NEW YORK — Peru is set to shore up its fiscal management sustainability to foster economic recovery with help from a USD500 million loan from the Inter-American Development Bank, the multilateral lender announced today in a public statement.

The 20-year term loan carries an interest rate based on LIBOR and will help the South American nation in the implementation of reforms “aimed at boosting tax collection, bolstering public investment quality to encourage economic and fiscal recovery, and improving the effectiveness of public spending,” the IDB said in the statement.

The loan will also promote the participation of women-led companies in the public procurement market; provisions for managing ecoefficiency in public administration agencies; and rules to improve scrutiny of public spending on gender equality and climate change, according to the IDB.

Peru’s economy shrank 11.1% last year due to the pandemic and tax revenue fell 10.5% in real terms, from 19.9% of the nations’s gross domestic product in 2019 to 18% of GDP in 2020. Revenue from the goods and services tax, known as IGV, also declined 14.5%, “as a result of the decreased economic activity and imports, and the postponement of tax payments.”

Internal documents filed by the Peruvian government to support the loan show that with the lower tax revenue and higher public expenditure, the fiscal deficit jumped from 1.6% of GDP in 2019 to 8.9% in 2020. “The measures adopted were financed by using fiscal assets and issuing debt. Financing requirements increased from 4.2% of GDP in 2019 to 9.2% in 2020. Debt climbed from 27.1% of GDP in 2019 to 35.4% in 2020, the highest rate posted by the country since 2005 but still the second lowest in the region,” according to the document.