What are the risks?
On the topic, Gestian spoke with Carlos Oliva, president of the Financial Council (CF) and former president of the MEF.
The target was not reached Fiscal Deficit (FD) 2023, should forecasts for this year be revised?
Yes, it has to be reviewed, the Minister of Economy (Alex Contreras) had already announced in February that they were going to do the projections. I believe you should update them and make decisions based on that. Trust me, going from 2.8% to 2% in this year's target DF will be very challenging.
Should the new figures incorporate measures to increase income or make adjustments to costs?
As envisaged in the 2024-2027 Multi-Year Macroeconomic Framework, the only way to raise revenue in the short term is GDP growth which should not be less than 3%. Also, there is no reform that indicates where incomes will increase the most.
Also Read: Government Announces No Payment In PetroPeru
And given the costs, is there room for change?
A very comprehensive budget has been created, focusing on a fiscal deficit of 2% of GDP, and the baseline is equal to the current deficit ceiling in 2023. There is not much room for changes, especially on a detailed budget. focused on paying salaries; You can't reduce it, so getting 2% DF this year is very difficult.
The growth target is higher than the potential GDP and forecasts, can it reach 3%?
What will happen this year is a “rebound effect”, the issue of potential GDP observed under normal conditions; Add to this the “rebound effect” and it is possible to achieve 3% growth in the economy, which is not unreasonable. However, the behavior of the economy for one year has been negative or minimally increased. While the “rebound effect” is true, reaching 3% is not enough, something more needs to be done.
Are you missing concrete steps or high risks?
We continue in the same way, Petroperú is a risk of falling due to maturity, a decision has to be made, the observation is a bad sign for the private sector.
The Petroperú matter worries many sectors. Does it affect financial goals more?
It is difficult to go from 2.8% of the budget we have to 2% DF, which does not include the final support for Petroperú. If Petroperú is supported, the DF's 2% target for this year will not be met.
The DF result of 2.8% in 2023 is higher than the risk rating agencies' estimates. Losing hope? How do agencies evaluate these signals?
It is difficult to know that the financial situation in general is good. Debt to GDP percentage is low and fiscal deficit is manageable compared to other countries. On that side, Peru's financial situation is good.
There are two problems with this case. On the one hand, credibility is lost, because until the beginning of December it said that the fiscal deficit will be 2.4% in 2023; And it's like recession, after being told no. It's a matter of credibility, and it's very difficult because agencies believe we're going to hit 2% this year. They can say what they want, but you lose credibility, the same credibility that was hard to build, and it's disappearing now.
Another is to look to the future, there is more uncertainty, the economy is not picking up, problems like PetroPeru arise. The picture is still good, but the future is more complex and uncertain.
Is a change of direction necessary in the MEF to regain confidence?
We are not talking about the people, but a change in the strategy of what the government is doing. The country needs mining projects, foreign investments, to boost domestic demand, that's what the country needs. For this, it is necessary to have a road map for the MEF, but also for the President, Prime Minister and the entire administration. They need a pro-growth, pro-investment roadmap, and that is what is needed.
So, isn't it necessary to change people?
Whether they are with the same people or with others is a policy decision. They can change the minister and he can do the same or worse. It is not about a change in people, but a change in the core of economic policy.
There's no roadmap, we don't know what the plans are, they're releasing 'punches' (a plan to reactivate with Punche Peru), but they're not getting to the bottom of the matter. If we continue in the same way, obviously we will get the same results. You need to change variables to make things work.
Growth only based on expansionary fiscal policy?
If we want to comply with fiscal rules, there is not much room for expansionary policy. The solution should be private investment, not public investment. Public announcements of 'Punch' and other schemes have already shown that the economy remains stagnant. The effect of fiscal policy is not so great, rather the pro-investment policy, which is absent in the country.
As Finance Council, will you meet with the MEF or issue a report with the decision?
We are about to issue a statement appraising the financial situation. We are doing this by the end of January or February and will address non-compliance with targets and concerns.
Also Read: Minimum Wage: Which Latin American Countries Have the Best Salaries?
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