Performance of Public Investment in Peru (2009-2023)
Public investment in Peru has significantly increased between 2009 and 2023, growing at an average annual rate of 10.5%. This growth, primarily focused on education, transport, and health, aims to boost aggregate demand and improve productivity. However, persistent challenges remain, notably low budget execution (averaging 69%) and a high number of paralyzed works, despite the introduction of the streamlined Invierte.pe system.
Key Takeaways
Public investment grew 10.5% annually between 2009 and 2023, reaching S/ 68 billion.
Budget execution averages only 69%, leaving approximately S/ 14 billion unused yearly.
The Invierte.pe system reduced major project viability time from 16 months to 9 months.
Over 2,600 public works are currently paralyzed, representing S/ 19 billion in pending investment.
Investment atomization, favoring low-cost projects, fragments resources and limits overall welfare impact.
What is Public Investment and what are its key impacts in Peru?
Public investment involves the State using resources to create or improve physical capital, with the primary purpose of expanding the productive capacity of public goods and services. Theoretically, this spending stimulates aggregate demand, which is crucial for economic stability. Furthermore, effective public investment generates significant social benefits by improving equity, building human capital, and fostering inclusive economic growth, ultimately reducing poverty and inequality across the nation. This strategic use of state funds is essential for long-term national development and closing critical infrastructure gaps.
- Use of state resources to create or improve physical capital.
- Purpose: Expand the productive capacity of goods and services.
- Macroeconomic Impact: Stimulus to Aggregate Demand and Improvement of Productivity.
- Social Impact: Reduction of poverty and inequality (Equity and Human Capital).
- Social Impact: Promotion of Inclusive Economic Growth.
How has public investment spending evolved in Peru between 2009 and 2023?
Public investment spending in Peru has seen substantial growth over the last decade and a half, increasing from S/ 32 billion in 2009 to S/ 68 billion in 2023, reflecting a strong commitment to infrastructure development. This represents a significant average annual growth rate of 10.5%. The majority of this increased spending, approximately 60% of the total increase, was directed toward critical sectors such as Education, Transportation, Health, and Sanitation. Despite this growth, budget execution remains a challenge, averaging only 69% of the assigned budget. This persistent execution gap means approximately S/ 14 billion (2.2% of GDP) is left unused annually, highlighting a major inefficiency in resource deployment.
- Investment spending increased from S/ 32 billion (2009) to S/ 68 billion (2023).
- Average Annual Growth Rate: 10.5%.
- Principal Orientation: Education, Transportation, Health, and Sanitation (60% of the increase).
- Average Budget Execution: 69% of the assigned budget.
- Annually unused resources: Approximately S/ 14 billion (2.2% of GDP).
What are the key differences between the SNIP and Invierte.pe regulatory frameworks?
Peru transitioned from the National System of Public Investment (SNIP), established in 2000, to the Invierte.pe system in 2016 (D.L. N° 1252) to address persistent inefficiencies. SNIP introduced crucial pre-investment studies (Profile, Pre-feasibility, Feasibility) but suffered from excessive bureaucracy, unclear links to strategic plans, and significant delays. Invierte.pe aims to overcome these issues by linking investment to multiannual programming focused on closing infrastructure gaps. It applies to all non-financial public sector entities and emphasizes prioritization, formulation, execution, and management throughout the investment cycle, while also introducing streamlined categories like IOARR for quicker execution of minor works.
- SNIP Phases: Pre-investment, Investment, Post-investment.
- SNIP Advance: Incorporation of pre-investment studies.
- SNIP Deficiency: Unclear connection to strategic plans, bureaucracy, and delays.
- Invierte.pe Objective: Link investment to multiannual programming for closing gaps.
- Invierte.pe Scope: Entities and companies of the non-financial public sector.
- Invierte.pe Focus: Prioritization, formulation, execution, and management based on the investment cycle.
- Invierte.pe Categorization: Public Investment Projects (PIP) requiring a full cycle, and IOARR (Optimization, Amplification, Replacement, Rehabilitation) for agile execution.
What are the four phases of the Invierte.pe public investment cycle?
