Peru, which has seen its fiscal deficit balloon over the last three years, will need to slash public spending on infrastructure next year, according to finance minister Alonso Segura.

President Ollanta Humala's government, which hands over power in two months' time, has designed fiscal policy so that private investment should start replacing public spending as the driver of the economy from 2017 onwards, Segura said.

The next government, which will be constrained in terms of fiscal maneuverability, should see private investment rise by 4% per year from 2016-2017 as bureaucratic obstacles are eliminated for billions of dollars to be sunk into infrastructure projects, Segura said at an event in Lima.

Peru's fiscal deficit is expected to swell to 2.6% of GDP this year compared with a 1% fiscal surplus in 2013, as tax revenues and export earnings dwindle. First quarter exports fell 6.4% to US$7.64bn due to slumping metals prices, contributing to a US$720mn trade deficit, while private investment was down by 4.7%, according to the central bank.

"Private investment should accelerate in 2017, so it's the public sector's turn to regroup and rebuild. That's the way we designed fiscal policy through 2019 as the outgoing government," Segura said at a conference in Lima. "If the next government implements reasonable policies, it ought to free up investment decisions and that should immediately spur domestic demand."

Presidential candidates Keiko Fujimori and Pedro-Pablo Kuczynski, who will face off in the second round of elections on June 5, have both pledged to increase public spending and speed up permitting processes for infrastructure and mining projects.

While President Humala's government has awarded a record US$20bn in public-private infrastructure concessions since 2011, tens of billions of dollars in infrastructure, mining and energy projects have been held up by permitting delays, according to industry associations such as Confiep and AFIN.

Humala, whose mandate ends July 28 increased the 2016 budget by 6.6% to 138bn soles (US$42bn), including an additional 12.2% in infrastructure spending.


Source: BNamericas