st
Eco Emerging // 1 quarter 2021
economic-research.bnpparibas.com
1
4
the latter still accounting for nearly one-third of exports), favourable
growth prospects in China (the main destination for exports since 2014)
and the government’s stimulus plan, the economic recovery should
continue throughout 2021 and 2022. Real GDP growth is projected at
BUDGET DEFICIT AND PUBLIC DEBT
%
5
GDP
3
8
% and 3.5% respectively. At this pace, the economy is unlikely to regain
External
Domestic
Deficit
its pre-crisis level before the end of 2022.
30
2
2
1
1
5
0
5
0
5
0
DETERIORATION OF THE POLITICAL CLIMATE
The risks are on the downside. In particular, the worsening of the
political climate seen over a number of years gathered pace at the end
of 2020 and will weigh on short-term growth prospects, and probably
on economic fundamentals over the medium term.
On the one hand, a lack of clarity on the supply of vaccines and the
effective commencement of the vaccination campaign limits growth
prospects for 2021. The Health Minister initially announced that the
campaign would begin in the first quarter of 2021. According to the
local press, it seems, however, that the political crisis in October
and November not only delayed the rollout, but also prevented
the finalisation of orders for vaccines. The start of the vaccination
programme might end up being pushed back to the beginning of the
second half.
-5
-
10
2014
2015
2016
2017
2018
2019
2020
CHART 2
SOURCE: MINISTRY OF FINANCE
be delayed still further. In the longer run, political instability and the
lack of reforms could hit potential growth and the attractiveness of the
country to foreign investors.
On the other hand, structural weaknesses in governance worsened
over the course of the latest mandate (since 2016), concerning mainly
parliament’s defiance of the government and numerous corruption
scandals. The mandate has thus seen a succession of four presidents
(
three in November 2020) who were removed from office or forced THE SHORT-TERM INCREASE IN GOVERNMENT DEBT IS
to resign following their implication in corruption scandals, two
parliaments and a high rate of turnover in ministerial offices. However,
under the Peruvian constitution, the duration of presidential and
parliamentary mandates remains fixed. The next general elections
NOT WORRYING
presidential and legislative) will therefore take place as planned at
The government estimates that after increasing to 8.5% of GDP in 2020
(
from 1.6% in 2019), the government deficit will fall to 6.5% in 2021. We
(
think that the figure is likely to be closer to 7.5% in both years. Tensions
between parliament and government prevented the implementation of
a number of measures in the stimulus package – including several pu-
blic investment projects – which will therefore be delayed until 2021.
The deficit is then likely to shrink, given the temporary nature of the in-
crease in public spending. Government debt is estimated to have risen
from 27% of GDP in 2019 to 35% in 2020 and then should rise further
to 37% in 2021. It will therefore remain moderate
the end of the current mandate.
In mid-November, parliament elected Francisco Sagasti, a deputy and
founder of the centrist Morado party, as interim President. He will re-
main as interim President until elections are held. He has committed
to respecting the electoral calendar, thus to hold the first round of
elections on 11 April of this year, and to leave power on 28 July, when
the next presidential mandate begins. However, this has not calmed
the political climate. Relations between parliament and the interim
government will remain extremely tense, particularly if the country
faces a further wave of infections.
.
Completed on 11 January 2021
Hélène DROUOT
helene.drouot@bnpparibas.com
At present, given the large number of candidates, it is difficult to pre-
dict the likely winner of these elections and any majority in the next
parliament. However, all candidates seem to agree on a degree of
continuity in economic policy, concerning for example the respect of
fiscal discipline that has been seen for a number of mandates now.
Between 2015 and 2019, the government deficit remained limited to
2
.2% of GDP on average, despite the collapse in copper prices and se-
veral natural disasters.
It is likely, however, that relations between government and parliament
will remain strained during the next mandate. The budget targets for
the short term (stimulus measures in 2021, consolidation from 2022)
and the medium term (increase in receipts through a reform of the col-
lection system), and reforms designed to boost Peru’s potential growth
(
labour market reform, tackling the informal economy), could
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