Officials and researchers from the Inter-American Development Bank (IDB) affirmed that Peru stands out for its fiscal prudence and management of debt levelsduring the presentation of the report “Dealing with debt, less risk for more growth in Latin America and the Caribbean”, an activity organized by the Universidad del Pacífico.
According to the IDB, Peru’s medium-term fiscal consolidation plans are consistent with prudent debt levels, which range between 28% and 33%. Besides, The country has demonstrated its commitment to macroeconomic stability by being one of the countries that has managed to return to pre-pandemic levels the fastest and control the level of indebtedness in a difficult external context, in which supply shocks are increasingly persistent.
“Peru has stood out for its macroeconomic stability and fiscal strength. His prudent economic policies and management of debt levels have allowed him to successfully navigate international challenges. These conditions allow Peru to resume the path of growth”, said Tomás Bermúdez, Vice Minister of Economy.
The report argues that the countries of Latin America and the Caribbean should reduce their percentage of debt, from an average of 70% to a prudent range of 46% – 55% of GDP.
The strength of Peru’s fiscal institutions, such as the Fiscal Council and the fiscal rule, they have allowed the country to mitigate the negative impacts of global economic challenges, such as the COVID-19 crisis.
The debt of Latin America today almost doubles that of 2008
The study reveals that the total debt of Latin America and the Caribbean increased to US$5.8 trillion, or 117% of GDP, from less than US$3 trillion in 2008. Meanwhile, the region’s public debt grew by 58% in 2019 to 72% in 2020 due to tax packages related to the COVID-19lower income and recession.
High levels of debt can hinder countries’ development because they push investors to demand higher returns, crowding out private investment and forcing governments to divert scarce resources to pay interest, instead of investing in infrastructure and public services. They also reduce the ability of countries to respond to future economic shocks to support households and businesses, and increase the risk of a crisis.
The report recommends an agenda of ways for debt to become an engine for growth, including measures to strengthen macrofiscal institutions, reduce public debt and improve its management, and ensure a business-friendly financing environment.
Source: Larepublica
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