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Peru To Inject PEN18B To Stabilization Fund

PERU
  • Earlier headline from President Castillo: *PERU TO INJECT OVER 18B SOLES TO STABILIZATION FUND (BBG)
    • This followed previous announcement from the Ministry of Finance that they were seeking to restore the Fiscal Stabilization Fund to its pre COVID-19 levels .
  • Scotiabank had noted “the resources, equivalent to approximately 2% of GDP, are to be deposited on an unspecified date during Q1 2022. This deposit would restore the FEF to its pre-COVID-19 levels, although it would remain lower than its all-time high of PEN 29.5 bn in 2016”.
    • “The FEF funds were all but used up during 2020–2021 to provide resources to counter the impact on the economy of the COVID-19 pandemic and the accompanying lockdowns and mobility restrictions.”
  • Scotia added “The announcement came as a surprise, especially as the deposit will occur when Peru has a fiscal deficit. In the past, the FEF grew only in years in which there was a fiscal surplus.
    • -“The decision to restore the FEF to past levels underlines a stance of fiscal management that is unexpected in a government otherwise viewed as more in tune with leftist policies. It sends a message that may help reinforce the vision of Peru as a country with healthy fiscal accounts to back up its fiscal debt levels. As such, the decision could also make it more difficult for rating agencies to downgrade Peru debt going forward, and may actually lead them to improve their view on the debt outlook.”
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