IMF Executive Board Concludes 2021 Article IV Consultation with Chile
April 23, 2021
Washington, DC: On April 19, 2021, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Chile.
The pandemic hit Chile as it was recovering from the economic consequences of the 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. Although employment has recovered from a contraction of 20.6 percent in mid-2020, it remains below its pre-pandemic level. At end-March 2021, due to rapidly increasing COVID‑19 cases, the government tightened mobility restrictions but expanded existing fiscal measures to mitigate their impact, while the vaccination process is proceeding expeditiously (in this respect Chile is not only the regional leader but also among the top performers globally).
The government adopted a wide-ranging and well-planned set of fiscal, monetary, and financial policy actions to ease the effects of the pandemic. The government is 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. The Central Bank introduced a broad range of unconventional measures to support liquidity, including through funding-for-lending facilities, asset purchase programs, and an expanded collateral framework. Financial sector policies have been introduced, aimed at facilitating the flow of credit, especially to households and SMEs, including by relaxing liquidity requirements, and facilitating the issuance and placement of securities. The IMF’s Flexible Credit Line has contributed to the ability to withstand external stress, while the exchange rate has been allowed to freely float and act as a shock absorber.
Economic activity is expected to grow at 6.5 percent in 2021, as the fallout from the pandemic gradually recedes and mobility restrictions are relaxed, while the economy continues to get support from accommodative policies and the strong vaccination process. Over the medium term, growth is projected to converge to its potential of 2.5 percent. The current account balance is expected to remain close to zero in 2021, owing to strong terms of trade and despite the surge in imports associated with the recovery, before gradually moving over the medium term towards a small deficit.
Risks remain amid high uncertainty, but the country exhibits strong resilience, thanks to its large policy response, the remaining fiscal space, and the very strong institutional policy framework. External risks are largely related to the dynamics of the pandemic, though the fast pace of the vaccination program is expected to contain such risks. Movements in the price of copper would significantly affect exports, fiscal revenues, and prospects for investment and growth. Domestic risks stem primarily from a series of elections and the outcome of a New Constitution process—scheduled to finish in mid-2022—which are expected to shape the public discourse and influence the policy agenda.
Executive Board Assessment [2]
Executive Directors recognized that Chile’s strong policies enabled the authorities to respond swiftly to the health and economic impact of the COVID-19 pandemic, including the rapid rollout of vaccines. Directors noted that although the economy is beginning to recover, uncertainties remain. They emphasized that continued strong policies and advancing structural reforms will be key to mitigating the impact of the pandemic and supporting inclusive growth.
Directors commended the authorities’ fiscal efforts in response to the crisis, while maintaining a very strong fiscal position. They emphasized that, as the recovery strengthens, medium‑term revenue and targeted spending measures will be needed to address social needs, protect the vulnerable, and rebuild buffers, while preserving debt sustainability. Directors encouraged steps to strengthen the fiscal rule and revisit exemptions, deductions, and special regimes, increase direct taxation, and raising green taxes towards international standards.
Directors highlighted that further pension withdrawals should be avoided, as they have weakened the pension system. They recommended that if additional support is needed, it should be delivered via targeted fiscal measures which are more effective in reaching those in need.
Directors welcomed the Central Bank’s broad range of conventional and unconventional measures to support liquidity and facilitate the flow of credit, especially to households and SMEs. They also highlighted that financial sector vulnerabilities should continue to be closely monitored and that financial sector reforms would need to resume their pace as the recovery advances.
Directors highlighted the urgency of reaching broad agreements to unlock structural and social reforms which would invigorate confidence, support the recovery and growth, and promote social cohesion. In particular, they stressed the need for comprehensive pension and health reforms. Directors noted that improving education quality and financial integration, reducing labor market inefficiencies and informality, promoting trade integration, and responding to climate change will also be crucial to foster productivity and inclusiveness.
