Peru to widen deficit to fund El Niño response

Peru will increase its fiscal deficit limit to 2.4% of gross domestic product next year to finance a package of measures aimed at shielding the economy from the effects of El Niño, higher fuel prices and elevated international interest rates. President Keiko Fujimori announced an additional 18,000 million soles in resources, enabled by a planned modification of the country’s fiscal rules. The government intends to use this expanded space to fund bonuses, subsidies, infrastructure maintenance, public works and targeted support for affected private sectors.

The authorities describe the initiative as a countercyclical package that adds to a supplementary credit already under congressional consideration for the current year. While that existing credit focuses on sustaining ongoing public works and key social obligations, the new measures are designed to address emerging climatic and external price shocks expected in the coming period.

Of the 18,000 million soles in additional resources, 2,500 million soles will be allocated to direct cash bonuses for vulnerable families. These payments are scheduled to be delivered over three to five months, depending on each household’s needs. A further 2,000 million soles will go to maintenance of public works with the stated objective of generating employment quickly, while 500 million soles will be used to subsidize fuel prices.

Beyond these earmarked amounts, the broader package will also support infrastructure upkeep and new public works, as well as measures aimed at private sectors hit by El Niño and cost pressures. The government has indicated that maintenance and investment projects funded through both the new package and the supplemental credit will help preserve activity in construction and related services.

The Ministry of Economy and Finance plans to introduce tax payment facilities for companies whose activities are affected. The package includes the possibility of deferring tax payments for impacted economic activities and an evaluation of whether to exempt such firms from advance income tax payments when they face liquidity difficulties. These steps are intended to ease short term cash flow constraints without immediately increasing firms’ tax burdens.

Separately, a supplementary credit of 8,228 million soles requested by the executive was approved in first vote by the Bicameral Budget Commission. That credit is primarily directed to prevention and mitigation work for the 2026–2027 El Niño episode, complementing the newly announced measures for the following year.

The executive branch plans to amend Peru’s fiscal rules so the higher deficit is temporary, with a path to reduce it gradually to 1% of GDP by the end of the current administration. Officials note that public debt is close to 30% of GDP and that the rolling 12 month fiscal deficit through September stood at 0.9% of GDP, the lowest level in four years. These indicators are presented as providing room to deploy additional fiscal resources while maintaining medium term sustainability.

Financing for the expanded deficit will rely on next year’s budget and could include extraordinary credits.