Daniel Barco: “We project a rate of 2.6%, but we will probably have to review it”

From the World Bank they describe the virtues and complications of our market in the midst of a sociopolitical crisis, in a year where the economy weighed down by external and internal attacks, it would grow less than what our potential mandates (that is, between 3% and 4%, according to the Government).

—How do you find Peru within the regional economic panorama?

—The global economy has mixed implications for Peru. On the one hand, the negative effect of higher interest rates on investment, and the positive is the higher growth expected for China, our largest trading partner. Under regular circumstances, this rise in China would drive the Peruvian economy to growth of more than 3%.

But with the current crisis…

-The circumstances that the Peru They are not regular due to domestic factors. We have projected a growth rate of 2.6% for the Peruvian economy, however, it was estimated prior to political volatility and we will probably have to review and evaluate it because we believe some downward risks have been materializing.

—Can the situation be complicated by the disconnect between macro strength and quality of life?

—Between 2004 and 2019, the reduction of poverty It went from rates above 50% to practically reaching 20%. Well, 85% of that drop was due to economic growth. From 2004 to 2013 it grew at a rate of 6.1% and the quality of life of the population improved, but from then to 2019 the rate was 3%. With the covid it began to increase and now we see how food insecurity continues to rise.

—How to reverse it?

—The first line of action must be to promote economic growth. Policies aimed at creating quality employment are needed because the Peruvian economy has a productive duality: on the one hand, few large companies offer highly productive and well-paid jobs and there are many small ones with little productivity.

–And to reduce poverty?

—According to the poverty assessment of the world Bank that we will publish in a few months, we see that Peru has a fiscal system, of transfers (to the population) and taxes with very little impact to generate redistribution, and therefore have an effect on poverty reduction. It is a very limited impact for households. Therefore, the ability to make spending and transfers are limited.

—Is there enough space to create more tax reforms?

—A comprehensive analysis is needed. The main problem is fiscal and tax evasion. Any reform has to take into account the great informality and the difficulty it represents for companies to grow. The first thing is to remove the obstacles in the growth of the companies to generate more tax revenue.

-What balance do you have about the work of the MEF in these last two governments?

—Even with the relatively low rate of 2.6% for Peru, it is higher than expected for other large economies such as Argentina, Brazil, Chile, Colombia or Mexico. Even with political volatility, it is a resilient country due to its good macroprudential management, and institutions such as the Central Bank (Reserve), which together with the Ministry of Economy give stability on the monetary and fiscal sides. There is continuity in the MEF and generated a culture of fiscal prudence beyond the changes of ministers.

Latent risk of global recession

Spotlight: By Carlos Arteta, Lead Economist, World Bank Perspectives Group

There is a noticeable global slowdown, since we will grow 1.7% this year, which is equivalent to the weakest rate in the last three decades, if we exclude what was seen in 2009 and 2020. The United States, with its 0.5%, will affect exports of Latin America, and its tightening of monetary policies will impact credit conditions and the slowdown in consumption will cause remittances to this region to fall; while China with its 4.3% reaches levels below its potential GDP.

Let us remember that they generate a very important demand for metals of up to 50% of global consumption. There are looming upside risks that would bring a global recession. Developing countries such as Peru, which have limited fiscal space, are recommended to keep support highly focused on the most vulnerable households and prioritize spending with clear policies.