B Economic performance and outlook C Debt management 2 A - - PowerPoint PPT Presentation

B

Economic performance and outlook

A

Macroeconomic fundamentals

2

Debt management

C

3

A

Macroeconomic fundamentals

Reasons to invest in Peru

4

Macroeconomic stability Openness to the world Investment- friendly environment

International reserves

(% of GDP, 2018)

Country risk

(bps, average 2018)

Inflation

(%, average 2000-2018)

General government public debt

(% of GDP, 2018)

Source: International Monetary Fund (World Economic Outlook, October 2018), LatinFocus Consensus Forecasts, MEF, BCRP.

265 184 272 133 147 Bra Col Mex Chi Per 19.9 14.6 14.3 13.3 26.9 Bra Col Mex Chi Per 88.4 48.7 53.8 24.8 23.6 Bra Col Mex Chi Per 6.4 5.0 4.5 3.3 2.9 Bra Col Mex Chi Per

Macroeconomic stability: healthy balances

5

Macroeconomic stability: strong economic institutions

• Autonomous and independent central bank. Monetary policy is

conducted under an inflation targeting regime with foreign exchange flexibility.

• 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.

6

A market-oriented economy that promotes openness and a legislation that gives the same treatment to local and foreign investors

Openness to the world

USD 6.7 billion LAC (14.1%) USD 9.5 billion Europe (19.9%) USD 0.3 billion Africa (0.5%) USD 0.4 billion Oceania (0.9%) USD 22.0 billion Asia (46.0%)

• Peru has implemented Free Trade

Agreements (FTA) with 25 countries

that represent 75% of the world GDP and 90% of total world trade.

• The Pacific Alliance, which includes

Chile, Colombia, and Mexico, is a platform to promote investment and financial integration.

• Accession process to the OECD will

enhance productivity and support continuity of critical structural reforms

• n institutions, informality, innovation,

among others.

Peru: total exports

(US$ billion and % of exports to the world, 2018)

USD 8.8 billion North America (18.5 %)

Source: Sunat and Mincetur.

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8

B

Economic performance and outlook

The Peruvian economy was resilient to the recent international turbulence

Stock markets indexes

(Jan-18 = 100)

2018: financial indicators

Exchange rate

(% change, YTD)

Sovereign rate

(pbs., YTD)

Source: Bloomberg.

0.0 4.0 5.7 9.0 9.0 12.8 15.9 17.1 20.7 39.3 102.3 Mexico Peru China India Colombia Chile South Africa Brazil Russia Turkey Argentina 112 32 39 87 55 49 106 41 75 138 466

80 85 90 95 100 105 110

Jan-18 Mar-18 May-18 Jul-18 Oct-18 Dec-18 Peru Emerging countries 9

7.2 2.1 2.9 1.1 1.4 4.3 2013 2014 2015 2016 2017 2018 5.8 2.4 3.3 4.0 2.5 4.0 2013 2014 2015 2016 2017 2018

Sources: BCRP, MEF estimations.

In this adverse context, Peru grew 4% in 2018 led by domestic demand

GDP

(% real annual change)

Domestic demand

(% real annual change)

10

11.1

• 1.1
• 9.5
• 0.2
• 2.3

8.4 2013 2014 2015 2016 2017 2018

2018 was the year of the recovery of investment and fiscal consolidation

(*) Estimated. Source: BCRP, MEF estimations.

Private investment

(% real annual change)

Public investment

(% real annual change)

High growth

• f private investment

The highest growth rate since 2013.

Boost of

public investment

First positive growth rate after four years of consecutive drops.

Overall fiscal balance

(% of GDP)

General government revenue

(% of GDP)

Reduction

• f fiscal deficit

In compliance with fiscal rules.

Recovery

• f fiscal revenues

The highest growth rate since 2015.

0.9

• 0.3
• 2.0
• 2.5
• 3.1
• 2.5

2013 2014 2015 2016 2017 2018* 22.3 22.4 20.3 18.8 18.3 19.5 2013 2014 2015 2016 2017 2018* 7.1

• 2.2
• 4.2
• 5.4

0.2 4.4 2013 2014 2015 2016 2017 2018

11

Source: S&P, Moody´s, Fitch.

