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Quick Facts
- Population:
- GDP (PPP):
- $406.2 billion
- 3.3% growth
- 4.3% 5-year compound annual growth
- $12,903 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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Peru’s economic freedom score is 68.7, making its economy the 43rd freest in the 2018 Index. Its overall score has decreased by 0.2 point, with slight declines in scores for fiscal health and government integrity outpacing an improvement 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 current government is continuing its predecessor’s prudent, business-friendly policy framework and plans additional structural reforms to sustain Peru’s economic competitiveness. The initial focus is on formalizing the labor market, simplifying administrative procedures, and investing in infrastructure. Taxes for small businesses have been cut, and regulations have been changed to allow easier registration of companies in regional government offices. Government corruption remains a serious problem, limiting foreign investors’ confidence in the economy. State-owned enterprises remain very active, especially in the petroleum sector.
Background
Peru alternated between military rule and democracy in the last third of the 20th century. A violent multidecade guerilla insurgency was finally vanquished in the 1990s by the government of Alberto Fujimori, an authoritarian who nevertheless implemented a liberal economic reform agenda. Pedro Pablo Kuczynski, a center-right former World Bank economist, narrowly defeated a populist campaign by Fujimori’s daughter in the presidential election of 2016. Although thwarted at times by the opposition-dominated legislature, Kuczynski is pursuing a reform agenda. Significant foreign investment in mining and manufacturing has reduced the rates of poverty. Peru has entered into numerous free-trade agreements with the U.S. and other countries and is a founding member of the Pacific Alliance.
Although the government recognizes secured interests in property, both movable and immovable, enforcement of private property rights remains weak. The judicial system has a large backlog and is subject to political influence and corruption. Peruvians see corruption as pervasive in all branches of national, regional, and local governments, especially in the judicial, military, and prison systems.
The top personal income tax rate is 30 percent. The top corporate tax rate is 28 percent. Other taxes include value-added and financial transactions taxes. The overall tax burden equals 15.9 percent of total domestic income. Over the past three years, government spending has amounted to 21.9 percent of total output (GDP), and budget deficits have averaged 1.6 percent of GDP. Public debt is equivalent to 24.8 percent of GDP.
The process for starting a business can be lengthy and costly. Labor regulations lack flexibility, and the National Bureau for Statistics reports that 73.2 percent of the labor force is informal. Most price controls have been eliminated with the exception of the regulation of rates set by private companies in the telecommunications, energy and mining, public transport, and sanitation services sectors.
Trade is moderately important to Peru’s economy; the combined value of exports and imports equals 45 percent of GDP. The average applied tariff rate is 1.4 percent. Nontariff barriers impede some trade. In general, government policies do not significantly interfere with foreign investment. The financial sector has undergone gradual transformation. Credit to the private sector has increased, and foreign ownership in the financial sector is growing.