The World Bank In Peru

Between 2004 and 2013, Peru experienced substantial growth and poverty dropped from 60 to 33 percent. Starting in 2014, declining mining prices and economic deceleration of key trading partners resulted in a growth slowdown with an average of only 3 percent growth from 2014-2019, which was later exacerbated by the impact of COVID.

Macroeconomic stability, trade openness, and a favorable international environment allowed the country to become an upper middle-income economy, with per capita income rising from US$ 2040 in 2002 to US$ 7126 in 2022. Peru's economic strategy, characterized by sound prudent macroeconomic policies, has resulted in low public debt, substantial international reserves, and a central bank that is widely regarded as reliable. Moreover, the Peruvian financial system is robust, with sufficient capital to weather potential liquidity crises. 

Despite these achievements, the country faces ongoing challenges and structural weaknesses that could hinder its path to further development and prosperity: the impact of climate change, persistent inequalities, and an economic model heavily reliant on natural resources. Structural issues, such as the limited creation of formal jobs, productivity, limited economic diversification, and slow progress in reducing poverty and inequality, remain significant obstacles.

To achieve a more inclusive and sustainable growth trajectory, Peru must focus on enhancing the quality of public services, strengthening governance, fostering a business-friendly environment, and ensuring political stability. Looking ahead, the Peruvian economy is expected to recover and grow 2.7 percent in 2024, following a slight contraction of 0.6 percent in 2023, which was attributed to unfavorable weather conditions, social unrest, and diminished business confidence. In 2025 GDP is projected to increase at around 2.4 percent, Over the medium term, GDP is expected to grow at an annual rate of 2.4 percent, primarily supported by exports from new mine projects (Quellaveco, Toromocho expansion). Although poverty rates are anticipated to decline marginally to 33.2 percent of households in 2024, they will likely remain above pre-pandemic levels.

Peru’s macroeconomic environment remains stable. Public deficit is expected at 2.4 percent and 2.0 percent for 2024 and 2025, while the debt-to-GDP ratio is projected to remain stable at around 34 percent. Inflation is expected to converge to the 1-3 percent target range in 2024, supported by the easing of output shocks and moderate domestic demand growth. International reserves are equivalent to 26.5 percent of GDP.

To address structural challenges, Peru must focus on reducing the high level of informality in the labor market, where three-quarters of workers are employed in low-productivity jobs, and on improving the quality of basic government services. These efforts are essential for building a more resilient and equitable economy.

Last Updated: Apr 05, 2024

Summary of World Bank Group Program in Peru

• The Peru Country Partnership Framework covers the period 2023 - 2027. 
• The WB has an active portfolio of US$2.3bn, that includes 11 investment projects and two development policy operations (US$1.5b) which support policies for a more resilient, greener, and inclusive economic recovery; and enhance climate change adaptation and a transition to a greener economy in specific sectors. Investment projects are focused mainly on infrastructure (urban transport, water and sanitation, irrigation, and electricity transmission), as well as on the delivery of justice services, innovation systems, and emergency response systems.
• IFC's committed portfolio of US$ 752m, of which US$102m is third-party mobilization, includes engagements with 11 entities in the country. IFC's portfolio by industry includes financial institutions (81%) and infrastructure (19%). The IFC portfolio had declined in recent years (from 21 entities and US$610m in 2017 to 8 entities and US$ 160m in 2021) mainly due to prepayments and exits that were motivated by strong local market conditions. During these years, there was abundant liquidity in the local banking and pension systems to cover most long-term financing requirements. However, renewed business development efforts, the drastic reduction in availability of long-term finance due to consecutive withdrawals of private pension funds, and a growing interest in the private sector to adopt strong ESG practices have generated renewed interest from the private sector to require IFC financing and advisory services (already reflected in FY23 and FY24 commitments of US$400m to BBVA Continental for green building finance, US$100m to MiBanco for financing to women-owned SMEs, and US$ 75 million in subordinated debt to financial institutions).
• As of April 2024, MIGA’s outstanding exposure in Peru stands at US$1,094 million, across three projects in the financial sector. The Agency’s exposure in Peru is the third largest in the LAC region and the seventh in MIGA’s overall portfolio. In June 2022 and June 2023, MIGA issued guarantees of US$351 million and US$427 million in support of Fondo MiVivienda S.A, the largest provider of affordable housing financing in Peru. The MIGA-guaranteed loans support increasing access to finance for certified green housing in Peru. The mortgages, aimed primarily at vulnerable and middle-income households, will benefit from reduced interest rates, as well as grants/subsidies that will lower the price of certified green social housing to levels comparable with the price of conventional housing. In addition, in June 2018, MIGA issued guarantees against the risk of expropriation of mandatory reserves of Banco Santander Peru. The aim of the project is to enable Santander Peru to extend more credit in Peru, including credit and other financial instruments to support climate finance and infrastructure investments in the country.

