By Gianmarco Delgado.The private investment in the economy of Peru could have a better performance in 2025, and also the public debt on Gross Domestic Product (GDP) will remain as one of the lowest in the region, says the economist member of the Organization for Economic Cooperation and Development (OECD), Paula Garda.
The official of the international entity makes an analysis of the economic performance of Peru and what could come next year, in statements to the official Gazette El Peruano.
There is a substantial increase in private investment after beginning important infrastructure works such as the port of Chancay, what else could Peru do to speed up these investments?
Private investment could have a better performance than expected. It is true that the Executive is working to unlock Public-private partnerships (APP) projects, but if there were greater progress, it could have a better impact on the economy. Another thing that could also boost this is better-than-expected global growth, so that Peruvian exports would be better and, therefore, there would be better growth for Peru.
Will you then consider that private investment could increase in the coming months?
In a base scenario, there are downside risks and upside risks. However, and ultimately, if the measures that the Government is implementing work, I think so.
So far, it is still difficult to measure the impact of large investments such as the Chancay port or the new Jorge Chávez International Airport because it depends on other investments in infrastructure to connect different companies, regions, localities, which could result in greater economic growth. These investments are not there now, but if they were, they could definitely boost GDP to more than 2.6% in 2026.
The OECD's requests are clear: tax, fiscal and labor reforms must be carried out to incorporate us into this block; what specific measures could they be?
In fiscal terms, the main message is that we need to comply with the rules again. The economy will grow by 3 %, but the goal will not be reached yet. However, there are better fiscal prospects for next year.
Here is part of what should be done, improving the governance of public companies. On the other hand, there are many pressures on current spending in the short term and, clearly, in pre-election years these pressures tend to be greater. This is normal in all economies, not just in Peru, but it will be necessary to contain this pre-election spending to comply with the fiscal rule. I think that an important message is that public investment is increasing, although in the past we have seen that public investment is not the most efficient. Reforms must be made to improve the effectiveness of this investment and to achieve the expected results.
In the medium or long term, where should efforts be focused to continue closing gaps?
There is a great need for social and infrastructure investments, and therefore it will be necessary to increase public spending; therefore, higher tax revenues will be required, which are relatively low when compared to other OECD countries.
So, with what we have, we must first spend better. In terms of GDP, Peru spends on public investment something similar to what OECD countries spend. On the side of tax reforms, tax exemptions should not be increased.
Regarding informality, what message should Peru have clear?
The reduction of informality in the economy is a priority. This has various dimensions. If private investment is increased, it helps reduce informality by generating employment.
Therefore, fewer bureaucratic barriers are needed. There is also a clear need to improve the tax schemes for small and medium enterprises (SMEs), since the current ones encourage them to remain “small”, low in terms of productivity and, above all, informal.
Finally, there is a very clear need to improve access to education, the quality of education and job training.
Congress is promoting measures contrary to what you mention on the tax issue. What is the OECD's position in this regard?
The OECD's position is that this reduction of differentiated taxes tends to reduce the tax base.
They are considered tax expenditures. When I say that Peru has room to increase its tax revenues, I was referring to this type of thing, eliminate all these tax expenditures that do not meet their objective or that will not have any impact on companies.
These initiatives must be analyzed very carefully. There are other instruments that one can use. Instead of reducing taxes for everyone, it must be done in a targeted manner, directed at those who are most affected.
These initiatives need to be carefully analyzed. There are other instruments that can be used. Instead of reducing taxes for everyone, it should be done in a targeted manner, directed at those who really need it, such as small businesses in certain sectors.
Apart from what has been mentioned, does the OECD believe that Peru still has solid macroeconomic foundations?
Without a doubt, Peru's macroeconomic framework continues to be a clear strength. Its fiscal rules, its independent central bank, its inflation targets are clearly solid. It is time to work to maintain it.
Peru's public debt is one of the lowest in the entire region, and we hope it will continue to be so. In addition, in the fight against inflation, Peru is already in the target range, accompanied only by Costa Rica in the region.
About Peru's monetary policy, what projections do you have for 2025?
We estimated that there would not be a reduction in the reference interest rate at the last meeting of the year, but we have seen that monetary policy has been relaxed during 2024.
Inflation is already in the target range, with projections of there being few movements, but always close to the goal and objective of the Central Reserve Bank. Therefore, in 2025 the interest rate would be reduced a little. There is room to bring monetary policy to a neutral tone.
OCDE accession process
The head of the Peru and Colombia team of the OECD revealed to El Peruano that our country is “really very involved” in its process of accession to the OECD. “It is clearly very eager for the process to be done in a timely manner, it is progressing well,” she said. The economist specified that the procedure could take time, but this will depend on the recommendations made by the organization through its different commissions.
“Peru is undergoing a review in 24 committees. It is on that path, every two months it has evaluations. In the end, each committee will give its recommendations to be implemented in order to continue with the process. Some of these will not require legislative changes and others will. Therefore, the speed with which this entire process is concluded will also depend on the possibility of implementing these reforms of all kinds. These are issues linked from climate change to informality," he explained.
Data
- Peru would grow more than 2.6% in 2026 with greater investments that allow a closure of infrastructure gaps.
- Public investment increases strongly according to the OECD, but greater efficiency is needed in state spending.
- Peru's accession process to the OECD involves the review of up to 24 committees of the international organization linked to different topics.
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Published: 12/26/2024