Latin America: credit ratings and outlook in the last 12 months

Stable outlook Negative outlook

S&P

Peru Chile Colombia Mexico Brazil

BBB+ A3 BBB+ A+ A1 A BBB- Baa2 BBB BBB+ A3 BBB+ BB- Ba2 BB- Moody’s Fitch

Stable outlook with downgrade in the last 12 months

The responsible fiscal management is reflected in our credit rating

Long-term sovereign rating in foreign currency

Investment grade

15 17 19 21 23 25 27 29 15 17 19 21 23 25 27 29

2005 2007 2009 2011 2013 2015 2017

S&P (left axis) Fitch (left axis) Moody's (right axis)

BB BB+ BB

• BBB
• BBB

BBB+ A

• Ba2

Ba1 Ba3 Baa3 Baa2 Baa1 A3 2018

12

4.7 3.3 3.2 2.6 2.2 Peru* Colombia Chile Brazil Mexico

Outlook: Peru will continue to lead regional growth in the following years

Latin America: GDP1 2019-2022

(% real annual change)

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.

Peru: GDP

(% real annual change)

5.8 2.4 3.3 4.0 2.5 4.0 4.7 2013 2014 2015 2016 2017 2018 2019-22*

13

1,355

June 2018

Total

13,956

Toromocho extension

249

June 2018 San Martín General Port Terminal

5,300

July 2018

1,600

September 2018 Quellaveco Mina Justa

229

October 2018

1,500

December 2018 Modernization of the Jorge Chavez Airport Salaverry Port Terminal1

365

December 2018 Lote 95

Project Total investment

(US$ million)

Announcement date 358

December 2018 6 Regional wide bands³ Chancay Port Terminal4

3,000

January 2019

Investment projects announced since June 2018 that will be in execution in 2019

Private investment will support growth for the following 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.

14

15

Important portfolio of projects

Private investment will support growth for the following years

PPP projects for more than

58

US$ 10 billion

will be awarded between 2019-2021. mining projects for approx.

41

US$ 49 billion

will start the construction phase in the next years. 5

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.

Source: MEF.

Environmental sustainability

OP9 OP8 OP7

Innovation Business environment

OP6 OP5

Education and health

OP3

Capital stock Human capital Efficiency and institutions

OP1 Infrastructure

Financing Trade Institutions Labor market

OP2 OP4

A Competitiveness and Productivity Policy will underpin growth

16

Executive bureaus are important tools to promote product diversification

Source: MEF.

17 Forestry

Transportation

Turism Aquaculture

Logistic and infraestructure

Public Purchases Mining & energy Innovation

Public Private

Modernization of administrative systems for improvement of expenditure

Source: MEF.

Effective administration that improves supply of public goods and services Actions: integration and strengthening of public systems  Public budget  Investment programming  Human resources fiscal management  Supplying systems  Public treasure  Public indebtedness  Public accounting Improve spending and accountability Assessment Results

Adequate provision of public goods and services increases the population’s welfare.

18

• 2.7
• 1.9
• 1.0 -

1.0

• 4
• 3
• 2
• 1

1 2 3 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 56.4 43.2 37.5 26.0 15 20 25 30 35 40 45 50 55 60 2006 2008 2010 2012 2014 2016 2018 2020 2022 Emerging Countries Pacific alliance Similar credit rating Peru

Legal limit: 30% of GDP

1/ General Government Coverage. The SPNF is considered in the case of Peru. Source: MEF, BCRP, Fiscal Monitor (october 2018).

Public debt1

(% of GDP)

• In 2018, the fiscal deficit reached 2.5% of GDP, below the fiscal rule (3.5% of GDP), mainly due to fiscal revenues.

Fiscal discipline will be a key factor to guarantee sustained growth

Fiscal deficit

(% of GDP)

19

Modernization of the tax system is key to achieve this objective

Source: MEF.

Enhance digital Transformation Adapt to international best practices Enable the investment climate

The transparency of the system reduces tax evasion and contributes to fighting against corruption and money laundering. Reduces costs and improves oversight. Greater predictability to the tax system.

