World Bank: Peru granted fiscal stimuli of 19% of GDP in response to the COVID-19 crisis

By Jackeline Cardenas I.

The COVID-19 pandemic has been an unprecedented scenario that has tested the resistance of many economies in the world. The World Bank introduced the world development report 2022, where he highlighted that, in Latin America, Peru was the country with a fiscal response of 19% of GDP to address the crisis.

The The World Bank considers Peru within the countries with medium income, and it was placed before Chile and Brazil with respect to the response of these countries to face the pandemic. In the last places were Mexico and Egypt, both with 2%.The report explains that, in middle-income countries, the fiscal response varied significantly, reflecting stark differences in the ability and willingness of governments to mobilize fiscal resources and spend on support programs.

These fiscal emergency measures were supported by large monetary policy interventions. It is noted that several central banks of emerging economies, for example, used unconventional monetary policies, such as asset purchase programs, for the first time in history.

In the case of Peru, it is mentioned that the “Peru’s Central Reserve Bank injected liquidity into the banking system through government-backed repurchase agreements, which lowered the interest rate on new loans.” Asset purchase programs were some of the unconventional monetary policy tools used by central banks.

The objective of these measures was to prevent a liquidity crisis and safeguard the financial stability of the countries. A total of twenty-seven emerging economies adopted these programs for the first time in response to the COVID-19 crisis.

The report also explains what are thefour economic risks that will come from the COVID-19 pandemic. These are the increase in doubtful loans and the delay in the resolution of these loans. In addition, the more restricted access to credit and the high levels of public debt.

Among the conclusions, it is emphasized that sectors of the economy are interconnectedso these linkages create pathways through which risks can spread from one sector to another, so the adoption of well-designed fiscal, monetary, and financial policies can mitigate risks and generate positive outcomes that support economic recovery .