Congress prepares for 2026 elections; we expect the fiscal deficit to widen, and the CA to remain in surplus; Central Bank will keep cutting, but more policy pauses can’t be ruled out

PERU - Report 18 Jun 2024 by Alfredo Thorne

In this report, we begin by discussing politics, focusing on the high number of laws approved by Congress that will shape the 2026 presidential and congressional elections. We then summarize our forecasts on the economy. We start by discussing our base, low and high-case scenarios, followed by real GDP, government finances and external accounts forecasts. Finally, we discuss our financial variables forecasts. We update our Central Bank forecasts, and then discuss the other asset-price forecasts.

With Congress’s legislative structure set to be dissolved on June 16th, members of Congress rushed to approve the pending draft laws, particularly the constitutional amendments for the 2026 congressional and presidential elections. These must be approved one year ahead of the elections, by a two-thirds majority and by two different legislatures, or by simple majority in one legislature and by an open popular referendum in another.

In our May report, we argued that the legislation that the current Congress has approved has shifted power to the legislative branch, and weakened the executive branch, the opposite of the situation sanctioned by the 1993 Constitution. Moreover, President Dina Boluarte, currently under investigation by the Ministerio Público, Fiscalía de la Nación (MPFN, the Attorney General’s Office) for alleged corruption, has further weakened her power and political standing by seeking to form an alliance with the right-wing majority in Congress, paving the way for the approval of controversial legislation, benefitting the right-wing political parties in the upcoming elections.

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