Increase in fiscal revenues for better public services

2 3 1

20

The goals are to promote economic growth and increase citizens’ welfare

21

Achieve growth rates of 5% in the coming years Underpin potential growth Reduce poverty Improve country’s general welfare

22

Debt management

C

23

The sources of financing come from asset management and internal and external liabilities

Lines of defense to finance Economic Growth Assets

USD 5,770 million

Fund size as of December 31, 2018 National Emergency International Crisis

Savings Mechanism

Fiscal Stabilization Fund

Other Non Financial Public Sector Financial Assets

Secondary Liquid Reserve Liabilities Debt Capital Markets

Multilateral and Bilateral Loans

Local Market

Soberanos Bonds

International Market

Global Bonds Stock as of December 31, 2018 USD 9,089 mn EUR 2100 mn

CAF BID BIRF Otros Contingency loans As of December 31, 2018

USD 4,000 million

Sources

• f

Funds

24

“solarize” Debt and develop local debt capital markets

64 57 46 33 5 30 49 61 31 14 5 6 2004 2009 2014 2018*

Dollars Soles Other

Composition of Public Debt by Currency

(% of total debt)

Liability Management (LM) 2014-2018

(Millions of dollars)

* December 2018

2.115 500 1.303 545 1.250 1.232 1.120 3.042 3.084 3.071

BS 24 BG 50 BS 31 BG 50 BG 27 BG 26 BG 30 BS 28 BS 32 BS 29E LM 2014 LM 2015

LM 2016 LM 2017 LM 2018

• No USD paper

USD EUR soles

25

Peru has significantly increased its Soberanos debt stock by focusing

• n international format debt issuances (GDNs and Euroclear)

Soberanos USD Global Bonds Debt Capital Markets linkers Treasury bills EUR Global Bonds

Local Market International Market Development of the debt market through sovereign bond issues in soles Taking advantage of Windows of opportunity to maintain liquidity/efficient yield curves

Local GDN’s

Since 2005, Peru has successfully increased its Soberanos (PEN) debt stock by 12.6x compared to a growth of 1.8x for its Global Bonds (USD and EUR) debt stock…

Euroclear

6.513 8.571 9.458 11.440 11.548 11.484 11.484 8.092 26.008 32.961 44.849 86.399 97.943 102.276

dec-05 dec-10 dec-13 dec-15 dec-17 Dec-18 Feb-19 Global Soberanos

12.6x 1.8x

*

* February 18-2019

26

The solarization strategy has been successful in improving market Liquidity in primary and secondary markets

• 3.500

7.000 10.500 14.000 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Dic 2015 2016 2017 2018 CNM OTC * Jan, 2019

Secondary Market Activity

(PEN million)

+42% +56% Monthly average 4,853 Monthly average 6,906 Monthly average 10,760 Monthly average 13,981 +30%

Primary Market Activity

(PEN million)

2.000 4.000 6.000 8.000 10.000 12.000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*

27

Diversification of non- resident investor base for local bonds

30% 33% 36% 39% 42% 45% 48% 51% 55 % 4 5 52 % 47 % Issuances Benchmark

7.840% Aug 2020s S/ 4,196 million Date.; Nov 10 5.700% Aug 2024s S/ 7,128 million Date; Nov 14 6.350% Aug 2028s S/ 10,251 million Date; Sep 16

[V AL O…

6.94% Feb 2029E S/ 10,350 million Date; Dec 18

[V AL O…

6.150% Aug 2032s S/ 10,000 million Date; Jul 17 6.950% Aug 2031s S/ 4,392 million Date; Mar 15

Issuance of S/ 10.3 billion 6.35% Sovereign Bonds 2028 (One

• f

the largest local currency issues in emerging markets, the same which reduced liabilities in USD) Issuance S/ 10 billion 6.15% Sovereign Bonds 2032 (Issuance that had demand exceeding 30bn and was settled through Euroclear) Issuance S/ 10.350 billion 6.94% Sovereign Bonds 2032 (Issuance that had demand exceeding 15bn and was settled through Euroclear)

Sovereign Bonds: Non-resident investors

(% of total investors) 46.70%

28

However, while the Republic has focused on “Solarization”, it remains committed to both its USD and EUR curves

Windows of

• pportunity in

USD and EUR

Diversify currencies looking for natural hedges Provide better liquidity Continue to grow the depth and breadth of its high quality investor base Lower risk of funding by diversifying markets Increase investor pool