Peru dreams of an economic recovery in 2022 ... supported by debt

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With a 3.2% more budget for 2021 and the hope that taxation will increase, the Government of Peru estimates that in 2022 it would return to pre-covid growth rates, a forecast that experts doubt and only possible at the cost of greater indebtedness.

The Minister of Economy and Finance, María Antonieta Alva said, Peru will be one of the Latin American countries along with Chile and Colombia whose GDP returns to pre-covid-19 levels in 2022.

He also assured this before Congress, when at the end of August he explained the budget for 2021, a year about which although hopes of the arrival of the vaccine are kept there is no date that has proven its effectiveness.

For the economist Carlos Casas dean of the Faculty of Economics at the Universidad del Pacífico, the MEF budget analyzed from a past experience within this ministry is viable although it focused on the increase in debt as a source financing.

Casas said, before it was 27% of GDP, now we are going to 35% according to the MEF estimate but it could be more about that risk for this and next year.

The expert pointed out that this measure although it will also be applied by other countries, should not be overlooked. More concerned about this was the economist Jorge Chávez , executive president of the consulting firm Maximixe , who pointed out that the ministry works under very optimistic assumptions such as that, even at a worse time the debt would reach 39%.

Chávez said, I believe that certain contingencies are not being considered there as problems of recovery of Reactiva Peru's credits, which could lead to the execution of the State guarantee. With this high level of spending, we would be reaching the level of around 50% of GDP in public debt, which would make us lose investment grade, rates would rise and we would be much more vulnerable to a recession

The economist thus referred to the private credit support program that the Government offered to help finance the reactivation of productive activities paralyzed by the strict confinement.

On the other hand, growth estimates for 2021, supported by Alva before Congress, pointed to 10% one of the highest in the region that will be sustained based on three keys: the boost in demand to the stock of capital and to competitiveness and productivity. For Casas, the ministry sins of optimism because 10% is an unlikely figure and prefers to opt for 6% or 8%, a figure closer to that estimated by the World Bank for the Andean country.

Chávez pointed out, while public investment strategies such as Peru Arranca , a program for the construction of roads and highways of more than S / 6,350 million (US $ 1,814 million), with which the Executive expects to create a million jobs could be a badly invested money, because it will not generate a structural impact on the economy.

One of the main criticisms of the Government's budget for 2021 has come from the Health sector, who even with a strike in the midst of a pandemic have denounced a neglect of decades, and that made their workers have to face Covid-19 with just 100 mechanical fans compared to 3,315 that for example Chile had. Despite this, the Government established S / 20,940 million (US $ 5,900 million), only 13.22% additional to the 2021 budget, although it increased the percentage allocated to the contingency reserve that by law must be equal to 1% of income central government tax .

Casas highlighted because next year they will continue in a context of uncertainty and it is better have the money there to be able to inject the money for 2021 the contingency reserve is increasing strongly something of S / 8,000 million or S / 9,000 million (US $ 2,500 million). Although, with the infection and mortality rates that Peru reached at the end of August, the month in which it ranked first in the world in terms of mortality could be worse.

Chávez, believes that the government should see the vaccine as a lottery and continue working as if it were not going to get it. Both economists pointed out that the pandemic has only revealed the complex behavior of the Peruvian economy built on the basis of more than 70% informality.

For this reason, Casas considered that probably in 2022, if the indicators do not respond positively, the only viable way out of recovery will be to raise a percentage point to the general sales tax and an examination of some traceable activities to ensure taxation, such as professional services. The problem is that informality is increasing rapidly but decreasing very slowly. Similar opinion to that of Chávez, who believes that the pandemic crisis should be used as a lever to formalize the economy and reduce economic and social vulnerability.