Population 30.474 million
GDP 200.292 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
8.8 |
6.9 |
5.9 |
5.5 |
|
Inflation (yearly average) (%)
|
1.5 |
3.5 |
3.3 |
3.2 |
|
Budget balance (% GDP)
|
-0.4 |
1.9 |
0.9 |
1.1 |
|
Current account balance (% GDP)
|
-2.5 |
-1.9 |
-2.8 |
-2.9 |
|
Public debt (% GDP)
|
24.6 |
20.9 |
19.6 |
18.3 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Mining (No 1 producer of silver, No 2 of copper and zinc and No 5 of gold), energy, agriculture and fishing resources
- Low public debt and budget surplus
- External net creditor position
- Independence of the central bank and banks in good health
- Attractive tourist destination
WEAKNESSES
- Dependence on raw materials
- Sensitivity to climate and earthquakes
- Dollarisation still important to the financial system and the economy
- Inadequate health, education and infrastructures
- Importance of coca cultivation and cocaine production
- Vast informal sector (60% of employment) not favourable to training
Risk assessment
Dynamic growth supported by domestic demand
Despite a slight slowdown, activity will remain dynamic in 2013. Public and private consumption will remain buoyant. Households are benefitting from the rise in their incomes, at least in the urban centres and from the expansion of credit. Public and private investment will also grow markedly, especially in building and public works, with foreign investment in the extractive industry, as well as with housing and infrastructure construction. This dynamism in domestic demand will favour imports of cars, intermediate goods, capital goods as well as refined oil products. However, exports will grow less quickly. Though the prices of gold (23% of exports), fish, shellfish and fishmeal (8%) are expected to remain high, those of copper (23%) and hydrocarbons (10%) could fall. As a whole the contribution of trade to growth is likely to be slightly negative.
Public accounts in surplus
The public accounts are in surplus, even if one excludes raw materials and the effects of the general economic situation. The surplus is paid into a stabilisation fund. However receipts represent only 22% of GDP (15% when limited to duties and taxes). This is due to the small size of the extractive industries’ contribution (5% of GDP) and to widespread tax evasion related to the considerable size of the informal economy. Budget policy is therefore necessarily prudent as is Central Bank policy, which ensures the stability of the currency, the nuevo sol, in the face of the still important dollarisation of the economy and inflationary pressures sustained by bottlenecks in the transport and distribution of goods. Public debt, already low, will continue to fall. 50% of it is denominated in nuevos soles with domestic creditors.
A moderate current account deficit funded by foreign investments
In spite of the trade surplus generated by raw materials sales, the current account deficit is expected to increase slightly. The deficit in the income balance, already large, will widen with the surge in dividend repatriations by foreign companies. The services deficit, though smaller, will also grow, freight costs linked to trade will increase more rapidly than tourism revenues. However, the sums sent to their families by Peruvians working in the United States, Chile and Venezuela will increase. The external deficit is largely funded by foreign direct investments still attracted by mining but also by the developing banking sector and telecommunications. This funding enables low and declining external debt levels (20% of GDP), as well as the build-up of comfortable foreign exchange reserves. This situation is, however, dependent on the maintenance of high raw materials prices as well as of the foreign investors’ confidence in the country’s management.
Reconciling a political and economic framework favourable to investors with social progress
President Ollanta Humala was elected in 2011 on a progressive social programme. He fairly quickly asserted his intention of combatting poverty and inequality, while providing an attractive political and economic framework for investors to generate the additional public revenues necessary to his campaign. The two campaigns are to be conducted in concert. The most disadvantaged sections of the population are exactly those in contact with the mining projects in the Andes and Amazon, where shortcomings in administration, transport, education, health and housing are the most glaring. They are very impatient to see the election promises realised and concerned about the water resources much needed for mining, It is in the poorest of these regions (the Ene, Apurimac, Mantaro and upper Huallaga valleys) that the Shining Path manages to hold its own and where the cultivation of coca and the production of cocaine is strongest. Violent demonstrations, often with the support of the local authorities, against mining projects (e.g. the Conga gold and silver mine project in the Cajamarca) are a regular occurrence. The authorities seem ready to make concessions, particularly environmental ones, to get them accepted but this is not made any easier by the administrative inadequacies and a limited contribution of mining to the economy (15% of GDP but only 20% of fiscal revenues and 1% of employment).
