Peru Secures $550M IDB Loan to Drive Fiscal Reforms and Boost Growth

Peru has obtained a $550 million loan from the Inter-American Development Bank (IDB) to implement sweeping fiscal reforms aimed at stimulating economic growth through greater productivity and private investment. The funding marks the first in a two-part program designed to strengthen the state’s institutional capacity, improve fiscal management, and close long-standing structural gaps in governance.

Strengthening Fiscal Policy and Public Spending

The loan will support reforms in fiscal policy and public finance management to make the Peruvian state more efficient and accountable. Two main objectives underpin the program:

1. Improving the efficiency of public spending by modernizing investment planning and procurement.

2. Enhancing the effectiveness of the tax system to increase revenues and reduce informality.

By focusing on these areas, the IDB and Peruvian authorities hope to create a more sustainable fiscal framework that can respond to growth needs while preserving macroeconomic stability.

Modernizing Public Investment and Procurement

One of the program’s priorities is the overhaul of Peru’s public investment management system, particularly at the subnational level, where inefficiencies and delays have often slowed infrastructure delivery. The loan will fund measures to improve the prioritization, review, and execution of projects, ensuring that resources are directed to high-impact initiatives that benefit communities.

The program will also support the regulation of Peru’s new public procurement law, which incorporates value-for-money principles and sustainability criteria. These reforms aim to increase transparency and deliver better outcomes for citizens. Importantly, the reforms will include mechanisms to encourage the participation of women-led enterprises and companies employing people with disabilities, broadening inclusion in government contracts.

Tax System Reforms for Productivity and Formalization

On the revenue side, the program will focus on creating a simpler and more predictable tax regime. The reforms are expected to:

• Simplify tax rules for small and medium-sized enterprises (SMEs), encouraging them to formalize operations.

• Improve e-commerce tax collection in response to the digital economy’s rapid growth.

• Strengthen transfer pricing regulation for multinational corporations in line with OECD standards.

• Introduce a cooperative compliance program for large taxpayers, fostering trust and voluntary compliance.

These measures are intended not only to improve tax collection but also to provide businesses with greater certainty and reduce administrative burdens, making Peru a more attractive destination for investment.

Loan Terms and Structure

The policy-based loan, approved by the IDB’s Board of Executive Directors, has a 19-year repayment period with a 6.5-year grace period and an interest rate tied to SOFR (Secured Overnight Financing Rate). This structure gives Peru the fiscal space needed to implement reforms gradually, while ensuring repayment conditions are sustainable.

A Broader Reform Agenda

The IDB loan forms part of a larger reform agenda to modernize Peru’s state apparatus and strengthen institutions. By improving corporate governance in state-owned enterprises, enhancing fiscal transparency, and creating a more equitable tax system, authorities hope to build resilience against external shocks and create conditions for long-term inclusive growth.

Peru has faced persistent challenges with informality, subnational spending inefficiencies, and limited tax revenues, which have constrained its ability to invest in infrastructure and social development. The reforms supported by this financing aim to break that cycle and position the country for stronger economic performance in the coming years.

Outlook

As the first tranche of a two-operation program, the loan signals confidence in Peru’s commitment to reform and its partnership with the IDB. Successful implementation could pave the way for additional financing and technical support, ensuring reforms translate into tangible improvements in governance, competitiveness, and prosperity.