Peru’s fiscal deficit would be reduced from 2.0% to 1.5% of GDP by 2022, a level that would be lower than the 2.5% in 2021 and the 8.9% in 2020, the year in which the fiscal result was affected by the recession and the higher expenses associated with the pandemic, projected the Scotiabank Economic Research Department.

In addition, it would be below 2.5% of the PBI projected by the Ministry of Economy (MEF) for this year, and it would even be similar to the level expected just for 2025, according to the bill approved by the Executive and that determines the fiscal rules until the year 2026.

“The fiscal accounts continue with their positive evolution, which has led to the fiscal deficit accumulated in the last 12 months to May being reduced to 0.9% of GDP, a level not seen since the beginning of 2015, according to the Central Reserve Bank (BCR)”, said Scotiabank economist Pablo Nano.

Likewise, the specialist indicated that this behavior was basically based on a better-than-expected evolution of tax revenues -based mainly on the high prices of minerals and hydrocarbons- and, to a lesser extent, on a lower-than-expected execution of public spending. -especially public investment-.

It should be noted that public spending has a marked seasonality that leads it to grow during the second semester -payment of bonuses in July and December, as well as a higher rate of execution of public investment-, so it is expected that the fiscal deficit have an upward trend in the second half of the year.

However, the fiscal surplus of S/ 16,015 million accumulated between January and May, would allow the country to close 2022 with a fiscal deficit of around 1.5% of GDP.

General government current revenues amounted to S/ 94,651 million between January and May 2022, 29% higher than the same period in 2021. The main factors behind this better-than-expected evolution were:

– A record collection in the 2021 Income Tax Regularization.

Income from this concept during the campaign registered between March and April exceeded S/ 13.2 billion, above the S/ 9 billion originally expected by Sunat and the S/ 6.1 billion collected the previous year.

It should be noted that the monthly payments on account made during 2021, although they increased, did not reflect the entire increase in profits. At the sector level, the payments registered by mining companies (+157%) and hydrocarbons (+454%) stood out, which together contributed 50% of payments for this concept, benefited by the high prices of copper, oil and gas .

– A positive evolution in the collection of General Sales Tax (IGV), which in May completed sixteen consecutive months of growth.

Between January and May, income from VAT increased 20% compared to the same period in 2021. It should be noted that, in real terms, VAT grew 12% in that same period, so that, aside from inflation, collection has been reflecting the resilience of private consumption despite the deterioration of consumer confidence.

Recent approved measures such as the sixth withdrawal of pension funds (AFPs) and the availability of 100% of CTS deposits should contribute to maintaining the dynamism of consumption and, therefore, of the collection from this tax.

– The highest collection from non-tax revenues.

Between January and May, payments for this concept increased 25% compared to the same period in 2021. This behavior basically responded to higher payments for royalties and oil and gas canon (+155%).

It should be noted that during the first four months of the year the export price of Peruvian natural gas tripled as a result of increased demand in Europe associated with the war between Russia and Ukraine.

“All of the above was partially offset by the drop in the collection of the Selective Consumption Tax (ISC) registered in May (-13%), in particular the lower income from ISC on fuels (-55%). This negative evolution was explained by the temporary exclusion of 84 and 90 octane gasoline and diesel, from goods subject to the application of the ISC as a way of alleviating the rise in the international price of oil and its impact on inflation. This measure, which generated a drop of S/ 170 million in ISC income in May, will initially be in force until the end of June with the possibility of being extended for another six months. Our fiscal deficit projection assumes that this measure will be in force until the end of 2022,” said Pablo Nano.

The non-financial expense of the general government amounted to S/ 70,696 million between January and May, higher by 4% compared to the same period in 2021. Meanwhile, current spending amounted to S/ 55,697 million, showing an increase of 4% compared to January-May 2021. This result was mainly driven by:

-The largest purchases of goods and services (+9%), in particular from regional and local governments. It should be noted that purchases of items other than Covid-19 care have been recovering, such as the acquisition of office supplies, travel, fuel purchases and the hiring of CAS personnel for areas other than the Health sector, which would be associated with the return to face-to-face work.

“This was partially offset by lower expenses associated with highway maintenance under the Arranca Perú program,” said the economist.

-The increase in spending on remuneration (+4%) was basically explained by the increase in salaries in the Education sector -professors and university lecturers- and by higher allocations to the staff of the Ministry of the Interior and the Congress.

-Public investment reached S/ 11,660 million, showing a decline of 0.5% compared to January-May 2021. It is important to highlight that this variable accumulated a drop of 8.2% during the first quarter, especially highlighting the lower level of execution of the National Government, which would have been explained by the continuous changes in the ministries, as well as by the appointment of officials without adequate experience.

However, since April a gradual recovery has begun to be seen, led by the dynamism of regional and local governments, especially in the execution of roads, water and sanitation projects and health centers and hospitals. Finally, there was a significant increase in the item other capital expenses (+21.4%) explained in part by the payments of credit guarantees associated with the Reactiva Peru program, according to the Scotiabank Economic Research Department.

It should be noted that between August 2021 and May 2022, the payment for credit honoring of this program reached S/ 1,800 million, according to figures from the BCR.

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