Peru’s independent fiscal watchdog has delivered its sharpest warning in years: a surge of expensive, Congress-driven measures is putting the country’s long-admired macroeconomic stability—often called a “crown jewel”—in danger.
The watchdog says recently approved and proposed laws would swell the deficit, push up debt, and undermine confidence if not reined in.
The headline risks in numbers
Since 2021, Congress has approved 229 laws with negative fiscal impact, roughly triple the historic average.
Lawmakers are also weighing about 352 additional bills, many of which raise public wages and spending without matching revenues.
Just 10 pending initiatives could add S/25 billion (≈ US$7.35 billion) in annual costs—enough to lift the 2025 fiscal deficit to 5.5% of GDP, far above the government’s 2.2% target.
Last year’s deficit hit 3.5% of GDP, the highest (outside the pandemic) since 1992.
If current trends persist, public debt could rise from about 32% of GDP today to ~40% within a decade—eroding one of Peru’s key safety buffers.
What the watchdog means by “eroding pillars”
Peru’s model has long relied on fiscal prudence, a credible central bank, and stable rules for investment—especially in mining.
The fiscal watchdog argues Congress is weakening those pillars via unfunded benefits, wage rules, and structural changes that lock in recurrent spending.
That, it warns, risks reversing years of discipline that protected Peru during frequent political storms.
Political backdrop raises the stakes
Political turbulence intensified after Congress removed the president on October 10, 2025, swearing in a new administration.
Soon after, the incoming government declared a 30-day state of emergency in the Lima/Callao region to fight crime—underscoring the policy uncertainty surrounding fiscal decisions ahead of the 2026 elections.
Markets are watching how Congress and the executive manage the budget path amid these shifts.
Growth can’t outrun bad arithmetic
Peru could still grow up to 3–3.5% in 2025, helped by mining and a gradual recovery. But the watchdog says growth alone won’t offset the rising structural burden from new laws.
External observers have echoed concerns: international bodies recently flagged political uncertainty and urged fiscal discipline and structural reforms to safeguard gains.
Quick view- key metrics and risks
| Indicator / Policy Item | Latest figure / status | Why it matters |
|---|---|---|
| Laws with negative fiscal impact since 2021 | 229 approved | Triples historic average; expands recurrent spending burden. |
| Bills under consideration | ~352 | Pipeline of additional costs if passed. |
| Cost of 10 high-impact bills | S/25 bn / year (~US$7.35 bn) | Could lift 2025 deficit to 5.5% of GDP. |
| Government’s 2025 deficit target | 2.2% of GDP | Large gap vs. risk scenario; credibility at stake. |
| 2024 deficit (latest full year) | 3.5% of GDP | Highest since 1992 excluding pandemic years. |
| Public debt today → 10-yr risk | ~32% → ~40% of GDP | Rising debt narrows fiscal space for shocks. |
| 2025 growth outlook | ~3–3.5% | Positive, but insufficient if spending laws surge. |
What Peru must do to steady the ship
- Re-anchor fiscal rules: Reaffirm a credible deficit path and transparent spending ceilings to restore confidence.
- Cost out every bill: Require ex-ante fiscal notes and offsets before votes on any new benefits or wage mandates.
- Protect investment pillars: Keep stable, rules-based frameworks (especially for mining) to support medium-term growth and revenue.
Peru’s enviable macroeconomic stability was built on discipline, clear rules, and credible institutions.
The fiscal watchdog’s latest warning is unambiguous: a wave of unfunded, recurrent spending laws could undo those gains, pushing the deficit and debt onto a riskier trajectory just as politics grows more uncertain.
Policymakers still have time to re-anchor fiscal rules, cost legislation transparently, and protect investment frameworks—but the window to act before stability erodes is narrowing.
