By Ronin-Perú21
At the end of January, there was a strong correction in the international prices of the main metals, such as gold, silver and copper. This event should serve as a reminder of the structural vulnerability that still defines the Peruvian economy in the face of external shocks over which it has no control.
According to various estimates, external factors such as world demand, export prices or international financial conditions explain more than half of the movements of the main Peruvian macroeconomic variables, such as GDP, inflation, interest rates and tax revenues.
In particular, general government current revenues and export prices show a positive correlation (see Chart 1).
This strong fiscal sensitivity uncovers the underlying fragility of a growth model that depends largely on income generated by non-renewable natural resources, whose values completely escape the control of local authorities and obey global dynamics of demand and supply, often volatile, unpredictable and subject to complex geopolitical factors.
Currently, the Peruvian economy faces a highly favorable external environment, mainly due to high mineral prices, which have caused our terms of trade to be at historically high levels.
The market consensus is that, in the short and medium term, this favorable price level would be maintained. However, the country’s recent economic history teaches an invaluable lesson: price boom cycles are invariably followed by correction phases, sometimes abrupt and prolonged, that test the resilience of public policies.
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In this context of apparent but fragile bonanza, it is crucial to analyze recent fiscal performance with a more critical eye. Although the fiscal deficit of the last year managed to reach the established goal of 2.2% of GDP, it is important to recognize that this result was achieved in a highly favorable context.
Not only did it benefit from the exceptional terms of trade mentioned above, but it also received extraordinary income from large one-off tax operations. These revenues of a non-recurring nature acted as an artificial cushion that temporarily improved the fiscal result, masking a less solid underlying trend.
A more rigorous analysis should focus more on the structural fiscal deficit, which excludes the cyclical and atypical components that affected revenues last year. This indicator shows a more worrying reality: without these extraordinary elements, the fiscal deficit would have been 3.2% of GDP (see graph 2).
Furthermore, this more structural indicator is expected to be only slightly below 3% of GDP this year. These figures starkly reveal the true structural pressure on public accounts once the distorting effect of temporary income and cyclical tailwinds has been eliminated.
This scenario poses a policy challenge. The Peruvian economy cannot, under any circumstances, allow itself to be complacent or administrative inertia.
The recent volatility in mineral prices is an early warning signal that calls for decisively accelerating the reforms necessary to build a stronger, broader and more diversified fiscal base, less subject to the erratic swings of global commodity markets.
It is urgent to expand the tax base
Isaac Foinquinos, chief economist at Ronin, pointed out the need to strengthen the State’s collection capacity through a more efficient and progressive tax base. The specialist warned that mining dependence is a structural reality that should not justify inaction, especially given the volatility of international prices.
Foinquinos proposed modernizing the tax administration and improving competitiveness in non-extractive sectors to diversify the economy. Likewise, he proposed using the Fiscal Stabilization Fund to save in good times and prioritize spending on infrastructure and education. The objective is to act before the external cycle turns and reduces fiscal policy options in the face of social pressure.
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