actual costs may be higher, as current estimates omit the need to adjust benefits to maintain purchasing power.
Non-financial public sector gross debt as a % of GDP
Note: The base scenario reflects existing tax policies and spending commitments, incorporating OECD fiscal forecasts for 2025 and 2026, and projects primary spending to be 0.9 percentage points of GDP higher from 2026 onward accounting for the pension reform and adaptation spending in line with the plan. It assumes real GDP growth and inflation to follow OECD projections over 2025-26 as in Table 1.1, after that real GDP growth gradually converges to a potential output growth of 2.8%; the inflation rate is assumed at the target of 2%. The fiscal reforms scenario assumes a gradual increase in primary expenditure, financed through the progressive implementation of tax and spending efficiency reforms, as outlined in Table 1.6. The growth enhancing reforms scenario assumes the implementation of an ambitious package of selected structural reforms consistent with recommendations in Table 1.7. In all scenarios the evolution of the interest rate paid on new debt issued is a function of the 10 years US sovereign yield and a risk spread that depends on the ratio of debt-to-GDP. All scenarios account for ageing-related costs (Pessino and Ter-Minassian, 2021[46]).
Source: OECD calculations.
Note: This exercise illustrates possible ways Peru could raise and allocate additional tax revenues. This is not an exhaustive list of policy recommendations to be implemented, and actual revenues and spending will depend on the specific reforms adopted. Estimates draw on various sources in the literature and assume that only part of the gaps are closed. For instance, less than half of current tax evasion and spending inefficiencies are reduced. For recurrent taxes on immovable property 80% of the gap is closed relative to the OECD benchmark. The fiscal costs of improving social protection were analysed in detail in the 2023 OECD Economic Survey of Peru. This includes estimates of the budgetary impact of universalising the non-contributory pension programme, increasing health sector funding to improve coverage and service quality, and broadening the reach and adequacy of the Juntos conditional cash transfer programme.
Source: OECD estimates.
Illustrative estimated impact of selected reforms on potential GDP by 2050 relative to the baseline
Note: Simulations based on the OECD long-term growth model (Guillemette and Château, 2023). Potential output estimation is based on a Cobb-Douglas production function with constant returns to scale based on the OECD long-term growth model. Scenario 1 assumes closing two-thirds of the female employment gap by 2060. Scenario 2 aligns student performance and educational attainments with the OECD average by 2050. Scenario 3 assumes a gradual alignment of the Rule of Law index with the first quartile of OECD countries by 2060. Scenario 3 assumes the OECD PMR indicator reaching the top 5 of OECD countries by 2030. Scenario 4 assumes a reduction in the size of informal economy (as a share of GDP) by 2 percentage points from 18% of GDP in 2021 based on estimations on the impact of total factor productivity by (IMF, 2022[47]). The combined impact of reforms could in fact be larger than the sum of individual scenarios, due to positive interactions across policy areas that reinforce each other’s effects on potential output.
Source: Simulations using the OECD long-term model (Guillemette and Château, 2023).
Peru’s fiscal framework has played an important role in promoting fiscal discipline over the past two decades, but it is now time for a comprehensive review to strengthen its effectiveness. Fiscal rule compliance has varied over time: between 2000 and 2019, the deficit and expenditure rules were met on 30% and 45% of the time when measured against the medium-term target (e.g. a fiscal deficit of 1% of GDP). Compliance with the deficit rule rises to 75% when measured against operational targets (Mendoza et al., 2021[48]; FisLac, 2024[49]). Since the pandemic, compliance has deteriorated, with recurring deviations from fiscal rules and changes in the operational fiscal targets (FisLac, 2024[49]), raising the need for a review of the framework’s design to enhance both compliance and credibility. While reforms to the fiscal framework could strengthen its effectiveness, no rule or framework can substitute for a genuine and sustained commitment to prudent fiscal management, which remains the backbone of a strong macroeconomic framework.
Reforms could include reviewing the adequacy of the current deficit target and debt ceiling to ensure they remain appropriate for current conditions. This may involve shifting the framework’s anchor from the 30% of GDP debt ceiling to a prudent debt ceiling aligned with structural economic fundamentals, defined as the highest debt level consistent with long-term fiscal sustainability and economic growth—that is, at some distance below the maximum debt level that can be maintained without triggering rising borrowing costs, losing market access, or undermining future growth. Such an adjustment would make compliance more achievable, while strengthening the credibility of the fiscal framework, and improving its role in guiding fiscal policy. Operational targets, such as the fiscal deficit or expenditure, should be consistent with this prudent debt level, ensuring fiscal policy adjustments align with long-term debt sustainability. Something similar has been done recently in Chile or the European Union.
