IMF Executive Board Concludes 2021 Article IV Consultation with Chile
IMF News, April 23, 2021
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- Published: April 23, 2021
Overview and context
- Executive Board discussion concluded on April 19, 2021.
- The pandemic hit Chile as it was recovering from social unrest in October 2019.
- Economic activity is projected to have declined by 5.8 percent in 2020, about 7 percentage points below staff’s pre-pandemic projection.
- Inflation has hovered around the central bank’s target of 3 percent and inflation expectations remain well-anchored.
- Employment contracted by 20.6 percent in mid-2020 and has partially recovered but remains below its pre-pandemic level.
- At end-March 2021, rapidly increasing COVID‑19 cases led to tightened mobility restrictions; vaccination rollout proceeding expeditiously.
Policy response
- Fiscal:
- Government implementing a multi-year fiscal package amounting to about 13 percent of GDP focused on safeguarding health, protecting incomes and jobs, and facilitating credit, refinancing, and repayments.
- Monetary:
- Central Bank introduced unconventional measures including funding-for-lending facilities, asset purchase programs, and an expanded collateral framework to support liquidity.
- Financial sector:
- Policies to facilitate credit flow to households and SMEs, including relaxing liquidity requirements and facilitating issuance and placement of securities.
- External:
- IMF’s Flexible Credit Line has contributed to the ability to withstand external stress.
- Exchange rate allowed to freely float and act as a shock absorber.
Economic outlook and projections
- Short and medium term:
- Economic activity is expected to grow at 6.5 percent in 2021 as pandemic fallout recedes and mobility restrictions are relaxed.
- Over the medium term, growth is projected to converge to its potential of 2.5 percent.
- Current account balance expected to remain close to zero in 2021 and gradually move toward a small deficit over the medium term.
- Key projection series (annual percentage change unless otherwise specified):
- Real GDP: 2018: 3.7; 2019: 1.0; 2020: -5.8; 2021: 6.5; 2022: 2.7; 2023: 2.6; 2024: 2.5
- Total domestic demand: 2018: 4.5; 2019: 0.9; 2020: -9.3; 2021: 8.8; 2022: 3.8; 2023: 2.8; 2024: 2.4
- Investment: 2018: 7.3; 2019: -17.7; 2020: 8.5; 2021: 3.6
- Exports: 2018: -2.6; 2019: -1.1; 2020: -12.8; 2021: 9.1
- Imports: 2018: 8.1; 2019: -2.3; 2020: -11.2; 2021: 6.2
- Unemployment rate (annual average): 2018: 7.4; 2019: 10.8; 2020: 8.2; 2021: 7.7
- Inflation (End of period, %): 2018: 2.1; 2019: 3.0; 2020: 2.9
- Central government fiscal balance (% of GDP): 2018: -1.7; 2019: -2.9; 2020: -7.3; 2021: -3.3; 2022: -1.6; 2023: ...
- Central Government Gross Debt (% of GDP): 2018: 28.2; 2019: 32.5; 2020: 33.9; 2021: 37.2; 2022: 39.9; 2023: 41.6; 2024: 42.0; 2025: 41.7
- Public sector gross debt (% of GDP): 2018: 45.5; 2019: 49.1; 2020: 55.2; 2021: 56.5; 2022: 59.8; 2023: 62.5; 2024: 64.2; 2025: 64.7; 2026: 64.3
- Current account (% of GDP): 2019: -0.5; 2020: -0.8; 2021: ...
- Gross international reserves (in billions of U.S. dollars): 2019: 40.7; 2020: 39.2; 2021 (proj): 48.2; 2022: 51.2
- Gross Reserves (Months of next year import): 2019: 5.9; 2020: 7.0; 2021: 6.8
- Gross external debt (% of GDP) series: 2018: 59.1; 2019: 66.4; 2020: 72.0; 2021: 64.1; 2022: 63.5; 2023: 63.0; 2024: 62.6; 2025: 61.6; 2026: 60.5
Risks and resilience
- Main risks:
- External: dynamics of the pandemic; movements in the price of copper affecting exports, fiscal revenues, investment, and growth.
- Domestic: a series of elections and the outcome of a New Constitution process scheduled to finish in mid-2022, which may shape public discourse and influence the policy agenda.
- Resilience factors:
- Large policy response, remaining fiscal space, and strong institutional policy framework.
- Fast pace of vaccination program expected to contain pandemic-related risks.
Executive Board assessment and policy recommendations
- General:
- Directors recognized that strong policies enabled a swift response to health and economic impact, including rapid vaccine rollout.
- Although recovery is beginning, uncertainties remain; continued strong policies and structural reforms are key to mitigating pandemic impact and supporting inclusive growth.
- Fiscal policy:
- Commended fiscal efforts while noting Chile maintains a very strong fiscal position.
- As recovery strengthens, recommended medium‑term revenue and targeted spending measures to address social needs, protect the vulnerable, and rebuild buffers while preserving debt sustainability.
- Encouraged steps to strengthen the fiscal rule and revisit exemptions, deductions, and special regimes; increase direct taxation; and raise green taxes towards international standards.
- Social safety nets and pensions:
- Highlighted that further pension withdrawals should be avoided as they have weakened the pension system.
- Recommended that additional support, if needed, be delivered via targeted fiscal measures to better reach those in need.
- Monetary and financial:
- Welcomed Central Bank’s conventional and unconventional liquidity-support measures.
- Urged continued close monitoring of financial sector vulnerabilities and resumption of financial sector reforms as recovery advances.
- Structural reforms:
- Stressed urgency of broad agreements to unlock structural and social reforms to invigorate confidence, support recovery and growth, and promote social cohesion.
- Specifically emphasized the need for comprehensive pension and health reforms.
- Noted that improving education quality and financial integration, reducing labor market inefficiencies and informality, promoting trade integration, and responding to climate change will be crucial to foster productivity and inclusiveness.
Selected social and economic indicators (level and memoranda)
- GDP (2019), in billions of pesos: 196,397
- GDP (2019), in billions of U.S. dollars: 279.3
- Quota (in millions of SDRs): 1,744
- Per capita (2019), U.S. dollars: 14,621
- Quota (in % of total): 0.37
- Population (2019), in millions: 19.1
- Poverty rate (2017): 8.60
- Main products and exports: Copper
- Gini coefficient (2017): 46.60
- Key export markets: China, Euro area, U.S.
- Literacy rate (2015): 99.2
- Nominal GDP (in billions of pesos) series: 190,722; 200,224; 220,091; 234,225; 246,285; 258,473; 271,219; 285,428
- Nominal GDP (in billions of USD) series: 297.4; 252.8; 308.8; 328.2; 345.2; 362.4; 379.9; 399.2
IMF Press Release No. 21/113 — IMF Executive Board Concludes 2021 Article IV Consultation with Chile
