(Adds details, context, quote from analyst)
By Mitra Taj
LIMA, April 30 (Reuters) - Peru’s budget deficit will rise to 2 percent of gross domestic product this year as the government boosts spending and cuts taxes to try to jump-start sluggish economic growth, the finance ministry said on Thursday.
The finance ministry had forecast a deficit of 0.4 percent of GDP in its last macroeconomic report in August before the government began rolling out additional measures to counter a sharp economic slowdown.
Peru posted a 0.2 percent deficit last year as its mining-fueled economy slowed to its weakest growth rate in five years, 2.35 percent, amid a drop in metals exports and investments.
The ministry expects the economy to perk up, growing between 3.5 and 4.5 percent this year and 5.5 percent in 2016.
Finance Minister Alonso Segura has said the economy will likely grow by around 4 percent in 2015 with a downward bias.
On Wednesday, the government of President Ollanta Humala announced new stimulus measures valued at about 5 billion soles ($1.6 billion), including import-duty cuts and an extension of consumer incentives.
The policies, some of which must be approved by a fragmented congress, build on previous efforts to encourage growth by cutting taxes, investing in infrastructure projects and reducing red tape.
“The big question is going to be whether or not the private sector is going to respond to these measures,” said Jaime Reusche, a senior analyst at Moody‘s.
Public investment will likely rise by 9.3 percent in 2015 after slipping 3.6 percent in 2014, the finance ministry said.
But private investment, which fell 1.6 percent last year, is expected to rise only by 1.5 percent, the ministry said, well under the 6 percent expansion it forecast before.
The central bank, which has lowered its benchmark interest rate twice in the past year, is not likely to make further cuts as a U.S. Federal Reserve rate hike looms on the horizon, according to a Reuters poll.
Expectations of rising U.S. rates have stoked the sol currency’s nearly 5 percent depreciation against the dollar so far this year.
The sol will probably end 2015 at 3.20 soles per dollar, the finance ministry said, revising its August view of 2.90 soles per dollar. The sol traded at around 3.12 per dollar Thursday.
The ministry also raised its view of 2015 inflation to 2.7 percent from 2 percent and increased its 2015 trade deficit forecast to $2.3 billion from $2 billion. (Reporting by Mitra Taj; Editing by Chris Reese; and Peter Galloway)