NEW YORK, March 7– Even as Peru’s economy rebounded strongly in 2021, the Andean nation faces continued political uncertainty making its future prone to volatility and downside risks, the International Monetary Fund said today.

In announcing the conclusion of the Article IV mission, the multilateral lender projects that Peru’s gross domestic product will expand 3% this year vs a 13.3% growth registered in 2021 as “external conditions tighten and the policy stimulus is withdrawn,” the IMF said in a public statement.

“Continued political uncertainty might have adverse effects on private investment and trigger more financial market volatility. In the medium term, labor productivity can be negatively affected by the scarring effects of the pandemic,” the Washington-based institution said. “The outlook is very uncertain, and downside risks prevail. “

The mission highlights that Peru’s real GDP remains below its pre-pandemic trend and labor force participation and total employment haven’t fully recovered. “Poverty increased significantly in 2020 and is still above pre-pandemic levels despite some improvement in 2021,” the IMF said.

The multilateral lender reiterated a call for changes at government level. “Structural reforms are necessary to enhance the effectiveness of public services, promote the development of the private sector, and prevent potential growth from declining.” Efforts to increase productivity, reduce informality, and promote social inclusion should be intensified, while the structural reform agenda should be revamped to reduce scarring from the pandemic.  

The IMF forecast Peru’s fiscal deficit will reach 2.7% of GDP this year, reflecting a prudent budget that envisions increased spending in health, education, and social protection. “Public debt is sustainable, and Peru has some fiscal space. As the outlook is highly uncertain, the authorities should prepare contingency plans to contain slippages,” the IMF said in the statement.

Peru’s inflation should moderate this year to an annual rate of 3% vs 6% in 2021, and decrease even further going forward to end 2023 at 2.3%, according to the IMF projections. GDP should also reach 3% in 2023, the IMF said.