The government of Peruvian President Pedro Pablo Kuczynski on Wednesday proposed a 4.5 percent spending hike for the 2017 budget to bolster domestic demand and curb the risk of recession once a copper boom subsides. The increase would pay for sorely-needed investments in public work projects, education, health care and security, Finance Minister Alfredo Thorne told a congressional budget committee.
He warned spending would remain flat and the country "could even risk a recession" unless Congress agreed to raise the 2017 deficit ceiling to accommodate the spending increase.
The congressional budget committee later agreed to raise the cap and the measure is also expected to be approved by the Opposition-controlled Congress later this week.
Thorne earlier this month scaled back the timeframe for reducing Peru's budget deficit to 1 percent of gross domestic product, saying it had unexpectedly swollen before centrist President Pedro Pablo Kuczynski took office last month, threatening to dealy proposed reforms.
The finance minister said the country's "two-speed economy"
was being driven by surging mining activity and Kuczynski, a former investment banker, was committed to jump starting domestic demand. The annualized economic growth rate in Peru has firmed to about 4 percent in recent months, but private investment has slipped for three years straight. "We have to keep in mind that the impact from mining only lasts until 2017. If we remove the effect of mining we have an economy that's growing by 1.5 to 1.6 percent," Thorne said.