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publicationApril 26, 2023

Rising Strong: Peru Poverty and Equity Assessment

Rising Strong: Peru Poverty and Equity Assessment - Cover

Peru was one of the countries most affected by the COVID-19 pandemic in terms of health and economic impacts and the erosion of the social gains achieved in the previous decade. By July 2022, Peru had registered more than 6,000 deaths per million population because of COVID-19, placing the country among the countries with the highest COVID-related mortality rates per capita. The economy contracted by 11 percent in 2020, its biggest fall in 30 years and the largest in Latin America during that year. As a result, the national poverty rate increased to 30.1 percent, a level not seen since 2010, and extreme poverty reached 5.1 percent in 2020, comparable with the rate in 2013. By the end of 2021, the economy had recovered, but poverty and extreme poverty remained at the levels of 2012 and 2015, respectively. The magnitude of the welfare loss during the crisis revealed the fragility of the social gains that had been achieved during the previous two decades.

High levels of informality and limited social protection left workers unprotected from the economic shock of the COVID-19 crisis, and millions of workers lost their jobs. During the peak of the pandemic (the second quarter of 2020), approximately 6.7 million jobs were lost. However, the economic losses varied across the working population. Self-employed workers and individuals employed in small businesses— mostly informal—experienced the largest drop in employment. In contrast, people who were able to work from home and who had the benefit of internet connectivity—mostly formal—were less likely to lose their jobs. Youth, who exhibited higher informality rates relative to the rest of the population, lost their jobs at a higher rate. Women were also disproportionately affected, because they left the workforce at a higher rate than men, mainly because they supplied care to children and the elderly in households.

Despite the substantial government response to the crisis, Peru faces greater poverty now than before the pandemic. During the peak of the pandemic, the health system collapsed, and no one, regardless of their ability to pay, could access proper health care. Elements of the government response served as a buffer for income loss, preventing an additional poverty rate increase of 3.6 percentage points. However, although the mitigation package in Peru was one of the biggest in the region, it was insufficient to protect the vulnerable and the poor from falling (or falling further) into poverty.

 

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Background Notes

  • Chapter 1 : Poverty, Inequality and Household Welfare
    Poverty, Inequality and Household Welfare
    Chapter 1

    This chapter analyzes the progress in monetary and nonmonetary dimensions of poverty, focusing on the two decades before the COVID-19 crisis and on the years of the crisis. Monetary poverty and inequality are characterized, as well as the access to, distribution, and quality of basic services. The chapter also delves into the Peruvian labor market, which is the main contributor to poverty reduction of the past decade, but also one of the biggest sources of the recent fragility of social gains.

  • Chapter 2: The Long-lasting Impacts of COVID-19
    The Long-lasting Impacts of COVID-19
    Chapter 2

    Peru has been one of the countries hardest hit by the COVID-19 pandemic in the last two years. To prevent the spread of the virus, the government implemented a strict lockdown at the beginning of the pandemic. Peru’s strict quarantine measures removed people from economic and social activities, and mobility returned to pre-pandemic levels in mid-2022. While the short-term impacts of the COVID-19 pandemic are well documented, the long-term consequences of these losses are unknown. This chapter explores the incidence and long-term effects of COVID-19 deaths on the well-being of surviving households. Efforts to identify COVID-related deaths based on individual characteristics have been quite limited. Most statistics present mortality at the level of aggregate variables, such as age or sex. The main contribution of this chapter therefore lies in shedding light on the incidence of COVID-19 deaths along the income distribution by combining several datasets on the socioeconomic profiles of people who have died from COVID-19.

  • Chapter 3 -The Distributional Effects of the Tax and Transfer System
    The Distributional Effects of the Tax and Transfer Sytem
    Chapter 3

    Over the two decades previous to the COVID-19 crisis, tax revenues as a proportion of gross domestic product (GDP) in Peru experienced a modest increase despite reforms that supported a process of economic growth. General government revenue did increase by a factor of 4.6 in the years beginning in 2000 in nominal terms, but, as a share of GDP, it only grew from 18.9 percent in 2000 to 19.6 percent in 2019, before the COVID-19 pandemic. The share also did not change much between 2017 and 2019 despite several reforms to the tax system aimed at combating noncompliance and expand the tax base. Thus, Peru’s tax revenues remain relatively low compared with countries at a similar level of GDP per capita and similar tax rates, such as Peru’s peers in the Pacific Alliance.

  • Chapter 4: Vulnerability to Shocks and Climate Change
    Vulnerability to Shocks and Climate Change
    Chapter 4

    During the last decade, Peru has been successful in reducing poverty and improving shared prosperity. However, because of the high frequency of shocks, sustaining these gains has proven difficult. The incidence and prevalence of shocks is expected to increase because of climate change, creating additional pressure on the capacity of households to respond, cope, and adapt to shocks. To continue the trend toward a reduction in poverty, adapting to this new environment is important. In a context of high exposure to risk and vulnerability, the economic impacts of climate change pose a challenge to efforts to reduce poverty and increase shared prosperity. Evidence on the effects of previous climate shocks may not provide a complete picture of the effects of climate change because accounting for adaptation is difficult. The specific impacts of climate change depend on the effects on the income-generating capacity of households and on the implementation of public and private adaptation initiatives. While government institutions play a key role in helping poor people manage the uncertain risks of climate change, the participation of local governments is limited

  • Chapter 5 - Achieving gender equality is necessary to further reduce poverty and inequality
    Achieving gender equality is necessary to further reduce poverty and inequality
    Chapter 5

    Gender-based violence (GBV) is a persistent challenge with negative impacts not only for the survivors and their families, but all Peruvian society. There is a persistent gender gap in labor force participation that affects especially the most vulnerable women. Gender inequality in decision-making within households is persistent in the country, and the presence of Peruvian women in decision-making in public spaces also remains constrained. Although Peru has registered substantial progress on some dimensions of gender equality over the last decades, persistent gender gaps across all dimensions of welfare continue undermining poverty reduction efforts. This note discusses how gender disparities contribute to monetary and multidimensional poverty in Peru. The ultimate objective of the analysis is to identify the key gender gaps and dynamics with implications for poverty reduction efforts in the country. Section 1 of the note covers gaps in endowments, including health, demographics, and educational outcomes. Section 2 addresses gaps in economic opportunity, including labor, earnings and productivity, and access to assets and entrepreneurship. Section 3 focuses on gaps in agency, including decision-making, social capital, and GBV.

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