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Chile: Selected Social and Economic Indicators 1/ |
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|
GDP (2019), in billions of pesos |
196,397 |
|
Quota |
||||||
|
GDP (2019), in billions of U.S. dollars |
279.3 |
|
in millions of SDRs |
1,744 |
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|
Per capita (2019), U.S. dollars |
14,621 |
|
in % of total |
0.37 |
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|
Population (2019), in millions |
19.1 |
|
Poverty rate (2017) |
8.60 |
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|
Main products and exports |
Copper |
|
Gini coefficient (2017) |
46.60 |
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|
Key export markets |
China, Euro area, U.S. |
|
Literacy rate (2015) |
99.2 |
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|
Est. |
Proj. |
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|
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
|
|
(Annual percentage change, unless otherwise specified) |
|||||||||
|
Output |
|||||||||
|
Real GDP |
3.7 |
1.0 |
-5.8 |
6.5 |
3.7 |
2.7 |
2.6 |
2.5 |
2.5 |
|
Total domestic demand |
4.5 |
0.9 |
-9.3 |
8.8 |
3.8 |
2.8 |
2.5 |
2.4 |
2.4 |
|
Consumption |
3.7 |
0.9 |
-6.9 |
8.9 |
4.2 |
2.8 |
2.3 |
2.4 |
2.3 |
|
Private |
3.8 |
1.1 |
-7.7 |
10.2 |
4.9 |
3.2 |
2.3 |
2.8 |
2.6 |
|
Public |
3.4 |
0.0 |
-3.7 |
3.4 |
0.6 |
0.8 |
1.9 |
0.7 |
0.5 |
|
Investment 2/ |
7.3 |
1.0 |
-17.7 |
8.5 |
2.4 |
2.6 |
3.6 |
2.5 |
2.8 |
|
Fixed |
5.1 |
4.5 |
-11.5 |
7.2 |
3.9 |
3.8 |
4.2 |
2.2 |
1.4 |
|
Private |
6.1 |
5.2 |
-11.2 |
6.2 |
2.3 |
5.3 |
4.6 |
2.8 |
1.9 |
|
Public |
-2.7 |
-1.3 |
-14.4 |
16.4 |
16.9 |
-7.2 |
1.0 |
-3.8 |
-3.0 |
|
Inventories 3/ |
0.5 |
-0.7 |
-1.4 |
0.1 |
-0.3 |
-0.3 |
-0.2 |
0.0 |
0.3 |
|
Net exports 3/ |
-0.9 |
0.0 |
3.5 |
-2.0 |
-0.1 |
-0.1 |
0.0 |
0.0 |
0.1 |
|
Exports |
5.3 |
-2.6 |
-1.1 |
1.9 |
4.6 |
3.2 |
2.8 |
2.7 |
2.7 |
|
Imports |
8.1 |
-2.3 |
-12.8 |
9.1 |
5.1 |
3.5 |
2.7 |
2.6 |
2.3 |
|
Employment |
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|
Unemployment rate (annual average) |
7.4 |
7.2 |
10.8 |
8.9 |
8.2 |
7.7 |
7.4 |
7.2 |
7.2 |
|
Consumer prices |
|||||||||
|
Inflation (End of period, %) |
2.1 |
3.0 |
2.9 |
3.0 |
3.0 |
3.0 |
3.0 |
3.0 |
3.0 |
|
Inflation (average, %) |
2.3 |
2.3 |
3.0 |
3.1 |
3.0 |
3.0 |
3.0 |
3.0 |
3.0 |
|
(In percent of GDP, unless otherwise specified) |
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|
Public sector finances |
|||||||||
|
Central government revenue |
22.0 |
21.7 |
19.9 |
23.1 |
22.6 |
22.4 |
23.1 |
23.1 |
23.1 |
|
Central government expenditure |
23.7 |
24.5 |
27.2 |
26.4 |
25.6 |
24.7 |
24.7 |
24.0 |
24.0 |
|
Central government fiscal balance |
-1.7 |
-2.9 |
-7.3 |
-3.3 |
-3.0 |
-2.3 |
-1.6 |
-0.9 |
-0.9 |
|
Structural Fiscal Balance |
-1.5 |
-1.7 |
-2.7 |
-5.1 |
-3.9 |
-2.9 |
-1.9 |
-0.9 |
-0.9 |
|
Structural Non-Mining Primary Balance (% of NGDP) |
-2.4 |
-3.0 |
-3.7 |
-5.5 |
-4.4 |
-3.5 |
-2.7 |
-1.8 |
-1.8 |
|
Central Government Gross Debt |
25.6 |
28.2 |
32.5 |
33.9 |
37.2 |
39.9 |
41.6 |
42.0 |
41.7 |
|
of which, FX-denominated Debt |
5.1 |
