Multi-dimensional Review of Peru by OECD

Author:OECD
Language: eng
Format: epub
Tags: employment/industry/socialissues/transport/development
Publisher: OECD Publishing
Published: 2019-09-10T00:00:00+00:00

Pillar 3. Improve the use of commodity-based resources and enhance domestic resource mobilisation

Proper management of the extraction process and the revenues raised from commodities can be a relevant source of funding to invest in productivity-enhancing policies. At the national level, Peru’s fiscal rule has a structural fiscal balance (i.e. cyclically-adjusted) as it targets to manage the volatility of commodity-based revenues (OECD, 2015). However, at the sub-national level, the volatility of international commodity prices and the uncertainty of commodity production have affected revenue streams to these authorities. A fiscal rule at this level would avoid pro-cyclicality of sub-national expenditures in boom periods. Linked to this, following the experiences at the national level, sub-national authorities, in co-ordination with the national government, can establish the creation of a stabilisation fund to better manage these resources.

Improvements in the allocation of commodity-based transfers could increase competitiveness and support formal jobs. The different levels of allocation could be associated to the level of development of Peruvian departments and investment in broad based policies. In Peru, the two main sources of commodity-based revenues for sub-national authorities, i.e. canon and royalties (Korinek, 2015), are distributed exclusively to the regional and local governments where the minerals are extracted. Canon represents half of the corporate tax from mining companies (i.e. the other half is retained by the central government), and revenue from royalties is based on the companies’ profits. The fiscal transfers based on commodities per capita received by Cusco and Moquegua alone are greater than those obtained by 15 departments in Peru put together (OECD, 2015). Only five out of the 25 departments received more than half of the total revenues from commodities in 2014 (OECD, 2016b). Therefore, improving the allocation of commodity-based transfers according to the level of development of Peruvian departments is a key challenge for the country. These revenues have not contributed to greater productivity and inclusiveness. The concentration of these revenues in a few departments and the lack of rules regarding their expenditures have negatively affected the efficiency of municipal districts (Muñoz, 2010). Furthermore, these fiscal revenues do not target the poorest regions, exacerbating regional disparities. Using data at the department level, the correlation between the amount of fiscal transfers per capita and the percentage of the population with at least one unmet basic need is less than -0.3.

Peru has made progress by strengthening the process of decentralisation and sub-national governments. In January 2018, the national government created the Multi-sectorial and Intergovernmental Commission for Strengthening Decentralization (Comisión Multisectorial e Intergubernamental para el Fortalecimiento de la Descentralización) with the objective to formulate a proposal of articulated intersectoral and intergovernmental management guidelines. These guidelines aim to promote and strengthen decentralisation and a Plan of action 2018-2021, within the framework of the decentralisation process (El Peruano, 2018).

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