2021 Index of Economic Freedom

Peru

OVERALL SCORE67.7
WORLD RANK50
Rule of Law

Property Rights53.3

Judicial Effectiveness28.2

Government Integrity36.3

Government Size

Tax Burden79.4

Government Spending86.4

Fiscal Health91.5

Regulatory Efficiency

Business Freedom66.2

Labor Freedom63.2

Monetary Freedom86.1

Open Markets

Trade Freedom86.4

Investment Freedom75.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 32.5 million
  • GDP (PPP):
    • $476.0 billion
    • 2.2% growth
    • 3.2% 5-year compound annual growth
    • $13,380 per capita
  • Unemployment:
    • 3.3%
  • Inflation (CPI):
    • 2.1%
  • FDI Inflow:
    • $8.9 billion

Peru’s economic freedom score is 67.7, making its economy the 50th freest in the 2021 Index. Its overall score has decreased by 0.2 point, primarily because of a decline in judicial effectiveness. Peru is ranked 7th among 32 countries in the Americas region, and its overall score is above the regional and world averages.

The Peruvian economy remains in the upper reaches of the moderately free category again this year despite ongoing political turmoil. Two weaknesses identified by the Index that continue to constrain economic freedom include relatively weak rule of law, which is reflected in Index scores for property rights, judicial effectiveness, and government integrity, and the need to make further reforms in the labor code.

IMPACT OF COVID-19: As of December 1, 2020, 35,966 deaths had been attributed to the pandemic in Peru, and the economy was forecast to contract by 13.9 percent for the year.

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Background

In the last third of the 20th century, Peru alternated between military rule and democracy. A violent, multi-decade guerilla insurgency was defeated in the 1990s by ex-President Alberto Fujimori, an authoritarian who nevertheless implemented a liberal economic reform agenda. Martín Vizcarra of the center-right Peruvians for Change party began his presidency in 2018 after allegations of corruption forced his predecessor to resign. After repeated clashes, the opposition-controlled Congress impeached Vizcarra and removed him from office in November 2020. Pro-Vizcarra street protests continued until Vizcarra’s successor resigned five days later. As of December, a caretaker government was in place. Peru remains the world’s second-largest producer of cocaine.

Rule of LawView Methodology

Property Rights 53.3 Create a Graph using this measurement

Judicial Effectiveness 28.2 Create a Graph using this measurement

Government Integrity 36.3 Create a Graph using this measurement

Peruvian law recognizes property rights, but the judicial system is slow to hear cases and issue decisions. Corruption is widespread and affects the whole of society and all levels of government, especially public procurement. Although President Vizcarra succeeded in passing three reforms aimed at curbing corruption in both the legislature and the judiciary, he was subsequently impeached and removed from office by Congress.

Government SizeView Methodology

The top individual income tax rate is 30 percent, and the top corporate tax rate is 29.5 percent. Other taxes include value-added and financial transactions taxes. The overall tax burden equals 16.9 percent of total domestic income. Government spending has amounted to 21.3 percent of total output (GDP) over the past three years, and budget deficits have averaged 2.1 percent of GDP. Public debt is equivalent to 26.7 percent of GDP.

Regulatory EfficiencyView Methodology

Starting a business and dealing with construction permits have become more expensive. The recovery rate when resolving insolvency is now higher. Labor laws are well defined but not evenly enforced. According to the World Bank, government transfers and subsidies for electricity, fuel, and a wide range of other sectors consume about 45 percent of the budget.

Open MarketsView Methodology

Peru has 19 preferential trade agreements in force. The trade-weighted average tariff rate is 1.8 percent, and 383 nontariff measures are in effect. The economy is relatively open to most foreign investment, but a lack of regulatory predictability impedes more dynamic investment. About 47 percent of adult Peruvians have an account with a formal banking institution. In 2020, reserve requirements were reduced to increase liquidity in the financial system.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Canada77.9-0.3
2Chile75.2-1.6
3United States74.8-1.8
4Uruguay69.30.2
5Jamaica690.5
6Colombia68.1-1.1
7Peru67.7-0.2
8Saint Lucia67.5-0.7
9Saint Vincent and the Grenadines66.3-0.5
10Panama66.2-1.0
11Mexico65.5-0.5
12Barbados653.6
13The Bahamas64.60.1
14Costa Rica64.2-1.6
15Guatemala640.0
16Paraguay62.6-0.4
17Dominican Republic62.11.2
18El Salvador61-0.6
19Honduras59.8-1.3
20Trinidad and Tobago590.7
21Belize57.50.1
22Guyana57.41.2
23Nicaragua56.3-0.9
24Brazil53.4-0.3
25Dominica53-7.8
26Argentina52.7-0.4
27Ecuador52.41.1
28Haiti50.8-1.5
29Suriname46.4-3.1
30Bolivia42.7-0.1
31Cuba28.11.2
32Venezuela24.7-0.5
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