The deterioration of the public finances has generated concern from the Fiscal Council and several analysts. Recently, economist Carlos Gallardo, general manager of the Peruvian Institute of Economics (IPE), told Perú21 that one of the risks facing the Peruvian economy in the second part of the year is fiscal management.
He maintained that an IPE survey showed that two out of three economists doubt that the next government can comply with the deficit and spending limits for this year, as well as with campaign promises, unless it is willing to seriously endanger macroeconomic stability, a pillar that has been fundamental for the country’s economic growth and progress.
“The next government will find that meeting the deficit goal of 1.8% of GDP is tremendously challenging if not impossible given the trajectory of spending,” Alonso Segura, president of the Fiscal Council, told this newspaper.
Permissive minister
Yesterday, the Minister of Economy, Denisse Miralles, announced that Premier Ernesto Álvarez will announce this week which norm approved by Congress will be sued before the Constitutional Court (TC). The measure responds to the fact that the Legislature violated the budgetary discipline provisions established by the Constitution by exercising spending initiative, also omitting the financing to make said laws viable.
However, Miralles qualified her position by being permissive with the congressmen. In an interview with RPP, he assured that the Executive evaluates other laws, also approved unconstitutionally, whose benefits are demanded by union organizations, in order to propose a gradual application to reduce their impact.
For the Fiscal Council, the position of the Ministry of Economy (MEF) is the reason why, for the third consecutive year, the budgetary discipline rules have been breached. According to the referee, during Jerí’s administration, 26 new laws with an adverse fiscal impact were enacted, without any observation and in less than four months.
The worst thing, according to the president of the Fiscal Council himself, is that the MEF had in its favor that the TC had already declared unconstitutional the transfer of workers from the Administrative Services Contract regime (CAS) to the labor regime of private activity, the central objective of several of the approved projects.
Thus, given the obligations assumed by this government, Segura asserted that it will be impossible to comply with any future budgetary discipline standard. He explained that for this year there are commitments for salary increases of around S/7,800 million, when the fiscal space planned by the MEF itself for this purpose is only S/2,100 million.
“Hopefully it is true that they will bring some law to the TC. It could include a series of regulations in that lawsuit. However, it is also complicated, because if the Executive did not observe them, the Court’s presumption will be that the Executive agreed. So, everything that they are promulgating and letting pass will cause a queue,” Segura stated.
Urgent actions
The president of the Fiscal Council stated that urgent and immediate actions are required to stop the deterioration of public finances. He argued that, although the speech about a fiscal agreement with presidential commitment is positive, two months have passed without the Government taking concrete actions.
“This laxity in fiscal policy is continuing,” he said.
Segura criticized that, in the current situation, the Executive has been discussing a new industry law full of tax exemptions that will cost more than S/5,000 million a year, in order to prepare a bill and send it to Congress.
“As I understand it, the Executive wants to take this initiative to the Council of Ministers. This is worrying because they are leaving a very heavy burden on Peruvians. It will be very difficult for any future government to be able to resume a reasonable and, above all, sustainable fiscal trajectory,” he commented.
Contract management concerns
Alonso Segura expressed his personal concern about the way in which the State has been managing infrastructure investment commitments, particularly projects under the Government-to-Government modality and Public Private Partnerships (PPP).
He pointed out that there are multiple contracts and offers that involve state spending without timely information, clear short-term budget frameworks or consistent criteria to define which projects go for each modality.
He indicated that the problem is not limited to the Government by Government, but to a lack of clear and stable policies, which generates changing and poorly ordered decisions.
Likewise, he questioned the lack of transparency about the reasons and legal basis for the unilateral termination of contracts, warning that the State has been losing arbitrations due to reckless actions.
Segura warned that these decisions can generate significant contingencies and affect fiscal sustainability, which is why it was considered essential to organize the project portfolio, make commitments transparent and define clear criteria that minimize legal and fiscal risks.
Data
The Fiscal Council maintained that, although the fiscal deficit rule would have been met in 2025, both the non-financial spending rule and the current spending rule would have been violated.
Since the introduction of the fiscal rules scheme in the early 2000s, there have been three consecutive years of joint non-compliance with fiscal rules (2023, 2024 and 2025).
Peru needs us informed to make decisions. Subscribe for free to the Perú21 newsletter: THE TOP 5 NEWS YOU SHOULD KNOW TODAY. Click on the next link.
RECOMMENDED VIDEO
