Peru’s economic landscape is at a crucial juncture, with the latest OECD Economic Survey emphasizing the need for strategic reforms to sustain growth and improve living standards. The report outlines that maintaining robust public finances, unlocking human capital, and enhancing the business environment, particularly for small and medium-sized enterprises (SMEs), are essential for advancing the nation’s economic trajectory.
The OECD projects that GDP will grow by 2.8% in 2023 and 2.6% in 2026. This growth follows two decades of economic expansion that has already raised incomes and living standards across the country. As inflation remains within the Central Bank’s target range of 1-3%, the report suggests that a neutral monetary policy is prudent to mitigate both global and domestic risks to price stability.
Strategic Reforms for Growth
To bolster sustainable and inclusive economic development, the OECD emphasizes the importance of restoring compliance with Peru’s fiscal rules. Doing so would not only maintain the country’s strong macroeconomic framework but also enhance investor confidence. The report advocates for reforms aimed at improving public spending efficiency, broadening the tax base, and reducing tax evasion. These changes are crucial for creating the necessary fiscal space for productivity-enhancing and social investments.
Mathias Cormann, OECD Secretary-General, highlighted in Lima that “Peru can strengthen the foundations for long-term growth by enhancing workforce skills, boosting small businesses’ access to finance, encouraging formal job creation, and accelerating climate adaptation.” He presented the Survey alongside notable officials including Prime Minister Eduardo Arana Ysa and Minister of Economy and Finance Raúl Pérez-Reyes.
The OECD report identifies high informality and weak educational outcomes as significant barriers to formal job creation. A comprehensive strategy is required to promote formal employment, which includes enhancing skill development, reducing social security contributions for low-income workers, and simplifying regulations for employment and businesses. Strengthening the enforcement of tax and labor laws is also pivotal for effective implementation.
Investing in Human Capital and Climate Resilience
Investing in human capital is critical for Peru’s future. Expanding access to high-quality early childhood education, particularly for lower-income families and rural communities, is expected to improve learning outcomes. This initiative would also relieve care responsibilities for women, enabling them to pursue formal and better-paying job opportunities. Furthermore, enhancing vocational education and training will unlock formal employment options for the youth.
The report highlights that limited access to finance is hindering investment and the shift towards a more resilient and inclusive economy. Credit penetration in Peru remains low, adversely affecting micro, small, and medium-sized enterprises (MSMEs), which constitute a large segment of the business sector. To address this, reforms should focus on reducing financing costs, developing alternative funding sources tailored for MSMEs, and deepening capital markets.
Peru’s vulnerability to climate change necessitates urgent action. The country has committed to achieving net-zero emissions by 2050, but ambitious measures are required to meet this goal. The OECD recommends halting deforestation, expanding renewable energy sources, and enhancing low-emission transport systems. Strengthening climate adaptation policies will not only support environmental resilience but also contribute to sustainable economic growth.
As Peru navigates these challenges, the OECD’s recommendations present a roadmap for enhancing the country’s economic foundations and ensuring a prosperous future for its citizens.
