IMF Wraps Up 2025 Article IV Review With Peru

• After a strong recovery in 2024, growth is expected to moderate in 2025, amid global and election-related uncertainty, and thereafter to remain close to potential. Inflation is expected to remain close to the midpoint of the target band. The financial system is sound. Risks are tilted to the downside given elevated external uncertainty, but Peru has ample buffers to cope with shocks.
• Meeting the 2025 fiscal deficit target would require additional efforts in a pre-election year. In the medium term, further fiscal consolidation measures should be identified to comply with the fiscal rule deficit targets and debt ceiling. Introducing both spending and revenue measures would make the consolidation more balanced and credible.
• Structural reforms are urgently required to lift potential growth, including updating the fiscal decentralization framework to help boost investments in the critical mineral sector. Enhanced efforts are needed to curb the low but rising level of insecurity, reform labor and tax regulations that impose excessive costs for formalizing or growing a business, enhance the independence and integrity of judicial bodies and tools to combat corruption impunity, build resilience to natural disasters, and embrace the opportunities of digital technologies and artificial intelligence.

Washington, DC: On June 5, 2025, the Executive Board of the International Monetary Fund (IMF) concluded the 2025 Article IV consultation [1] with Peru and endorsed the staff appraisal without a meeting on a lapse-of-time basis. [2]

The economy has recovered from consecutive natural disaster shocks and social turmoil. Inflation is firmly within the target band, owing to the central bank's early and decisive monetary tightening followed by cautious easing. The financial sector remained sound and profitable. The current account surplus further improved, underpinned by strong terms of trade. However, the fiscal position weakened. A relative political stability persists but pre-election tensions are rising. Lingering political uncertainty weighs on economic prospects and dents the appetite for structural reforms to boost potential growth.

Growth is expected to moderate to 2.8 percent in 2025. A favorable momentum in private consumption and elevated public investment would support continued growth, but pre-election tensions would weigh on the private investment recovery while the impact of the first-round effects of the tariffs and global growth slowdown would be negative, although relatively moderate. Inflation is expected to remain within the target band of 1-3 percent. The current account balance is envisaged to remain in a surplus of 1.7 percent of GDP in 2025, with low external financing and debt rollover risks.

Evolving risks are dominated by the potential for larger adverse impacts on global growth and commodity prices, due to prolonged trade policy uncertainty and financial market volatility, but Peru has ample buffers to cope with shocks. In the short term, key domestic risks include an intensification of political uncertainty, social unrest over security concerns, and weather-related shocks. Key external risks include trade policy uncertainty, tighter financial conditions, and commodity price volatility. Recent government initiatives to accelerate private sector involvement in public investment projects and streamline burdensome regulations could help revive private investment. Peru's macroeconomic resilience is reinforced by very strong buffers including low public debt, abundant international reserves, and access to international capital markets on favorable terms.

Executive Board Assessment

After a strong recovery, growth is expected to moderate, amid global policy uncertainty and pre-election tensions, and thereafter to remain close to potential. With a closed output gap and firmly anchored inflation expectations, headline inflation would remain within the target band. The current account balance is envisaged to remain in a surplus, only gradually returning to a deficit in the medium term—stabilizing at its norm, of about 1.5 percent of GDP—as private investment recovers and terms of trade normalize. The external position in 2024 was stronger than the level implied by medium-term fundamentals and desirable policies, due to strong terms of trade and a recovery in traditional exports. Risks are tilted to the downside given elevated external uncertainty, but Peru has ample buffers to cope with shocks. Very strong macroeconomic policies and institutional policy frameworks remain in place.

A broadly neutral monetary policy stance is appropriate. Inflation expectations are approaching 2 percent, and the output gap is closed. However, given heightened external uncertainty, monetary policy should remain data dependent. Continued exchange rate flexibility should be allowed to help cushion the impact of external shocks.

