27/09/2023 - Peru’s economic performance of recent years has been among the strongest in Latin America, resulting in a remarkable drop in poverty. Policy should now prioritise long-standing structural challenges to accelerate convergence with advanced economies and further raise living standards, according to a new OECD report.
The first OECD Economic Survey of Peru shows that between 2000 and 2019 GDP grew by 5.1% per year on average, well above its Latin American peers, while GDP per capita rose steadily towards OECD levels from 2004 to 2014. Peru has been able to mitigate the economic and social impact of major shocks like the COVID19-Pandemic comparatively well, however against the backdrop of lower global growth, high inflation, slowing productivity growth and political uncertainty in Peru, the economy has slowed and convergence with OECD income levels has stalled.
To secure a resumption of increases in incomes and living standards the Survey recommends structural reforms to drive long term growth by boosting productivity, competition and investment in infrastructure, as well as by improving governance, the rule of law and access to public services. The Survey also recommends to tackle the very high levels of informality in the economy by lowering labour costs, promoting more flexible employment and improving education, which would also help narrow regional disparities.
The Survey welcomes Peru’s fiscal plan to gradually reduce the fiscal deficit over the next three years, which will be key to maintain debt sustainability and fiscal buffers. However, to meet the increasing demands for social services and infrastructure while maintaining fiscal sustainability, Peru needs increase the efficiency of its public spending and pursue the opportunity to boost tax revenues as a share of GDP.
As Peru emerges from a slowdown driven by global inflationary pressures, reduced external demand, political and social instability and extreme weather, the Survey projects GDP growth of 1.1% in 2023, with a pickup to 2.7% in 2024 amid an expected rise in investment, tourism and copper exports. Inflation is anticipated to reach the 1-3% target range of the central bank by early 2024, thereby supporting consumption.
“Over the past two decades, Peru has achieved remarkable economic growth, built on a strong macroeconomic framework, with fiscal rules and an independent central bank. Peru’s accession process to the OECD can be a driver for the ambitious reforms now needed to continue to improve living standards,” OECD Secretary-General Mathias Cormann said, presenting the Survey in Lima alongside Peru’s President of the Council of Ministers Alberto Otárola. “Boosting productivity, competition and investment, improving governance and promoting more formal job creation through lower labour costs and better access to quality education will all be important to help drive further convergence with living standards in higher-income countries.”
The Survey comes as Peru is in the process of accession to the 38-member OECD. This process will promote convergence with OECD standards and best practices and accelerate progress towards OECD income and productivity levels.
Peru’s rapid economic growth has seen some 11 million people, or one in three Peruvians, lifted out of poverty between 2000 and 2019. A robust macroeconomic framework with fiscal rules and an independent central bank has been key to this stable, sustained growth.
More still needs to be done to improve the lives of many Peruvians. It is essential to tackle labour informality, which is among the highest in Latin America with close to 80% of workers in informal jobs with no access to social protection. Addressing corruption and implementing the 2013 civil service reform would help improve the quality and accessibility of public services. Improving tax revenues and spending efficiency could create space to enhance access to pensions and income support.
Strengthening incentives for formal job creation should include expanding access to quality education and financing the increased social protection coverage from general taxation revenues rather than social security contributions, which increase the cost of formal labour.
At 17% of GDP, Peru’s tax revenues are well below average OECD and Latin American levels of 34% and 28% respectively. Tax collection could be improved by strengthening the tax administration, reducing exemptions, bringing the land register up to date, and gradually lowering the minimum threshold to pay income taxes. Simplifying the corporate tax schemes would combat evasion and support higher growth and productivity.
Peru would also benefit from diversifying away from commodities, which make up 80% of exports and tie the economy to fluctuations in global prices. Broadening the economic base will require action such as increasing the enforcement of competition rules and the detection of cartels; strengthening the justice system; and improving planning and implementation of new transport infrastructure.
Converging to OECD standards will also mean accelerating the green transition. As well as being highly vulnerable to the impacts of climate change, Peru could see significant opportunities from its untapped potential in renewable energy. Tackling deforestation – the main source of its greenhouse gas emissions – will be vital to put Peru on the path of carbon neutrality.
See a Survey Overview with key findings and charts (this link can be used in media articles).
Note to Editors:
The Paris-based OECD is an international organisation that promotes policies to improve the economic and social well-being of people worldwide. Working with member and partner countries, it provides a forum where governments can work together to share experiences and seek solutions to economic, social and governance challenges.
The OECD’s 38 members are: Australia, Austria, Belgium, Canada, Chile, Colombia, Costa Rica, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Türkiye, the United Kingdom and the United States.
Peru is one of six countries (the other five being Argentina, Brazil, Bulgaria, Croatia and Romania) with whom the OECD’s governing Council opened accession discussions in early 2022. On 10 June 2022, the Council at Ministerial Level adopted the Roadmap for the Accession Process of Peru setting out terms, conditions, and process. In accordance with this Roadmap, 24 OECD technical committees, composed of expert policymakers from each of the 38 OECD countries, will conduct an in-depth assessment of Peru’s legislation, policies and practices against OECD legal instruments and OECD best policies and practices in multiple areas including economic policy, labour market and social policy, education, and health.
One of the OECD’s most active Partner countries, Peru initiated its OECD Country Programme in 2015, built around five key areas: economic growth; public governance; anti-corruption and transparency; human capital and productivity; and environment. The Programme comprised policy reviews, implementation and capacity building projects, participation in OECD Committees and adherence to selected OECD legal instruments. Since 2018, Peru has been implementing an Action Plan to continue supporting its reform agenda drawing on OECD legal instruments, bodies and evidence-based analysis.
The OECD engages with Peru, as with other non-member countries, through country specific projects. This engagement takes various forms such as participation in OECD Bodies, country-specific policy reviews, integration of relevant data series in OECD databases, benchmarking exercises, and adherence to OECD instruments. Peru also participates in OECD statistical reporting and information systems, benchmarking exercises, publications and policy reviews.
The overarching objective of the accession process is to promote convergence of Peru with OECD standards, best policies and best practices, resulting in better outcomes for OECD members as well as for Peru and its citizens. Throughout the accession process, the OECD will work closely with Peru to support the adoption of long-lasting reforms for this purpose.
Peru also actively supports the OECD Latin America and Caribbean Regional Programme and hosts the OECD Regional Centre for Competition in Latin America in Lima, which provides capacity building assistance and policy advice across Latin America through workshops, seminars and training programmes on competition law and policy for officials in competition enforcement agencies, sector regulators, and other parts of government.
See more on the opening of new accession discussions
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