A Macroeconomic fundamentals B Economic performance and outlook C Debt management 2
A Macroeconomic fundamentals 3
Reasons to invest in Peru Macroeconomic stability Investment- Openness friendly to the world environment 4
Macroeconomic stability: healthy balances Inflation International reserves Country risk General government (%, average 2000-2018) public debt (% of GDP, 2018) (bps, average 2018) (% of GDP, 2018) 272 265 88.4 184 147 133 48.7 53.8 26.9 6.4 19.9 24.8 5.0 4.5 23.6 14.6 14.3 13.3 3.3 2.9 Bra Col Mex Chi Per Bra Col Mex Chi Per Bra Col Mex Chi Per Bra Col Mex Chi Per Source: International Monetary Fund (World Economic Outlook, October 2018), LatinFocus Consensus Forecasts, MEF, BCRP. 5
Macroeconomic stability: strong economic institutions • The macro-fiscal framework is based on rules that seek a predictable, responsible, and transparent management of public finances, following best practices in developed countries. • Autonomous and independent central bank. Monetary policy is conducted under an inflation targeting regime with foreign exchange flexibility. A market-oriented economy that promotes openness and a legislation that gives the same treatment to local and foreign investors 6
Openness to the world Peru: total exports (US$ billion and % of exports to the world, 2018) USD 9.5 billion • Peru has implemented Free Trade Europe Agreements (FTA) with 25 countries (19.9%) that represent 75% of the world GDP and 90% of total world trade. • The Pacific Alliance , which includes Chile, Colombia, and Mexico, is a USD 22.0 billion platform to promote investment and Asia financial integration. USD 8.8 billion (46.0%) North America (18.5 %) • Accession process to the OECD will enhance productivity and support USD 6.7 billion continuity of critical structural reforms USD 0.3 billion USD 0.4 billion LAC on institutions, informality, innovation, Africa Oceania (14.1%) (0.5%) (0.9%) among others. Source: Sunat and Mincetur. 7
B Economic performance and outlook 8
The Peruvian economy was resilient to the recent international turbulence Stock markets indexes 2018: financial indicators (Jan-18 = 100) Exchange rate Sovereign rate (% change, YTD) (pbs., YTD) 110 Peru Argentina 102.3 466 Emerging countries 105 Turkey 39.3 138 Russia 20.7 75 100 Brazil 17.1 41 95 South Africa 15.9 106 Chile 12.8 49 90 Colombia 9.0 55 India 9.0 87 85 China 5.7 39 80 Peru 4.0 32 Jan-18 Mar-18 May-18 Jul-18 Oct-18 Dec-18 Mexico 0.0 112 Source: Bloomberg. 9
In this adverse context, Peru grew 4% in 2018 led by domestic demand GDP Domestic demand (% real annual change) (% real annual change) 7.2 5.8 4.0 4.0 4.3 3.3 2.5 2.4 2.9 2.1 1.4 1.1 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 Sources: BCRP, MEF estimations. 10
2018 was the year of the recovery of investment and fiscal consolidation Private investment Public investment (% real annual change) (% real annual change) 7.1 11.1 Boost of High growth 8.4 4.4 public investment of private investment 0.2 First positive growth rate after four The highest growth rate since 2013. -0.2 -1.1 -2.3 years of consecutive drops. -2.2 -4.2 -9.5 -5.4 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 Overall fiscal balance General government revenue (% of GDP) (% of GDP) 22.4 22.3 0.9 20.3 Recovery Reduction 19.5 18.8 -0.3 18.3 of fiscal revenues of fiscal deficit The highest growth rate since In compliance with fiscal rules. -2.0 2015. -2.5 -2.5 -3.1 2013 2014 2015 2016 2017 2018* 2013 2014 2015 2016 2017 2018* (*) Estimated. Source: BCRP, MEF estimations. 11
The responsible fiscal management is reflected in our credit rating Latin America: credit ratings and outlook in the Long-term sovereign rating in foreign currency last 12 months Moody’s S&P Fitch A - 29 29 A3 S&P (left axis) Fitch (left axis) BBB+ BBB+ A3 BBB+ 27 27 Baa1 Peru Moody's (right axis) BBB Baa2 25 25 Chile A+ A1 A Investment grade BBB - Baa3 23 23 Colombia BBB- Baa2 BBB BB+ 21 21 Ba1 Mexico BBB+ A3 BBB+ BB Ba2 19 19 Brazil BB- Ba2 BB- BB - Ba3 17 17 Stable outlook Negative outlook 15 15 2005 2007 2009 2011 2013 2015 2017 2018 Stable outlook with downgrade in the last 12 months Source: S&P, Moody ´ s, Fitch. 12
Outlook: Peru will continue to lead regional growth in the following years Peru: GDP Latin America: GDP 1 2019-2022 (% real annual change) (% real annual change) 5.8 Peru* 4.7 4.7 4.0 Colombia 4.0 3.3 3.3 Chile 3.2 2.5 2.4 Brazil 2.6 Mexico 2.2 2013 2014 2015 2016 2017 2018 2019-22* 1/ Consensus forecasts. (*) Forecasts published in the MMM 2019-2022 Report (the market forecast is 3.8% during the period 2019-2022). Source: LatinFocus Consensus Forecast – February 2019, MEF estimations. 13