The Invierte.pe system structures public investment into four distinct phases to ensure efficiency and strategic alignment. The cycle begins with Multiannual Programming (PMI), where gaps are determined and a three-year portfolio is prioritized, linked to the National Strategic Plan (PEN). Next, Formulation and Evaluation involves analyzing demand and supply, estimating costs, and assessing viability based on project complexity. The Execution phase includes preparing the Technical File and physical execution, monitored via SIAF/SEACE. Finally, the Functioning phase ensures the operation and maintenance of assets, concluding with an Ex Post Evaluation to verify the achieved impact and ensure the asset delivers its intended benefits to the population.
- 1. Multiannual Programming (PMI): Determine gaps and prioritize the triannual portfolio, linked to the National Strategic Plan (PEN).
- 2. Formulation and Evaluation: Analyze demand/supply, estimate costs, and evaluate viability (adapting study level to complexity).
- 3. Execution: Prepare the Technical File and physical execution (monitored via SIAF/SEACE).
- 4. Functioning: Operation and maintenance of assets, followed by Ex Post Evaluation to verify impact.
What are the persistent challenges hindering effective public investment in Peru?
Despite regulatory improvements, several persistent challenges impede effective public investment execution. A major issue is the high volume of Unforeseen Investments, which are viable but not initially included in the Annual Investment Plan (PIA), representing 82% of executed investments (2018-2023) and reducing the budget for initially programmed projects by 19%. Furthermore, the Comptroller General's Office (CGR) reports 2,648 paralyzed works (as of Oct 2024), valued at S/ 19 billion, primarily due to contractual breaches (24%) and lack of financial resources (22%). This is compounded by investment atomization, where preference for low-cost projects (< S/ 1M) fragments resources and marginalizes the overall impact on welfare, alongside a large portfolio of long-lived, unfinished projects.
- Unforeseen Investments: Viable projects incorporated later, reducing budgets for initially programmed investments.
- Obras Paralizadas (CGR): 2,648 paralyzed works (Oct 2024), valued at S/ 19 billion (26% of PIM).
- Main Causes of Paralysis: Contractual breaches (24%) and lack of financial resources (22%).
- Investment Atomization: Concentration on low-cost investments (< S/ 1M), leading to fragmented impact.
- Long-Lived Unfinished Portfolio: Major PIPs initiated under SNIP often remain unfinished after 7+ years.
How has the Invierte.pe system quantified improvements in the investment process?
The implementation of Invierte.pe has yielded measurable improvements, particularly in accelerating the initial phases of the investment cycle. In the Pre-investment phase (Viability), the number of major Public Investment Projects (PIPs) deemed viable increased significantly from 4,000 annually under SNIP to 14,000 under Invierte.pe, alongside 12,000 IOARRs approved in 2023 alone. Crucially, the time required from viability approval to the first disbursement (Execution phase) for major PIPs was reduced from 16 months under SNIP to just 9 months under Invierte.pe. For the streamlined IOARR projects, this time frame is even shorter, averaging only 5 months, demonstrating enhanced agility in project initiation and resource deployment compared to the previous system.
- Major PIPs Viabilized: Increased from 4,000 (SNIP) to 14,000 annually (Invierte.pe).
- IOARR Approvals: 12,000 approved in 2023.
- Time Reduction (Viability to 1st Disbursement for Major PIPs): Reduced from 16 months (SNIP) to 9 months (Invierte.pe).
- Time Reduction (Viability to 1st Disbursement for IOARR): Only 5 months.
- Agility Mechanisms: Government-to-Government (G2G) contracts, Building Information Modeling (BIM), and the National Plan for Sustainable Infrastructure (PNISC).
Frequently Asked Questions
What is the main purpose of public investment in Peru?
The main purpose is to use state resources to create or improve physical capital, thereby expanding the productive capacity of public goods and services. This aims to stimulate aggregate demand and foster inclusive economic growth.
What is the primary difference between PIPs and IOARRs under Invierte.pe?
Public Investment Projects (PIPs) require the full investment cycle due to their complexity. IOARRs (Optimization, Amplification, etc.) are smaller interventions designed for agile execution and do not need to pass through all phases.
Why are so many public works paralyzed in Peru?
As of October 2024, 2,648 works were paralyzed, mainly due to contractual breaches (24%) and a lack of financial resources (22%). These issues account for a significant portion of the S/ 19 billion pending investment.
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