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Quick Facts
- Population:
- GDP (PPP):
- $457.5 billion
- 4.0% growth
- 3.2% 5-year compound annual growth
- $14,224 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Peru’s economic freedom score is 67.9, making its economy the 51st freest in the 2020 Index. Its overall score has increased by 0.1 point due to slight increases in scores for monetary freedom and trade freedom. Peru is ranked 8th among 32 countries in the Americas region, and its overall score is well above the regional and world averages.
The Peruvian economy has been in the upper reaches of the moderately free category for over a decade. GDP growth over the past five years has been solid.
The president’s priorities—antigraft reform, pro-competition policy, and infrastructure development—would address weaknesses identified by the Index that hold back economic freedom in Peru. The government has also proposed legislation to reduce high nonwage labor costs.
Background
In the last third of the 20th century, Peru alternated between military rule and democracy. A violent multidecade guerilla insurgency was defeated in the 1990s by ex-President Alberto Fujimori, an authoritarian who nevertheless implemented a liberal economic reform agenda. President Martín Vizcarra of the center-right Peruvians for Change party, which holds just nine seats in the 130-seat Congress, assumed office in 2018 after allegations of corruption forced the former president to resign. Vizcarra accused the legislature of blocking his antigraft reforms, and after repeated clashes, he dissolved Congress in September 2019. A founding member of the Pacific Alliance, natural resource–rich Peru has implemented free-trade agreements to promote export-led growth. Peru remains the world’s second-largest producer of cocaine.
Property rights are enforced. Mortgages and liens are possible, and the recording system is reliable. The judiciary is slow to hear cases and issue decisions and is perceived as one of the most corrupt institutions in the country. Corruption is widespread, particularly in public procurement, eroding faith in Peru’s institutions and damaging the country’s generally positive investment climate.
The top personal income tax rate is 30 percent, and the top corporate tax rate is 28 percent. Other taxes include value-added and financial transactions taxes. The overall tax burden equals 15.3 percent of total domestic income. Government spending has amounted to 21.3 percent of the country’s output (GDP) over the past three years, and budget deficits have averaged 2.4 percent of GDP. Public debt is equivalent to 26.8 percent of GDP.
Peru continues to chip away at regulations that impede business formation (for example, by shortening the time it takes to obtain a municipal license and a building safety technical inspection). The overall pace of reform, however, is slow. The number of new entrants to the labor market exceeds the number of available jobs, but the overall unemployment rate is low. Lower oil prices in 2019 have led to reduced government expenditures on subsidies.
The total value of exports and imports of goods and services equals 49.0 percent of GDP. The average applied tariff rate is 0.8 percent, but numerous nontariff barriers raise the cost of trade. Lingering bureaucratic deficiencies continue to hamper investment growth. The financial sector has undergone gradual transformation. Credit to the private sector has increased steadily, and foreign participation in the financial sector is also growing.