Private investment will support growth for the following years Investment projects announced since June 2018 that will be in execution in 2019 Total investment Announcement Project date (US$ million) 13,956 Total 1,355 Toromocho extension June 2018 San Martín General Port 249 June 2018 Terminal 5,300 Quellaveco July 2018 1,600 Mina Justa September 2018 229 Salaverry Port Terminal 1 October 2018 Modernization of the Jorge 1,500 December 2018 Chavez Airport 365 Lote 95 December 2018 358 6 Regional wide bands³ December 2018 January 2019 Chancay Port Terminal 4 3,000 1/ Contract signing. 2/ Government announces land delivery to LAP in October 23, 2018. 3/ Wide band projects were awarded on December 2018. 4/ In January 2019, CSP acquired a 60% stake in the project, which was under construction with an initial investment of US $ 372 million. With the entry of CSP, the project will be resized to mobilize container loading. Note: Michiquillay was awarded in February 2018 and will start the construction phase in 2022. 5/ It not includes 7 14 mining projects for US$ 10 billion that start construction in 2018. Source: MEF, ProInversión, APN.
Private investment will support growth for the following years Important portfolio of projects 58 PPP projects for more than US$ 10 billion will be awarded between 2019-2021. 41 mining projects for approx. US$ 49 billion 5 will start the construction phase in the next years. 1/ Contract signing. 2/ Government announces land delivery to LAP in October 23, 2018. 3/ Wide band projects were awarded on December 2018. 4/ In January 2019, CSP acquired a 60% stake in the project, which was under construction with an initial investment of US $ 372 million. With the entry of CSP, the project will be resized to mobilize container loading. Note: Michiquillay was awarded in February 2018 and will start the construction phase in 2022. 5/ It not includes 7 mining projects for US$ 10 billion that start construction in 2018. Source: MEF, ProInversión, APN. 15
A Competitiveness and Productivity Policy will underpin growth Capital stock Human capital Education Labor market OP1 Infrastructure OP2 Financing OP3 OP4 and health Efficiency and institutions Environmental Business Innovation Trade Institutions OP5 OP6 OP7 OP8 OP9 sustainability environment Source: MEF. 16
Executive bureaus are important tools to promote product diversification Turism Forestry Aquaculture Public Transportation Private Logistic and Innovation infraestructure Mining & Public energy Purchases Source: MEF. 17
Modernization of administrative systems for improvement of expenditure Public budget Investment programming Human resources fiscal management Supplying systems Public treasure Effective Public indebtedness administration that Improve Public accounting improves supply of spending and public goods and accountability services Assessment Actions: integration and Results strengthening of public systems Adequate provision of public goods and services increases the population’s welfare. Source: MEF. 18
Fiscal discipline will be a key factor to guarantee sustained growth Fiscal deficit Public debt 1 (% of GDP) (% of GDP) 60 56.4 3 55 50 2 45 43.2 1 40 37.5 0 35 Legal limit: 30% of GDP 30 -1 1.0 - 1.0 - 26.0 25 -2 - 1.9 20 -3 - 2.7 15 2006 2008 2010 2012 2014 2016 2018 2020 2022 -4 Emerging Pacific Similar Peru 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Countries alliance credit rating • In 2018, the fiscal deficit reached 2.5% of GDP, below the fiscal rule (3.5% of GDP), mainly due to fiscal revenues. 1/ General Government Coverage. The SPNF is considered in the case of Peru. 19 Source: MEF, BCRP, Fiscal Monitor (october 2018).
Modernization of the tax system is key to achieve this objective Adapt to 1 2 3 Enable the Enhance digital international best investment climate Transformation practices The transparency of the Reduces costs and Greater predictability to the improves oversight. tax system. system reduces tax evasion and contributes to fighting against corruption and money laundering. Increase in fiscal revenues for better public services Source: MEF. 20
The goals are to promote economic growth and increase citizens ’ welfare Achieve growth rates of 5% in the coming years Underpin potential growth Reduce poverty Improve country’s general welfare 21
C Debt management 22
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