The World Bank
Peru Sustainable and Inclusive Growth DPF-DDO (P178591)
Program Information Document
(PID)
Concept Stage | Date Prepared/Updated: 22-Jun-2022| Report No: PIDC34313
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The World Bank
Peru Sustainable and Inclusive Growth DPF-DDO (P178591)
BASIC INFORMATION
A. Basic Project Data OPS TABLE
Country Project ID Project Name Parent Project ID (if any)
Peru P178591 Peru Sustainable and
Inclusive Growth DPF-DDO
(P178591)
Region Estimated Board Date Practice Area (Lead) Financing Instrument
LATIN AMERICA AND Oct 31, 2022 Macroeconomics, Trade Development Policy
CARIBBEAN and Investment Financing
Borrower(s) Implementing Agency
Republic of Peru Ministry of Economy and Finance
Proposed Development Objective(s)
The Program Development Objective is to support Government policies aimed at (i) promoting sustainable and
efficient expenditures and (ii) fostering competitiveness and green growth.
Financing (in US$, Millions)
FIN_SUMM_PUB_TBL
SUMMARY
Total Financing 750.00
DETAILS -NewFin3
Total World Bank Group Financing 750.00
World Bank Lending 750.00
Decision
The review did authorize the preparation to continue
B. Introduction and Context
Country Context
Peru achieved remarkable economic growth and poverty reduction over the two decades prior to the COVID-19
pandemic, but progress has slowed down in recent years. Peru’s comparative advantage in commodities coupled with
solid macroeconomic management and well-targeted programs fostered inclusive economic growth, particularly between
2002–2013. In the years prior to the pandemic (2013-2019), average growth rates declined to half of what they were in
the 2000-2013 period, as productivity and job growth slowed. Between 2020 and 2021 during the COVID-19 crisis,
accumulated growth has been less than one percent, even when export prices were rising again. Moreover, climate change
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The World Bank
Peru Sustainable and Inclusive Growth DPF-DDO (P178591)
risks and already high impacts from natural hazards expose Peru to severe economic and welfare losses and threaten
Peru’s development path. The country has embarked on a path to economic recovery, with social inclusion and equity at
the center of its policy agenda, but political volatility risks further progress.
Peru’s GDP is expected to expand 3.1 percent in 2022, remaining below its pre-pandemic trend, with an adequate and
sustainable macroeconomic policy framework. Growth this year will be mainly driven by higher export volumes, while
domestic demand will gradually decelerate. The fiscal deficit is projected to continue narrowing along the projection
period, while public debt is expected to stabilize. Peru’s public sector debt is assessed to be sustainable and resilient to
a range of different shocks. Despite the improvements in mineral prices, the current account balance is expected to
remain negative during the projection period (through 2024). The economic outlook is subject to significant uncertainty
and some risks, including higher inflation, political uncertainty, new COVID-19 variants, and international conditions.
Relationship to CPF
The proposed operation is aligned with the current and forthcoming Country Partnership Framework (CPF). The
operation supports the following objectives of the FY17–FY21 CPF: Objective 3. Enhance the environment for sustainable
private investment; Objective 6. Improve governance with selected institutional reforms at the national and subnational
levels; Objective 7. Strengthen the management of natural resources; and Objective 8. Improve disaster risk planning and
financial management. The operation is also aligned with three High Level Objectives that are preliminarily included in the
forthcoming FY23-27 CPF and Systematic Country Diagnostic: 1) Increased quality economic opportunities, 2) Improved
access to quality public services across the territory, and 3) Increased resilience to shocks. Complementing the proposed
operation are recent DPFs (Peru: Enabling a Green and Resilient Development DPF; Investing in Human Capital DPF II; and
Peru: Strengthening Foundations for Post COVID-19 Recovery DPF), and the Strengthening Peru's National Science,
Technology and Innovation System IPF.
C. Proposed Development Objective(s)
The Program Development Objective is to support Government policies aimed at (i) promoting sustainable and
efficient expenditures and (ii) fostering competitiveness and green growth.
Key Results
The reforms supported by the proposed operation strike at the core of Peru’s ability to grow in a more sustainable and
inclusive manner. More sustainable fiscal performance at the national and subnational levels is required to fund public
infrastructure and service delivery throughout the country, while providing adequate fiscal buffers to respond to future
shocks. More efficient leveraging of public and private financing for infrastructure is needed to close Peru’s large gaps in
sustainable infrastructure, benefitting firms and citizens across the country. A more efficient social protection targeting
system will help the most vulnerable or affected households bounce back more quickly from future shocks, including
natural disasters. More strategic expenditures on research and innovation can create a more productive, low carbon, and
climate-resilient economy. Greater product market competition can lead to cost savings for households and more
productive firms. A more competitive financial sector makes it easier for firms of all sizes to access funding for green and
growth-enhancing investments, and a more competitive forestry sector offers further opportunities for green growth.
