Peru: Selected Issues

This Selected Issues paper focuses on the macroeconomic threat of illegal mining in Peru. The post-pandemic spike in metal prices has triggered a rise in illegal mining activities across the region, and Peru is the largest exporter of illegal gold in the region. If not tackled, this widespread phenomenon could jeopardize Peru’s position as a reliable destination for mining investment and ultimately erode Peru’s growth potential. Illegal mining also has extensive repercussions beyond investment, impacting labor markets, socioeconomic development, and the institutional environment. Tackling illegal mining will require efforts to close existing legal gaps and establish clear pathways to formalization. It would be important to improve the state’s capacity to combat illegal mining and adopt a supply-chain approach to enforcement, as well as supply-side policies to reduce incentives to engage in illegal mining. Revamping the fiscal decentralization framework and redesigning natural resource revenue-sharing formulas would also improve the efficiency of public investment and raise local living standards. Sectoral diversification policies would expand economic opportunities in mining communities and provide alternatives to illegality.