5.8 |
7.3 |
8.7 |
9.3 |
10.0 |
10.7 |
10.7 |
10.7 |
|
Central Government Net Debt |
5.7 |
8.2 |
8.7 |
11.5 |
14.2 |
16.2 |
17.0 |
17.5 |
17.9 |
|
Public sector gross debt 4/ |
45.5 |
49.1 |
55.2 |
56.5 |
59.8 |
62.5 |
64.2 |
64.7 |
64.3 |
|
Of which, share of FX-denominated Debt (in %) |
19.8 |
20.6 |
22.6 |
25.5 |
25.0 |
25.1 |
25.6 |
25.4 |
25.8 |
|
(Annual percentage change, unless otherwise specified) |
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|
Money and credit |
|||||||||
|
Broad money |
11.2 |
9.4 |
1.9 |
9.9 |
6.4 |
5.1 |
4.9 |
4.9 |
5.2 |
|
Credit to the private sector |
10.1 |
9.7 |
3.2 |
… |
… |
… |
… |
… |
… |
|
Balance of payments |
|||||||||
|
Current account (% of GDP) |
-3.9 |
-3.7 |
1.4 |
0.0 |
-0.3 |
-0.5 |
-0.7 |
-0.8 |
-0.9 |
|
Current account (in billions of U.S. dollars) |
-11.6 |
-10.4 |
3.4 |
0.0 |
-1.1 |
-1.6 |
-2.6 |
-3.2 |
-3.7 |
|
Foreign direct investment net flows (% of GDP) |
-2.2 |
-1.2 |
1.3 |
-1.5 |
-1.0 |
-1.0 |
-0.8 |
-0.7 |
-1.0 |
|
Gross international reserves (in billions of U.S. dollars) |
39.9 |
40.7 |
39.2 |
48.2 |
51.2 |
51.2 |
51.2 |
51.2 |
51.2 |
|
Gross Reserves (Months of next year import) |
6.4 |
5.7 |
5.9 |
8.7 |
7.3 |
7.0 |
6.8 |
6.5 |
6.2 |
|
Gross external debt (% of GDP) |
59.1 |
66.4 |
72.0 |
64.1 |
63.5 |
63.0 |
62.6 |
61.6 |
60.5 |
|
Public |
5.4 |
6.2 |
9.0 |
9.1 |
9.7 |
10.4 |
11.0 |
11.0 |
11.1 |
|
Private |
53.7 |
60.2 |
63.1 |
55.0 |
53.8 |
52.6 |
51.6 |
50.5 |
49.4 |
|
(Annual percentage change) |
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|
Relative prices |
|||||||||
|
Real effective exchange rate (real appreciation +) |
1.4 |
-4.8 |
-8.2 |
… |
… |
… |
… |
… |
… |
|
Terms of trade |
-2.8 |
-1.7 |
10.1 |
6.6 |
-0.3 |
-1.3 |
-2.0 |
-1.9 |
-1.0 |
|
Memorandum items |
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|
Nominal GDP (in billions of pesos) |
190,722 |
196,397 |
200,224 |
220,091 |
234,225 |
246,285 |
258,473 |
271,219 |
285,428 |
|
(percentage change) |
6.2 |
3.0 |
1.9 |
9.9 |
6.4 |
5.1 |
4.9 |
4.9 |
5.2 |
|
Nominal GDP (in billions of USD) |
297.4 |
279.3 |
252.8 |
308.8 |
328.2 |
345.2 |
362.4 |
379.9 |
399.2 |
|
(percentage change) |
7.4 |
-6.1 |
-9.5 |
22.2 |
6.3 |
5.2 |
5.0 |
4.8 |
5.1 |
|
Sources: Central Bank of Chile, Ministry of Finance, Haver Analytics, and IMF staff calculations and projections. |
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1/ The annual numbers occasionally show a small discrepancy with the authorities' published figures, as they are calculated as the sum of the quarterly series seasonally-adjusted by staff. |
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2/ Investment is defined as: gross fixed capital formation + changes in inventories. |
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3/ Contribution to growth. |
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4/ Includes liabilities of the central government, the Central Bank of Chile and public enterprises. Excludes Recognition Bonds. |
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[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .
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