Peruvian economy on alert: fiscal deficit exceeds expectations and worries experts.

The Peruvian economy presents a mixed outlook in its recent results. While last year it managed to recover from a recession that caused a decline in Gross Domestic Product (GDP) of -0.60% in 2023, and a growth of 3.2% is expected for 2024, the government's fiscal management has raised alarms among experts and former ministers of Economy. Despite the positive projections, the high level of government spending has led to a fiscal deficit that exceeds expectations, generating concerns about the sustainability of this trajectory.

The report from the Central Reserve Bank (BCR) revealed that government spending would have exceeded revenues by an alarming 3.7%, which is a significant breach of the established fiscal commitment of 2.8%. If a fiscal deficit of -3.7% is confirmed, it would be the highest since 1992, a fact that not only affects the economic stability of the country but could also negatively impact Peru's risk rating in the eyes of international investors and rating agencies.

Carlos Oliva, former Minister of Economy and president of the Fiscal Council, has taken a proactive role in alerting about this fiscal mismanagement. Speaking about the current situation, he emphasized that while 2024 has been positive in terms of inflation control, the deficit is "unsustainable" and shows no signs of improvement in the short term. His statement reflects serious concern about the fiscal path the government is taking, which seems to have no intention of reducing spending or complying with the stipulated fiscal rules.

In this regard, Oliva stressed that this "fiscal binge" could have severe consequences in the future, warning that the government minimizes the situation by celebrating superficial achievements while the fiscal problem becomes increasingly acute. The lack of incentives to leave resources for the next government, in an election year for the presidency, could lead to even more dangerous decisions in public spending management.

For his part, Luis Miguel Castilla also agreed on the seriousness of the fiscal deficit, pointing out that the breach of fiscal rules for the second consecutive year jeopardizes economic stability. Castilla attributed this situation to the lack of alignment between the budget presented by the Ministry of Economy and Finance and the government's actual revenue capacity, a fact that highlights the fragility of the fiscal system.

Ismael Benavides, former Minister of Economy, shared these concerns, warning that the primary deficit is close to 4%, adding debts and interests, which brings the total deficit to nearly 6%. This indicates that, despite commitments to reduce spending, the reality is that it has increased, which could have a devastating impact on other sectors of the economy if not controlled.

The current Minister of Economy, José Arista, has responded to these criticisms by discrediting the Fiscal Council and questioning its approach. Arista has emphasized that the deficit should be viewed as a debt, regardless of its position regarding fiscal rules. However, such a stance has been seen as a sign of intolerance and a lack of openness to criticism, which could create a climate of tension between the various economic institutions in the country.

In addition to the issue of spending, specialists have also pointed out the need to promote private investment, which has shown minimal growth between 3% and 4%. The lack of incentives to increase private investment is a concerning aspect, as it is fundamental for a more robust and sustained growth over time, essential for the country's development.

The warnings from former ministers serve as a reminder of the fragility of recent economic gains. In an election year, where governments tend to increase spending in an attempt to leave a positive legacy, fiscal management becomes crucial. Will the government be able to find a balance between growth and fiscal responsibility, or will it be forced to face serious consequences in the not-so-distant future? The answer to this question is fundamental not only for economic stability but also for the trust of citizens in their institutions. The fight against fiscal mismanagement is not just a technical issue; it is a matter of governance and responsibility towards the future of Peru.