Reactivation and closing of gaps

By Pedro Francke, Minister of Economy and Finance

This week the Congress of the Republic must approve the 2022 Budget, a key tool of a fiscal policy whose fundamental objective continues to be to face the triple challenge of overcoming the crisis caused by the pandemic, closing the social gaps that our country has historically suffered, and sowing a new development in accordance with the technological and social changes that the world is going through.

Let us briefly recall how we received the country. At the end of July there were enormous concerns and uncertainties. We accumulated more than 2 million cases of Covid-19, with a painful and tragic balance of 196 thousand deaths. The vaccination campaign had barely reached 19% of the target population, which increased the risk of a resurgence of the pandemic. This crisis was also reflected in the economy. Only in metropolitan Lima there were half a million fewer jobs compared to the pre-pandemic level.

Thus, at the beginning of the administration of the new Government, it was urgent to take measures to reinforce vaccination and economic reactivation; to protect the most vulnerable sectors; and to promote employment and streamline public and private investment. It was necessary to act quickly and decisively, and fiscal policy has been key to this.

What has been done?

The first priority has been the vaccination campaigns, essential both to face a possible third wave and to sustain the process of reactivating the economy. Thus, between August and October more than 39 million doses were administered and 58% of the target population were able to complete their two doses, which required a significant budgetary effort. This progress is reflected in the substantial decrease in cases and deaths from Covid-19. These are encouraging results, but we will not lower our guard.

Attention to the Covid-19 crisis also includes its aftermath. Economic reactivation and social protection have been a priority in these first months of government. For both, the Yanapay bond has played a central role, since it allowed to support the economy of more than 13 million Peruvians with more than S / 4,500 million. Likewise, temporary employment programs Peru works, Agro Peru and common pots have aimed at economic and social recovery. All of this required that through emergency decrees and supreme decrees we ensure that the required resources were available at the time they were needed. These and other initiatives have been implemented with strict respect for our legal and constitutional framework.

In parallel, the responsible and sustainable management of public finances has been and will continue to be an essential element of our economic policy. For this reason, together with the fiscal impulse that maintains the reactivation of demand as a factor of recovery, we have reduced the fiscal deficit for this year thanks to better tax collection. The fiscal deficit target has fallen from 6.2% of the PBI initially expected at 4.1%.

The budget to be approved this week will allow us to advance even further in this direction, to the extent that it will reduce next year’s fiscal deficit to 3.7% of GDP (one of the lowest in Latin America), within the commitment of the Macroeconomic Framework Multi-year to continue lowering it in the following years. A good fiscal policy is essential for our central objective: to sustain a process of growth with inclusion and equity, which improves the living standards of all Peruvians.

For this, a central element is also promoting decentralized private investment and the generation of decentralized employment, for which we have been working on a productive diversification strategy aimed at facilitating new growth engines, such as the aquaculture, forestry and tourism sectors. For the same reason, the request for legislative powers has a set of proposals specifically focused on promoting private investment.

How are we today?

The balance of the measures adopted already shows encouraging results. In the third quarter of this year, private investment grew 13.2% compared to the same period of 2019 (prepandemic). Public investment had a similar behavior, which will close this 2021 with S / 36 billion, a historical record. We have recovered the ground that the economy lost due to the pandemic and we have consolidated a strong growth rate. The Central Reserve Bank projects that we will grow by more than 13% this year (see info).

We are also making progress in improving people’s economy. Only between July and September 200 thousand formal jobs were created. And we continue to be committed to recovering salaries and decent employment, which is why we have announced a special bonus of 210 soles to formal workers and we have reestablished collective bargaining in the public sector. In addition, We have started the payment of pensions from the ONP to those who have 10 and 15 years of contribution. All within the established fiscal responsibility framework.

The 2022 Budget that we have been agreeing with the Budget Committee of the Congress maintains this line of action, prioritizing health, education, water, agricultural promotion and support for the most vulnerable. Its approval is essential to maintain the pace of economic and social recovery that we have been achieving.

We know, however, that much more needs to be done and faster to close the huge economic and social gaps. For this, we need a tax reform that provides the necessary financial resources to move towards that goal. For this reason, the request for legislative powers in tax matters contains measures for formalization, to strengthen the fight against evasion and avoidance, to promote private investment, to improve the management and execution of public investment, and to reduce the existing inequities in the collection of taxes. We will persist in this proposal.