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Peru Faces Fiscal Crisis: Reforms Strain Treasury
21 Mar
Summary
- Public spending reforms may add $3.45 billion over next year.
- Pension increases for military and teachers strain national budget.
- Fiscal Council warns reforms threaten Peru's deficit reduction goals.
Peruvian lawmakers have advanced public salary and pension reforms that could increase spending by 12 billion soles ($3.45 billion) within the next year. These measures, approved recently by Congress, include enhanced pensions for military and police personnel, and labor benefits for temporary public workers.
The Fiscal Council, a public watchdog, has labeled these reforms a "fiscal hemorrhage," estimating their cost at over 1% of Peru's gross domestic product. This spending surge jeopardizes the nation's aim to limit its fiscal deficit to 1.8% of GDP this year.
Key reforms include a 5.6 billion soles annual cost for increased public school teacher pensions and nearly 3.8 billion soles annually for changes to military and police pension systems. These bills passed despite previous warnings and objections from the former administration.
The new administration faces the challenge of addressing these costly reforms. Central bank chief Julio Velarde has backed referring these measures to the Constitutional Court, stating the country is being weakened and the government's actions are being undermined.
