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2002 budget deficit likely
to be exceeded owing to overly optimistic growth assumptions
The
recovery of the economy will assist the government in financing its
ambitious programmes designed to alleviate poverty through job creation.
Even though the government is still negotiating the details of the 2002
budget (in particular the use of privatization proceeds exceeding the
minimum of US$ 500 million) with a mission from the International Monetary
Fund (IMF) that is currently visiting the country, the fiscal deficit
target has already been approved. According to Finance Minister Pablo
Kuczynski, the deficit will range between 1.7% and 1.9% of GDP with the
exact number depending on the final outcome of the negotiations with the
IMF. The original government draft budget assumed an overly optimistic
GDP growth rate of 5.5% for 2002, but has meanwhile been adjusted to a
still optimistic but more reasonable 4.0%. The government is also
confident that the IMF will agree to the fiscal deficit of 1.2% of GDP for
2003. Owing to the more optimistic growth assumptions in the 2002 budget,
panellists expect the government to overshoot its objective. According to
the Consensus Forecast and government sources, this year’s deficit will be
well above the official 1.5% goal agreed upon with the IMF.
Inflation
remains contained in October
October saw yet another month with virtual price stability, lowering the
annual headline inflation rate from 0.9% in September to the current
0.7%. In October, consumer prices inched upward by just 0.04%. Health
and food prices experienced above average increases but were compensated
by steep price declines in housing and electricity as well as transport
and communications. Panellists are still adjusting their forecasts to the
restrained development of consumer prices. The projected increase in
domestic demand in 2002 should also serve to raise inflation.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Peru. For more details please click here.
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