Alert for possible credit rating downgrade and economic challenges in Peru. Economic outlook and projections for 2024 raise concerns. Urgent measures needed to ensure sustainable growth.

During the presentation of the Quarterly Report of Economic Studies by the Banco de Crédito del Perú (BCP), an alert has been raised regarding the possibility of a new credit rating agency downgrading the country's investment grade, which would result in two credit rating agencies placing Peru at the minimum investment grade level by the end of 2024. This news has sparked concern in the economic sphere, as the consequences of losing this grade could be significant. According to Carlos Prieto, Manager of the Economic Studies Area at BCP, if there is a stronger recovery in non-primary sectors in the coming months, along with high export prices such as copper and gold, the fiscal deficit could be reduced to around 2.8% by the end of the year. However, there are several threats that could pose risks to fiscal accounts, such as Congressional spending initiatives, granting of tax benefits, and the situation of Petro-Peru, among others. Isaac Foinquinos, senior economist at Macroconsult, believes that the fiscal rule may be breached for the second consecutive year, and combined with public spending measures approved by Congress, could push the fiscal deficit close to 3% of GDP this year. Additionally, the projection does not include potential assistance to Petro-Peru, adding uncertainty to the economic outlook. Losing the investment grade would have a negative impact on interest rates, as the government would have to pay higher rates to finance its fiscal deficit. This would in turn require more resources from the Public Budget for debt servicing, putting pressure on tax revenue and affecting all Peruvians. Furthermore, companies would be affected by assuming higher financing costs, potentially increasing mortgage rates. The economic outlook presented by BCP shows gradual progress in the Peruvian economy during the first quarter of the year, with growth projections of 3% for this year. It is expected that in the second half of the year, the economic activity recovery will be more evident, driven by factors such as the fishing season, winter clothing sales, improved employment in the agro-export sector, among others. Private consumption is shaping up to be the main factor driving the economic rebound in the second half of the year, due to better employment performance, low inflation, and the release of savings from private pension funds. It is estimated that GDP will grow by 2.8% in 2024, with a positive performance in primary sectors such as agriculture and fishing. Regarding monetary policy, it is expected that the Central Reserve Bank (BCR) may cut its interest rate, considering that the local rate is at 5.75% and the FED rate at 5.33%. It is projected that the local rate will end between 4.5% and 5% this year, which could create a negative differential with the FED rate, a situation not seen since the 2005-2007 period. In summary, the economic outlook for Peru presents significant challenges, with the possibility of a credit rating downgrade that could impact interest rates, the fiscal deficit, economic growth, and monetary policy. It is crucial that measures are taken to strengthen the fiscal situation and ensure sustainable growth in the future.