Political instability is crippling Peru's ability to regain its long-term growth trend, lost after the pandemic

Looming political instability will continue to undermine Peru’s growth opportunities in the medium term

Multinationals operating in Peru can expect higher leveraging costs after the country’s credit downgrade, especially coming from the affected financial institutions. Still, because Peru is reining in spending, the credit downgrade itself will not significantly impact public spending execution, which has been weighed down by political uncertainty. 


  • On April 26, S&P Global Ratings downgraded Peru’s foreign currency sovereign credit rating from BBB to BBB-. This change is attributed to the unstable political landscape that is expected to continue until the 2026 presidential and Congressional elections. The fragmentation of Congress and the limited authority of Dina Boluarte’s government are likely to dampen private investment sentiment and hinder Peru’s ability to enact public policies that could spur investment growth.
  • The combative relationship between the executive branch and Congress could jeopardize the stable macroeconomic environment in the medium term, particularly following the general elections of 2026. This political instability represents an opportunity cost for the current administration, as it is more focused on maintaining governability rather than making decisions that could strengthen the institutions needed to restore Peru’s long-term economic growth trajectory, which was disrupted following the pandemic.
  • According to S&P Global Ratings, subdued economic growth in 2024 (estimated at 0.6% YOY) will limit improvements in socioeconomic conditions, including per capita income, which will, in turn, restrict consumption capacity, savings accumulation, and social mobility. Modest growth could also constrain the government’s ability to handle external shocks, such as weather events like the El Niño and La Niña phenomena, which adversely affect agriculture, transportation, and utilities.
  • The recent approval of pension fund withdrawals was also viewed negatively by S&P Global Ratings, as it could impact the financing of local markets that depend on investments from private pension funds. Following Peru’s credit rating downgrade, six financial institutions operating in the country were also downgraded: Credicorp Ltd., Banco de Credito del Peru (BCP), MiBanco Banco de La Microempresa S.A., Scotiabank Peru S.A.A., Banco BBVA Peru, and Intercorp Financial Services Inc. (IFS). These downgrades were due to their relatively high exposure to domestic markets.

Our View

The immediate effect of Peru’s credit downgrade is a devaluation of treasury bonds and assets denominated in the Peruvian sol. This has also led to an increase in the interest rates of these assets, making borrowing more expensive for Peru and limiting its ability to increase fiscal deficits for investments.

However, Peru’s fiscal landscape appears stable for the coming years, with public debt expected to stay below 30% of GDP. Favorable copper prices should help mitigate the fiscal impact of the downgrade. In the last five months, the country has attracted up to USD 54 billion in investments in the copper sector, a 2.7% increase compared to the investments received by July 2023.

The government aims to reduce its public deficit to below 2.0% of GDP by 2027, down from 2.8% in 2023. This reduction is aligned with expected growth in tax revenue, plus the cessation of extraordinary support related to recent El Niño climate events and economic recovery initiatives, which account for approximately 1.4% of GDP.

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