Meeting the 2025 fiscal deficit target will require additional efforts in a pre-election year. The 2025 budget envisages a deficit of 2.2 percent of GDP, consistent with the revised fiscal rule target. A tax revenue rebound from the economic recovery and one-off factors will help reduce the deficit in 2025, but additional efforts of about 0.4 percent of GDP will be needed to secure fiscal rule compliance. Additional spending control measures would make this year's consolidation plans more credible and balanced. In May 2025, the authorities announced initiatives to improve spending efficiency, but further efforts will be needed to comply with this year's target.

A combination of spending restraint and revenue-raising measures would be needed to comply with the medium-term fiscal targets. To comply with the fiscal rule deficit target of 1 percent of GDP by 2028 and the debt ceiling of 30 percent of GDP by 2035, the authorities' medium-term consolidation plan envisages a reduction of current spending by about 0.4 percent of GDP per year between 2026 and 2028. Identifying both revenue and spending measures—including efforts to streamline tax expenditures; strengthen tax administration; and control wages, discretionary transfers, and inefficient public investment—would secure a balanced and gradual consolidation. In the absence of measures, public debt would gradually rise over the medium term, while remaining relatively low compared to peers. Legislative initiatives bearing fiscal costs, proposals that erode the tax base, and excessive reliance on private participation schemes would complicate the attainment of fiscal targets. Reforms to significantly reduce Petroperú's costs and enhance its transparency and governance are also needed to safeguard fiscal credibility.

Systemic risks are limited, but authorities should continue to proactively contain financial vulnerabilities. Banks are profitable, with ample liquidity and capital buffers. While elevated for small- and medium-sized firms, NPLs are expected to continue improving and would support the growth of credit. The authorities should continue to be vigilant of pockets of vulnerability, particularly in corporate loans.

Focused macroprudential policies could reduce financial vulnerabilities from remaining dollarized credit. While the aggregate value of unhedged dollar credit is low, unhedged dollar credit tends to be riskier and concentrated in large- and medium-sized companies in the construction, commerce, and manufacturing sectors. The authorities' regulation to introduce higher risk weighting in 2026 will help alleviate vulnerabilities from unhedged dollar credit. To ensure the stability of dollar funding for financial institutions, the authorities could consider introducing currency-specific NSFR requirements to complement the existing currency-specific LCR limits.

Policy efforts are needed to revive the domestic capital market. It is critical to maintain the prohibition of future pension withdrawals, as approved in the recent pension reform, to protect the functioning of the domestic capital market, decrease financing costs, and lower the risks of old-age poverty. Measures to broaden the investor base through retail investment products could play a significant role in attracting funds back into the securities market.

Financial resilience would be strengthened by addressing remaining regulatory gaps. The revised Basel III risk-weight framework and improving the activation criteria for the countercyclical capital buffer (CCyB) will help enhance the effectiveness of the entire regulatory framework. Completing the evaluation of recovery plans for domestic systemically important banks and expanding to the financial group level and their resolution planning will eliminate uncertainty under potential systemic events by facilitating orderly crisis management.

Updating the fiscal decentralization framework, along other needed structural reforms, could help boost investments in the critical mineral sector and increase potential growth. A US$64 billion pipeline of mining investment projects has been mostly stalled for many years due to bureaucratic complexity and social conflicts. Unlocking these projects and channeling the additional fiscal revenues could permanently boost potential growth. Updating the fiscal decentralization framework, including redesigning natural resource revenue-sharing formulas, to improve public spending efficiency and generate high-impact public investments could help ensure that mining dividends translate into greater development. Enhanced efforts are also needed to curb the low but rising level of insecurity, reform labor and tax regulations that impose excessive costs for formalizing or growing a business, enhance the independence and integrity of judicial bodies and tools to combat corruption impunity, build resilience to natural disasters, and embrace the opportunities of digital technologies and artificial intelligence. The OECD accession process provides a clear roadmap for other critical reforms to boost the business climate, reduce informality, and reform the civil service.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis of discussion by the Executive Board.

[2] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.