Peru's fiscal outperformance in 2018 underscores President Martin Vizcarra administration's commitment to steadily narrowing the government deficit and stabilizing the debt burden, Fitch Ratings has affirmed.
"Rebuilding fiscal buffers would help contain the risks posed by the country's economic dependence on mineral exports, particularly copper
, in our view," the credit rating agency said.
In this sense, stronger tax revenue pushed the deficit down, driven by higher copper mining revenue, firmer economic growth, and tax policy measures as well as disciplined expenditure management.
Likewise, higher income tax and sales tax receipts lifted current general government revenue to 19.3% of GDP in 2018, up by 1.2pp from 2017.
"The better-than-forecast fiscal performance reinforces Fitch's expectation that the Peruvian government will continue reducing its deficits and return to a balanced primary budget by 2021, in accordance with its fiscal rule," it stated.
Last year's lower borrowing requirement shows that Peru's general government debt (excluding the external debt of Petroperu, the national oil company) could stabilize near 24% of GDP during 2019-2020.
This ratio would remain below the peer median, and also lower than Fitch's previous expectation of 25% of GDP.
Furthermore, Peru's fiscal rule ordinarily limits the non-financial public sector (NFPS) deficit to 1% of GDP in normal years and sets an NFPS debt ceiling at 30% of GDP.
The Vizcarra administration — which took office last March— started Peru's fiscal consolidation sooner than expected, reducing the NFPS budget deficit targets for 2018 and 2019 in its medium-term macroeconomic framework published late August.
"We think accelerating fiscal consolidation shows a commitment to restoring fiscal headroom following a period of deficits from 2014," it said.