Macroeconomic policies for inclusive development

Peru’s macroeconomic performance has been extraordinary over the last decade. This performance is in part the result of a very favourable external environment, but is also a consequence of a successful combination of sound fiscal policy and monetary credibility. While the former is based on a fiscal responsibility law, the latter is supported by an inflation targeting regime under a dual monetary system. This is a great achievement: a sound macroeconomic framework provides the foundations for a more competitive economy and greater social equity. However, there is still room for improvement. Peru still has a relatively underdeveloped and inefficient financial market. Also, the high level of dollarisation of the financial system increases the economy’s vulnerability to external shocks. Finally, a comprehensive fiscal reform is needed to improve the efficiency and equity of the tax system, and in particular to increase fiscal revenues. A more effective and progressive taxation system will be crucial to finance several structural challenges highlighted in the previous chapters, and to reduce income inequalities in Peru.