D. Concept Description
The proposed operation complements the government’s effort to foster social inclusion, while anchoring critical
policies to support a sustainable and inclusive growth model for Peru. The operation is aligned with the government’s
current Strategic Plan for National Development and the National Competitiveness and Productivity Plan. It is also closely
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The World Bank
Peru Sustainable and Inclusive Growth DPF-DDO (P178591)
aligned with Peru's commitments on climate change, including the recently updated Nationally Determined Contributions
(NDCs).
The first pillar of the operation supports reforms for more sustainable and efficient expenditures. It does so by
amending the medium-term fiscal framework, strengthening subnational infrastructure and service delivery to enable
green investments, increasing the efficiency of public and private investment in infrastructure, and improving the
national targeting system. This pillar includes policy actions for: (i) approval of viable fiscal rules for 2023-2026, (ii)
strengthening subnational infrastructure and service delivery by making municipal finances more sustainable and
increasing the impact of subnational investments, (iii) improving the efficiency of public investment in infrastructure by
expanding the sources of funding and types of investments that are eligible for private financing and execution under the
“Works for Taxes�? modality, (iv) increasing the efficiency of private investment in infrastructure, by improving the
structuring and tendering of PPP operations, and (v) improving the national targeting system for social protection
measures through the creation of a national household registry.
The second pillar of the operation supports reforms to foster competitiveness and green growth. It does so by
supporting reforms to create more innovative and competitive financial and product markets and mainstreaming climate
change action across government policy. This pillar includes policy actions to: (i) improve the effectiveness of public
support to innovation and its focus on climate change, including through increased strategic oversight and coordination
of the innovation system and prioritization of climate research areas, (ii) strengthen the competition policy framework,
including with respect to the anti-cartel program and mergers, (iii) improve access to finance, competition in the financial
system, and fintech, including through enabling the market entry of 100% digital financial service providers and steps to
enable factoring with electronic invoices, (iv) strengthen the green finance ecosystem and mobilize private capital for
sustainable development through a green finance roadmap, (v) mainstream climate action in government policy through
concrete, timebound climate change mitigation and adaptation actions across government ministries, and (vi) develop a
sustainable forest industry and address deforestation.
E. Poverty and Social Impacts, and Environmental, Forests, and Other Natural Resource Aspects
Poverty and Social Impacts
Most of the prior actions supported under the program are expected to have positive poverty and social impacts.
Supporting fiscal consolidation is expected to have a positive impact on economic growth and poverty reduction over the
long term. Reforms that improve the efficiency of public and private investment in infrastructure are expected to have
positive long-term impacts on the poor, for instance through improved sanitation, access to electricity, and health services.
Improving the targeting of social protection measures will benefit the most vulnerable households in both the short and
long term. Improving competition in markets and dismantling cartels will benefit the poor by lowering prices. This is
particularly important in the case of food prices, which affect poor households the most. More competition in the financial
sector and increased financial inclusion should have a positive impact on poverty and inequality by making digital
payments and credit more easily available to poorer households and micro and small firms. Finally, implementing concrete
climate change mitigation and adaptation actions will reduce climate vulnerability among the poor, which is critical since
poor households have a higher risk of suffering from climate change impacts.
Environmental, Forests, and Other Natural Resource Aspects
Prior actions supported by the proposed operation are not expected to have any significant negative effects on the
country’s environment, forests, and other natural resources. Rather, at least five prior actions are expected to have
positive environmental effects. Even though the implementation of two prior actions has the potential to lead to negative
environmental effects, the national legal framework incorporates the necessary mitigation measures for their adequate
management.
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The World Bank
Peru Sustainable and Inclusive Growth DPF-DDO (P178591)
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CONTACT POINT
World Bank
Bledi Celiku, Daniel Francisco Barco Rondan, Thomas Edward Haven
Senior Economist
Borrower/Client/Recipient
Republic of Peru
Implementing Agencies
Ministry of Economy and Finance
Valentín Cobeñas
Director de la Dirección de Créditos de la Dirección General
vcobenas@mef.gob.pe
FOR MORE INFORMATION CONTACT
The World Bank
1818 H Street, NW
Washington, D.C. 20433
Telephone: (202) 473-1000
Web: http://www.worldbank.org/projects
APPROVAL
Task Team Leader(s): Bledi Celiku, Daniel Francisco Barco Rondan, Thomas Edward Haven
Approved By
APPROVALTBL
Country Director: Marianne Fay 19-Jul-2022
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