Interview: Alonso Segura
On what is the 6% growth estimate for 2015 based?
ALONSO SEGURA: Peru’s growth was affected in 2014 by shocks from two sides: internal supply shocks in the primary sectors of mining, fishing and agriculture; and the deterioration of international conditions and US dollar appreciation. These conditions affected recovery expectations and negatively impacted private investment.
Fortunately, Peru has strong macroeconomic fundamentals with enough room for implementing policies to cushion current conditions. At 32%, reserves relative to GDP are double the average of our Latin American peers. Peru also has a Fiscal Stabilisation Fund worth about 4.4% of GDP and, according to the IMF, the lowest need for financing in Latin America. As a proportion of GDP, net public debt is 3.7%, gross public debt is below 20% and financial assets total 15%.
For 2015 we expect the negative shocks of 2014 to dissipate. We forecast GDP growth above 5% based on five factors. Global growth will accelerate (3.8% compared to 3.3% in 2014), especially in the US economy, one of our main trading partners. Secondly, domestic markets should recover due to long-term measures implemented by the government. Thirdly, copper output will rise as Toromocho and Constancia begin their full-scale activities. Fourthly, construction will begin on several mega-infrastructure concessions, including the Lima Metro Line 2, Chinchero Airport and the Southern Gas Pipeline. Finally, the economic stimulus plan worth more than 2% of GDP includes tax reductions, increased government spending and changes to the labour laws to promote job creation.
We expect the metal mining sector to recover, as two major copper mines (Antamina and Toromocho) will increase production, and a third (Constancia) will start operations. Furthermore, Antamina’s zinc production will increase, while Shougang’s expansion will reflect higher iron output. In turn, mining recovery should boost manufacturing sectors like precious and non-ferrous metals, machinery and equipment, and metal products. Finally, manufacturing linked to construction will be invigorated in light of the infrastructure mega-projects. On energy, Lot 67 should continue to increase oil production after a strong 2014 performance. We also expect success from the Lot 1AB tender, which should provide greater momentum to oil production. And finally, in the fishing sector we foresee the anchovy catch making a recovery in the second half of 2015.
What will the impact be of recent income tax cuts?
SEGURA: Congress has just approved a tax reduction plan proposed by the executive. Currently, businesses pay a corporate rate of 30% and shareholders pay an additional rate of 4.1% when dividends are distributed, which results in a combined rate of 33%. Starting in 2015, the corporate tax rate will be progressively reduced to 26%, while the dividend distribution rate will increase proportionally to maintain the combined rate of 33%. This will align corporate rates with the average in OECD countries, while maintaining a dividend distribution rate below our regional peers. This reform will result in additional incentives for businesses to reinvest their benefits, and thus, support GDP growth.
Personal income tax rates will also be reduced. Tax brackets will be increased from four to six, and the rates for the lowest ones will be reduced, which will result in 1.2m citizens paying less tax and a more progressive system with greater incentives towards formalisation.
Are these cuts enough to reactivate the economy?
SEGURA: No single measure is enough to accelerate growth to the rates of previous years. That is why we have announced not one but a set of measures, including laws to reduce rigidities in the labour market and provide incentives to hire young people. We are also eliminating sales tax for businesses that invest in new capital assets and reformulating the procedures for obtaining environmental and other permits that currently delay investment in mining, energy and hydrocarbons. We expect these measures to result in growth of around 6% at some point in the second half of 2015.
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