Peru: Fiscal deficit narrows, but spending pressures loom

Research evidence excerpt

Peru: Fiscal deficit narrows, but spending pressures loom

Diego W. Pereira Latin America Economic Research J P M O R G A N(1-212) 834-4321 20 July 2026

diego.w.pereira@jpmorgan.com

fiscal improvement comes just as legislative decisions are creating potentially large new

spending obligations. Including measures approved in late 2025 and a proposal to equalize

regional-government benefits could push the annual cost close to 1.1% of GDP.

A stronger starting point, but a more rigid budget

Peru thus entered the second half of the year with a considerably better fiscal position than

appeared likely at the start of 2026. Mining revenues are booming, consumption taxes are

holding up and the trailing deficit has fallen to 1.3% of GDP. The improvement is real, but

its durability is less certain. Part of the revenue increase reflects favorable commodity prices

and tax-settlement effects. Meanwhile, current spending is still rising at a double-digit pace,

and the recent expenditure slowdown has relied heavily on lower capital outlays.

The emerging risk is that a temporary revenue windfall becomes the financing source for

permanent payroll and pension commitments. If the congressional measures are fully

implemented without offsetting expenditure cuts or new structural revenues, the result would

be a more rigid budget and renewed pressure on the deficit from 2027 onward.

On forecasts, the 2026 fiscal deficit is projected at 1.7% of GDP, implying a small primary

deficit of 0.1% of GDP. That compares to -0.6% of GDP in 2025. When adjusted for the phase

of the business cycle and main export prices, the structural primary deficit would still sit

above 1% of GDP, at 1.4% of GDP, implying just 3/10s a point of structural consolidation for

the year.