Peru and Chile face widening fiscal deficits and rising debt

Peru's executive branch has proposed a supplemental credit of roughly S/9.6 billion to fund increased public spending, largely driven by higher payroll and pension obligations from recent legislation. Critics warn that financing permanent expenditures with temporary revenue, especially ahead of the El Niño season, threatens fiscal sustainability and could force the administration to seek constitutional challenges to unfunded laws.

In Chile, the latest Public Finance Report shows that neither the baseline nor the alternative scenario meets the structural balance target of a 1.8% deficit of GDP from 2027 onward. To achieve the target, annual spending would need to be cut by about 1% of GDP. Under a committed‑spending path, public debt is projected to exceed the prudent 45% of GDP threshold by 2029–2030, reaching roughly 45.5% of GDP, while a scenario aligned with the deficit target keeps debt below that level.

Both countries therefore face significant fiscal pressure, with Peru confronting immediate budgetary decisions and Chile projecting long‑term deficits and higher indebtedness.