Public investment loses pace, but factors do not coincide

The Chairman of the Board of Directors of the Central Reserve Bank of Peru (BCRP), Julio Velarde, recently pointed out that public investment has been contracting for the last five months as a result of poor public management.

“Public investment, which has been growing since October 2020, has been falling in the last five months. That is to say, there are components, some that have nothing to do with uncertainty, but with management, with public management itself, ”he noted for a local newspaper.

How is public investment coming?

It is worth emphasizing that public investment during 2021 reached S/ 39,103 million, achieving a historical record, since it increased by 21% to 2018 (S/ 32,275 million), the year prior to COVID-19, with greater execution.

Compared to 2020, public investment obtained a nominal growth of 38.02% compared to what was registered in 2020 (S/ 28,330 million), in a year marked by the paralysis of economic activities with the arrival of the pandemic.

Even the Ministry of Economy and Finance (MEF) highlighted that more than 889 local governments and 11 regional governments transferred 75% of their budget execution, which in recent years “was particularly low.”

At the beginning of the year, the consultant of the General Directorate of Multiannual Investment Programming (DGPMI) of the MEF, David Grández, explained that the success achieved is largely due to the Government-to-Government Agreement (G2G), since with the Authority for the Reconstruction with Changes (ARCC) it was possible to execute S/ 1,992 million (79%), a figure greater than that of ministries with a similar budget, but that do not have these provisions.

Beware of alarmism

In this regard, the economist Armando Mendoza pointed out that Velarde’s statements should be taken with a grain of salt, given that his reading is not on the right path.

“There is no need to be alarmist. If (Velarde) compares January or February 2022 with that of 2021, one must be careful with what he declares because obviously in those months of last year the spending levels were brutal due to the pandemic. Pretending that this is maintained would be excessive, ”he pointed out to La República.

According to data from the MEF, public investment achieved an execution greater than S/ 1,725 ​​million in February of this year, which meant a nominal decline of 19.64% compared to the same month of 2021. This scenario translates into a fall of second consecutive month, considering that in January it fell 18.79% (see infographic).

Mendoza lands the panorama and points out that this slump does not respond to a lack of transfer of resources, but to the constant instability of the political spectrum in the bowels of the central government, such as the constant political tension and questioned appointments in certain ministries.

“The trust that private agents should feel is always mentioned, but never the impact (of political crises) on State agents. If I am an official and my minister is constantly changing, with what confidence do I proceed with a project? We have a serious issue, not only comes from this government, but from before. We have been in a carousel in which everything was seen: presidents who resigned, vacancies and an alleged fraud that paralyzed the march at the beginning of this administration, ”he assured.

Pay attention to the role that the BCRP is fulfilling

Focus of Kurt Burneo, researcher at Centrum PUCP

With the contractionary policy developed by the BCRP, it practically kicks down consumption and investment, making credit more expensive.

The logic is financial to make local assets more competitive and prevent capital flight from being very intense, but its cost is that it makes the recovery of consumption and investment less viable.

The MEF reported a growth of 13% in 2021, but what it did not say is that the increase has been slowing down since the last quarter of 2021.

The first thing the government must do to promote public investment is to come to an agreement with the BCRP. Also, show a clear economic policy and prioritize non-primary sectors that are more interactive in employment.

There is no clear idea of ​​what the Government’s economic policy proposal is, we do not know where we are going. We do not know which are the priority sectors for the Government in terms of reactivation.