Last Updated: Apr 10, 2024

Environment, Natural Resources, and the Blue Economy

The World Bank supported transformative projects focused on the precious natural resources of the Peruvian Amazon, aiming to improve forest management practices, the legal protection and recognition of indigenous communities, and the security of land tenure. 58 communities spanning over 230,000 hectares were empowered through land plating and titling initiatives.

The project also contributed to the recognition of 253 indigenous communities and the financing of 44 community production subprojects --including 16 initiatives led by women-- that promoted sustainable forest management, increased food security and income generation activities in 119 indigenous communities of the Peruvian Amazon.

People and Justice

Free legal assistance can be life-changing for the most vulnerable people. In Peru, ALEGRA Centers are assisting thousands of people, especially women, many of whom seek help for child support or who are victims of domestic violence. Between 2017 and 2022, the 47 ALEGRA centers across Peru handled more than 1 million consultations.

In 2023, 40500 cases received legal assistance and sponsorship through the ALEGRA centers and they are now being expanded to reach remote indigenous communities through an itinerant justice initiative.

Water and sanitation services in key urban areas

 For the last three decades, the World Bank has been continuously working to increase access to safely managed water and sanitation services in rural and urban areas of Peru. In Lima metropolitan area, the recently closed “Lima Norte” Project, substantially improved the efficiency, continuity, and reliability of water supply services for 64,878 households in northern districts of the city, reducing non-revenue water from 40 percent to 25 percent, and increasing service continuity from 16.3 to 23.9 hours per day in its intervention areas.

Connectivity in critical corridors of the territory  

Urban transport, rural highways and telecommunications projects are critical for Peru’s development. Progress was made on the extension of the Lima Metropolitana bus system, the Cusco METRA express lane, and the subnational transportation program. Regarding the telecommunications industry, the World Bank supported regulatory reforms to promote private investment and competition, which will eliminate barriers and facilitate infrastructure development.

Absorption of skills and technologies

The World Bank successfully contributed to the acquisition of new skills and technology in the fields of agriculture, artisanal fishing, and aquaculture and in higher education.

An innovative project aimed at enhancing fisheries and aquaculture in Peru has successfully engaged 33,107 direct beneficiaries involved in artisanal fishing and aquaculture initiatives, leading to the adoption of new technologies. Furthermore, the project has fostered innovation, resulting in the development of 112 new fisheries innovations and 194 aquaculture innovations through applied and adaptive research subprojects.

Also, the World Bank has supported the STI system in the country through CONCYTEC and PROCIENCIA strengthening the system to improve research skills: 449 active researchers, 34 percent of which were women, under six PhD programs in strategic areas of innovation.

Progress towards a balanced engagement, on both supply and demand sides of the STI system, has been remarkable. CONCYTEC, with support of the World Bank, mobilized USD 1.5 million in private capital, including USD 221,436 from startup firms participating in the “Go-to-Market” program and USD 1,280,858 from private universities that benefitted from research grants.

Environment for sustainable private sector investments

The World Bank provided policy program support to enhance the private sector environment. The program helped new helped new firms register online, reduced excessive regulations, simplified the sales tax system, and introduced e-auctions. Emergency cash transfers were expanded to reach 2.5 million households, especially poor and informal workers, digital payment network facilitated these transfers.

The World Bank also supported companies facing severe and sudden demand crises through Reactiva Perú, an innovative credit guarantee mechanism. This program mobilized the equivalent of 8.5 percent of GDP in private liquid funds to grant loans to small and medium-sized enterprises. The competitive liquidity allocation system resulted in significant private sector credit inflows, supporting USD 16.5 billion in liquidity, and achieving historically low interest rates for end-borrowers. Half of formal workers are employed in firms that benefited from the Reactiva Perú program.

Disaster risk management and financial management

The World Bank provided assistance to the Government of Peru in the development of a comprehensive strategy for financial protection against natural disasters. It issued the Pacific Alliance Joint Catastrophe Bond for USD 200 million in February 2018 to protect against earthquakes over a three-year period. The bond provided coverage of USD 65 million when an earthquake affected the country in 2019. These bonds complemented Peru's staged financing strategy with traditional and non-traditional financial instruments.

The Bank also supported government efforts to improve the financial protection of public-private partnerships against disasters. In 2019, the Ministry of Economy and Finance included a chapter on insurance in its guidelines for the design of public-private partnership contracts. It also helped strengthen the risk and insurance databases of Peru and other Pacific Alliance countries. Additionally, the World Bank assisted the Banking and Insurance Authority (SBS) in strengthening the legal framework regulating the insurance industry.

Last Updated: Apr 10, 2024