Simplifying the set of rules could improve clarity and compliance, while strengthening escape clauses, with clear activation criteria, deviation durations and return paths, would improve transparency, flexibility and compliance. Moreover, Peru frequently modifies its operational fiscal targets, undermining the credibility of the framework; better-defined escape clauses would reduce the need for ad hoc adjustments. Peru’s fiscal framework, while based on observed variables, incorporates elements that emulate a structural rule—for example, linking current spending growth to potential GDP to smooth expenditure over the cycle. However, given Peru has one of the most volatile terms of trade among OECD countries, adopting structural operational targets that adjust for commodity price fluctuations, such as copper prices—such as the framework used in Chile (Box 1.5)—could help strengthen compliance and enhance credibility. Over-optimistic growth and revenue forecasts have contributed to unrealistic fiscal targets and subsequent non-compliance or changes in operational targets. Fiscal credibility also depends on better planning and transparency. Improving the transparency of forecast assumptions and sources of fiscal rule non-compliance and target modifications would support more credible and forward-looking policymaking. Extending the medium-term fiscal framework horizon beyond three years would support better medium-term fiscal planning.
Chile’s fiscal framework is anchored in a structural balance rule that adjusts government revenues for fluctuations in economic activity and copper prices—the country’s main export. To determine the structural revenues each year, two independent expert committees estimate the long-term trend of non-mining GDP and a reference copper price. Since 2023, a third committee provides a reference price for lithium, improving the framework’s ability to manage revenue volatility from this increasingly important export. Based on these estimates, the Ministry of Finance defines a spending limit consistent with the structural balance target. The structural target is operationalised to achieve a prudent level of public debt over time. Compliance with the rule is monitored by the independent Fiscal Council, which evaluates the government's adherence to the structural balance target, the use of assumptions, and the transparency of fiscal reporting. Deviations from the structural target are allowed only under exceptional and transparently reported circumstances and must be justified publicly in the fiscal policy decree and quarterly public finance reports.
Peru implemented structural fiscal rules between 2015 and 2016. This framework introduced a non-financial government spending rule, supported by an ex-ante structural balance estimation for the non-financial public sector. It aimed to isolate transitory components in GDP and commodity-linked revenues to enhance predictability and stability in public spending.
International experience shows that, when well-designed and supported by strong institutions, structural rules can improve fiscal discipline and credibility. Norway, for example, uses a structural non-oil fiscal balance rule linked to the expected return on its sovereign wealth fund, helping ensure long-term fiscal sustainability. Switzerland’s debt brake rule, which adjusts for the business cycle, has kept public debt low and stable. These examples highlight the importance of simplicity, transparency, and independent oversight in making structural rules both credible and enforceable.
The Fiscal Council, established in 2013 and operational since 2016, has quickly established itself as an independent and credible source of fiscal analysis. It plays an important role in promoting sound fiscal policy by independently assessing macroeconomic forecasts, fiscal plans, and compliance with fiscal rules. The Council is well aligned with OECD’s Principles for Independent Fiscal Institutions, particularly in areas of local ownership, independence, non-partisanship and transparency. Further alignment could be achieved by formalising access to information through memoranda of understanding and undertaking an external evaluation. Strengthening regular engagement with Congress—such as through hearings on its main assessments—would also help reinforce the Council’s role in the budget process and inform fiscal debate. The Council’s communication could also improve by making its analysis more accessible to non-technical audiences and increasing media engagement. Protecting its budget from political pressure requires creating a separate budget line, independent from the one for the Ministry of Finance, and introducing multi-annual financing. Strengthening the Council’s role may involve conducting cost estimates of selected new policy proposals, deepening its analysis on long-term fiscal sustainability, and analysing regional public finances, where regional fiscal rules exist but are not subject to independent oversight (OECD, 2023[50]). Expanding responsibilities must be matched with dedicated budget and sufficient staffing to ensure the council has the technical capacity to produce high-quality, independent analysis (Caldera Sánchez et al., 2024[51]; von Trapp and Nicol, 2017[52]). Furthermore, the Council’s findings could carry more weight in the policy process. While the government publishes a response to the Council’s opinion on the annual Budget, this good practice should also apply to the mid-year budget review, which currently lacks both an annexed opinion and a formal reply.
Rebuilding Peru’s fiscal buffers is vital for crisis preparedness and for reinforcing rule credibility. The Fiscal Stabilisation Fund (FEF), designed to save windfall revenues, played a key countercyclical role during past crisis, such as the strong El Niño in 2017 and Covid-19. However, its balance has declined to 1.1% of GDP, well below pre-pandemic levels. With rising copper demand expected from the global energy transition, Peru has an opportunity to strengthen its fiscal buffers. The FEF’s has been limited by irregular contributions and weak policy coordination with broader fiscal policy goals. Peru could integrate automatic savings rules directly into its fiscal framework, as Chile and Norway, where structural balance rules require saving excess revenues from high commodity prices in stabilisation funds and allow withdrawals to support spending when prices fall. This could be accompanied by improvements in the FEF’s investment policies to manage it as a sovereign wealth fund or a similar vehicle, allowing not only fiscal surpluses but also higher financial returns to strengthen its balance over time. Clear rules, regular audits and public reporting would enhance transparency and accountability, while forward guidance of the use of funds could further strengthen the fund's effectiveness.
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