Third Programmatic Decentralization and Competitiveness Dev Policy Loan

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The Third Programmatic Decentralization and Competitiveness Development Policy Loan Project will continue supporting ongoing efforts by the Government, through three specific objectives: 1) protection of the country's fiscal sustainability during Peru's transition to a more decentralized state; 2) strengthened management, and fiscal capacity at sub-national levels, towards the progressive increase in services delivery; and, 3) supporting the creation of improved regulatory and investment environment climate, to increase the country's competitiveness, with a strong focus on export promotion, and regional development. While the project will help reduce poverty through the promotion of a fiscally sustained decentralization, and competitiveness program, it is subject to two main risks: a) program sustainability, and, b) macroeconomic stability. First, the continuity of program policies is supported by a number of other multilateral, and bilateral agencies, including the Inter-American Development Bank (IADB), and the United States Agency for International Development (USAID), and Kreditanstalt für Wiederaufbau (KfW), among others. Moreover, the Bank has already begun discussions with government officials, as well as potential presidential candidates about possible follow-up operations to support reforms in these areas. Second however, the combination of higher than-expected government revenues, and the upcoming election cycle could trigger expansive fiscal policies, threatening macroeconomic stability and the country's debt level. The consensus in Congress on the benefits of fiscal discipline will limit increases in public sector expenditures for the rest of this administration.