Peru faces a fiscal crisis: public savings at alarming levels since 2022.

In recent years, the Peruvian economy has faced a significant challenge that jeopardizes the achievements made in terms of fiscal savings. From 2006 to 2015, the country managed to accumulate notable public savings by taking advantage of the bonanza in metal prices. This situation allowed for the adoption of counter-cyclical fiscal policies during critical moments, such as the global financial crisis and the COVID-19 pandemic. However, since mid-2022, the landscape has changed drastically, and the deterioration of fiscal savings is evident. Since 2006, Peru has experienced growth in its financial assets, which reached a peak of 18.3% of GDP by the end of 2015. This growth was fundamental in maintaining responsible public spending and a manageable fiscal deficit. However, starting in 2022, the deficit began to escalate alarmingly, rising from around 1% of GDP to a worrying 4% in 2023. This increase occurred without a corresponding rise in public debt, which initially led some to argue that the country’s fiscal strength remained intact. Nevertheless, the data reveals a concerning decline in public sector financial assets, which were reduced to 9.8% of GDP by early 2024, figures that resemble the lowest levels recorded at the beginning of the 21st century. This consumption of savings, amounting to nearly S/ 30 billion since June 2022, raises serious doubts about the sustainability of the current fiscal policy. The decline in fiscal savings implies that the country is in a vulnerable position to face future crises or external shocks. As the fiscal deficit continues to grow, it becomes evident that fiscal authorities may be forced to increase public debt, a scenario that had been avoided until now. The recent statement by President Dina Boluarte regarding increased spending, including salaries for the Armed Forces and Police, reinforces concerns about the direction fiscal policy will take in the coming months. The international credit rating agency Moody's has expressed concern over the failure to meet fiscal targets for the second consecutive year. Despite the efforts of the Ministry of Economy and Finance (MEF) to keep the deficit under control, projections suggest that it will be challenging to meet expectations, especially with a projected deficit that could exceed 3% of GDP. In this context, the immediate future does not appear straightforward. While an increase in revenue is anticipated due to improvements in metal prices, it is unlikely to be sufficient to reverse the negative trend in public savings. Instead of accumulating savings as in the past, the Peruvian economy is consuming what had been achieved over years of fiscal prudence. The upcoming elections also add a layer of uncertainty. With nearly 50 political parties competing, the next government is likely to face significant challenges in its attempt to implement economic reforms and rebuild public finances. The lack of political cohesion and fragmentation of power could hinder the adoption of necessary measures to reverse the fiscal deterioration. The current situation is a call to action. The responsibility for maintaining fiscal stability rests with both the authorities and the citizenry, who must be vigilant about decisions that may affect their economic future. The path to fiscal recovery is difficult, but it is imperative that conscious and responsible decisions are made to ensure that the country not only recovers from the current crisis but is also better prepared to face the challenges that lie ahead. In summary, the consumption of fiscal savings accumulated over the years represents a significant risk to the Peruvian economy. The combination of a growing deficit, political uncertainty, and the fragility of the global economic context demands an urgent review of fiscal policies and a firm commitment to sustainability. If measures are not taken now, the country could face severe consequences that will affect future generations.