Peru's Fiscal Council has warned that the government's 3.4% economic growth forecast for 2027 is overly demanding and faces severe downside risks.
In Report No. 04-2026-CF, released after reviewing the draft Multiannual Macroeconomic Framework 2027-2030 submitted by the Ministry of Economy and Finance on August 20, the independent technical body stated that climate threats, external volatility and rising public spending could undermine fiscal stability.
The framework prepared by the Ministry of Economy and Finance projects real gross domestic product expansion of 3.4% in both 2026 and 2027, followed by annual growth of 4% from 2028 to 2030. The ministry also aims to lower the fiscal deficit from 1.8% of GDP in 2026 to 1.4% in 2027 and 1% starting in 2028. However, the council noted that these fiscal targets are merely referential because the government has announced planned changes to fiscal rules.
El Niño risks and external volatility
The advisory council highlighted that achieving the 2027 growth target would require the economy to maintain strong momentum despite a clear recent slowdown. Official data cited in the report showed that annual GDP growth slowed to an average of 2% in May and June 2026, down from 3.6% recorded between January and April.
A central concern is the potential impact of the El Niño weather phenomenon. Citing forecasts from the National Study of the El Niño Phenomenon committee, the council warned that a coastal El Niño could persist into the early months of 2027 and reach a strong or extraordinary magnitude. Such an event would damage infrastructure and generate substantial additional spending demands for emergency response and reconstruction.
The report recommended that the ministry build alternative expenditure scenarios into its financial planning to account for varying disaster intensities. Beyond climate factors, the council pointed to international trade tensions, global geopolitical conflicts and a structural slowdown in China, which poses significant risks to Peru due to its reliance on raw material exports.
Long term private investment projections
The council expressed equal skepticism regarding the government's projection of 4% average annual growth between 2028 and 2030, calling the target notably demanding. Reaching that pace would require private investment to grow by an average of 7.5% annually, compared with the 5.7% expansion estimated in the previous macroeconomic report.
The body observed that major mining projects, including Trapiche, Los Chancas and Michiquillay, have suffered repeated delays, leaving the current mining project pipeline smaller than in previous investment cycles. Public-private partnership infrastructure projects also face execution hurdles linked to land acquisition delays and coordination issues among public entities.
Economic capacity indicators further challenge the government's optimism. Council calculations indicated that Peru's potential GDP growth dropped from an average of 3.5% between 2014 and 2019 to 2.6% between 2022 and 2025, settling around 3% when accounting for 2026 estimates.
Temporary revenue windfall and fiscal vulnerability
Addressing state revenues, the report noted that the ministry expects current general government revenues in 2026 to exceed 2025 levels by more than 30 billion soles, and surpass initial budget estimates by over 21 billion soles.
However, the council warned that this revenue surge is exceptional and temporary, driven by high global commodity prices, extraordinary profit transfers to the public treasury, tax regularization campaigns and higher advance tax payment coefficients. A correction in export prices could reduce fiscal revenues by 1.2 percentage points of GDP.
For the 2028-2030 period, the framework assumes sustained high export prices while non-resource tax revenues remain static around 16.9% of GDP. The council stressed that this pattern reveals the tax system's inability to convert broader economic growth into permanent state revenue.
Fourth consecutive year of fiscal rule breaches
Public expenditure projections drew severe criticism from the monitoring body. Non-financial general government spending for 2026 is projected at nearly 262 billion soles, exceeding the statutory spending ceiling by approximately 10 billion soles, even after accounting for compensation required due to 2025 overspending.
If realized, this budget path will result in the joint breach of fiscal rules for a fourth consecutive year. Current expenditure excluding maintenance is projected to grow by 6.6% in real terms, far above the statutory limit of 2.4%.
The report revealed a structural shift in budget allocation between 2023 and 2026. Current expenditure rose from 68.7% to 74.3% of the initial non-financial budget, while public investment shrank from 28.5% to 22.3%.
Although the framework projects non-financial spending growth to slow to 1.7% in real terms in 2027, the council warned that the government must prevent post-approval budget expansions from pushing expenditure above authorized limits.
Unfunded legislation and spending pressures
Legislative decisions have added substantial long term pressure to state finances. The council identified 316 laws passed by congress during the 2021-2026 parliamentary term that carry adverse fiscal impacts. Among these, 256 increase spending, 48 reduce tax collection and 12 negatively affect subnational finances.
A group of 70 such laws carries a combined annual cost estimated near 40 billion soles, while five specific measures represent a total commitment of 132 billion soles. Alarmingly, 241 of the 316 passed laws were enacted without any fiscal cost estimation.
Personnel cost commitments approved by lawmakers are projected in the framework to reach approximately 50 billion soles annually by 2027, with expenditure continuing to rise in subsequent years. The council warned that accumulating permanent obligations threatens fiscal sustainability.
Under a stress scenario where all approved legal obligations are fully funded while essential services and public investment are maintained, the council estimated that the fiscal deficit would reach 2.7% of GDP in 2027 and average 2.8% through 2030. Under those conditions, public debt would climb to 33.8% of GDP by the end of the decade.
Deficit reduction path and unmapped liabilities
While the trailing 12-month fiscal deficit fell to 1% of GDP during the first seven months of 2026 due to temporary revenue collection, the council noted that meeting the 1.8% end-of-year deficit target will require strict spending controls in the remaining months.
Achieving the 1.4% deficit target for 2027 remains contingent on revenue remaining at 2026 levels and spending staying tightly restricted. Any commodity price decline, severe El Niño occurrence or new parliamentary spending mandates would disrupt this trajectory.
The council expressed concern over long term balance sheet trends. Net public debt has risen by approximately 20 percentage points of GDP since 2013, expanding at nearly double the rate of gross debt. Concurrently, financial assets held by the non-financial public sector dropped to 7.4% of GDP in 2025, marking their lowest level since 2001.
In addition, the report criticized the framework for providing insufficient detail regarding the financial troubles of state oil company Petroperu and called for greater transparency regarding fiscal contingencies attached to major co-financed public infrastructure projects.
To improve fiscal tracking and provide early warning signals for policy deviations, the Fiscal Council recommended that the final version of the macroeconomic framework include quarterly breakdown projections for all primary macro-fiscal aggregates throughout 2026.
