August 25, 2017 / 7:40 PM / a year ago

Peru to propose nearly 10 pct hike to spending in 2018 -finmin

LIMA, Aug 25 (Reuters) - The government of Peruvian President Pedro Pablo Kuczynski is proposing a nearly 10 percent increase to spending in its 2018 budget as it tries to revive economic growth that has slowed sharply this year, the finance minister said Friday.

Fernando Zavala added that about half of the proposed hike will pay for rebuilding infrastructure and homes destroyed by severe flooding early this year.

“It shows we want to carry out countercyclical policies,” Zavala told a gathering of business leaders.

Kuczynski’s government is aiming to post a fiscal deficit equal to 3 percent of gross domestic product this year and 3.5 percent in 2017.

Last year, the government logged a 2.6 percent fiscal deficit, under its 3 percent target as it strove to balance pleasing credit ratings agencies with stimulus spending to bolster domestic demand.

Peru has relatively low public debt, and Zavala said financing for the reconstruction effort is already in place.

Zavala’s office is expected to send the proposed 2018 budget to the opposition-controlled Congress next week. The rightwing opposition Popular Force has generally supported the government’s economic proposals.

The finance ministry expects a 2.8 percent expansion of gross domestic product this year, down from 3.9 percent in 2016 before a graft scandal and flooding knocked growth prospects.

Next year the economy should grow by 4 percent, according to the ministry.

Reporting By Mitra Taj; Editing by Cynthia Osterman

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