Peru commits to adhering to fiscal rules in 2024 despite economic challenges.

The Ministry of Economy and Finance (MEF) has reaffirmed its commitment that Peru will comply with its fiscal rule in 2024, despite the economic challenges it has faced in recent years. This announcement was made through the Multiannual Macroeconomic Framework 2025-2028 (MMM 2025-2028), which was published on August 23. This statement is based on a series of criteria and projections that the MEF has outlined for the coming years, with the aim of stabilizing and strengthening the public finances of the country. One of the most notable aspects of this new fiscal trajectory is the modification of the fiscal deficit limit, which has been set at 2.8% of Gross Domestic Product (GDP) for 2024. This figure, although higher than the previous target of 2% for the current year, reflects a more gradual approach to reducing the deficit. The regulation introduced by Legislative Decree No. 1621, published in July, supports this strategy by allowing for a moderate decrease in the deficit over the coming years. The MEF has also projected that the fiscal deficit will gradually reduce, with targets of 2.2% of GDP in 2025, 1.8% in 2026, 1.4% in 2027, and finally reaching 1.0% in 2028. This planning aims to alleviate the fiscal burden and manage public debt more efficiently, which is projected to return to 30% of GDP by 2035, with a temporary limit of 38% until 2034. The projection that public debt will reach 33.2% of GDP in 2024 is also a positive indicator of the government's intention to stabilize fiscal accounts. The MEF attributes the expectation of complying with the fiscal rule to several factors, including the inclusion of additional resources in the public budget for 2024 totaling S/ 3 billion, which is equivalent to 0.3% of GDP. This financial injection is intended to strengthen the country's economic recovery, especially following the approval of a supplementary credit by Congress in July. Such measures are essential to counteract the impact of the economic shocks that have affected Peru in recent years. In this context, fiscal revenues are expected to experience real growth of 4%, reaching 19.5% of GDP. This increase is framed within a period of economic recovery, projecting an annual growth of 3.2% in 2024. Furthermore, it is anticipated that the improvement in fiscal revenues will stem from the removal of temporary tax factors that adversely affected results in 2023, as well as the implementation of new tax and administration policies. On the other hand, the MEF has indicated that public spending will also show a downward trend, with real growth of 2.3% for 2024, placing it at 20.5% of GDP. This represents a reduction from the 21% of GDP recorded in 2023 and reflects the end of the extraordinary measures that were implemented over the past year. Converging towards pre-pandemic spending levels is a key objective for the ministry, which aims to ensure more sustainable and efficient fiscal management. However, the MEF has not shied away from mentioning the current situation of the fiscal deficit, which as of June stood at 4% of GDP, far from the target set for 2024. This gap has been attributed to a decrease in fiscal revenues, which contracted by 6.1% in real annualized terms, due to various adverse factors that impacted public finances in the first half of 2023. The ministry has emphasized that these shocks are not expected for the second half of 2024, allowing for a more optimistic projection. The MEF's forecast indicates that, for the second half of 2024, the fiscal deficit could be around 2.1% of GDP, in line with historical averages prior to the pandemic. This suggests that as the economy recovers and adjustments in spending are made, the fiscal deficit could align with the established targets. The recovery of fiscal revenues, the elimination of extraordinary expenditures, and the implementation of appropriate fiscal measures are crucial factors that will contribute to this objective. In summary, the MEF has outlined a fiscal path for 2024 that, while presenting challenges, also holds opportunities for more responsible management of public finances. The success of these projections will depend on the government's ability to correctly implement the necessary measures and adapt to the changing conditions of the economic environment. Constant vigilance and prompt responses to potential setbacks will be fundamental to ensure that Peru meets its fiscal rule and continues on the path of economic recovery.