Peru is set to raise money in bond markets and increase public spending in an attempt to stimulate the economy that is quickly shrinking due to decreased demand for commodities in the overseas market.
Finance Minister Alonso Segura has reportedly told the local press that he will cut taxes for companies and workers to encourage private investment. According to Bloomberg, Peru has proposed to cut the lowest income tax band for workers from 15% to 8%.
Peru’s US$202 billion economy is slowing down at significantly, with mineral output decreasing in mines across the country. According to The Economist, output at Peru’s mines fell by 3.9% in July, with copper production down by 4.1% and gold by 19%.
Peru’s economic growth slowed to 2.7% in September. Now the country’s central bank forecasts that the economy will expand just 3.1% this year, the slowest pace since 2009.
The Andean country is expected to raise $1 billion in the bond market and then raise employee salaries as part of the stimulus measures.
The increased spending, government believes, will help the country expand GDP by about 2.5% by 2015.
Money raised in the bond market will be invested in infrastructure projects. Extending Lima’s metro train network and building a gas pipeline in the south of the country are the two major infrastructure projects the country has embarked on.
Two weeks ago, the government also unveiled plans to build a 1,340-kilometer (832-mile) railroad linking the northern town of Piura with the southern region of Ica. This railroad project alone will cost the government about $9.5 billion.
Analysts say the finance minister will find it hard to increase growth until commodity prices rise in the global marketplace.
Yet measures such as providing an incentive for the reinvestment of corporate profits and promoting private sector investments will strengthen the economy to a certain extent, analysts say.