National government boosts spending to support economic growth

By April 11, 2015

Peru’s national government is boosting its spending on infrastructure in response to falling regional government spending.

In a response to a drop in regional government spending on infrastructure, Peru’s national government is increasing spending by an annual rate of 20% in an effort to meet the finance ministry’s target GDP growth rate of 4.2%. Regional government spending on public projects fell 50% due to harsh weather from the El Niño climate phenomenon.

“What happened with the regional, sub-national and local governments was expected. Public spending fell a little more than 50% in the first two months of the year, we knew that. That’s why the national government is increasing public spending at a 20% growth rate, and that will continue growing. At first, it does not completely make up for [the loss], but it will make up for more,” finance minister Alonso Segura said in an interview on RPP.

The finance ministry is also working to transfer money from delayed projects’ budgets to those which can be realized this year. Segura said that they are working to identify where money can be reallocated. “We are working to identify the projects, we have already identified some, and moving resources from one sector to another … What we are doing now is ensuring that there is execution in public investment.”

The two largest projects include the addition of a second line to Lima’s Metro light rail system and the Talara oil refinery in Piura department.

Segura admitted on Tuesday that Peru may see 2015 GDP growth of less than his finance ministry’s forecast of 4.2%. He cited El Niño’s effects on the fishing industry and weak private investment.

Peru’s central bank has already lowered banks’ reserve requirement and income taxes to free up money for investment. Balancing rising inflation with the strengthening dollar are limiting the national government’s options to support growth.


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