## EXECUTIVE SUMMARY

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---

### Context
- Chilean economy has rapidly recovered from the fallout of the Covid-19 pandemic, supported by an impressive vaccination campaign and effective policy support.
- Authorities will continue leveraging Chile’s very strong fundamentals and policy frameworks to safeguard the recovery, preserve macroeconomic stability, and boost inclusive and green growth.
- Risks and uncertainty have abated since the onset of Covid-19 but remain elevated:
  - External risks: an escalation of the war in Ukraine; an adverse turn of the pandemic; sharply tighter global financial conditions.
  - Domestic risks: social discontent stemming from high energy and food prices, unmet social demands, or the uncertain outcome of the constitutional reform.
- Chile’s resilience is supported by low public debt, a sustained track record of very strong policies, and very strong institutional policy frameworks.

### Short-term Liquidity Line (SLL) — Rationale and Proposal
- Background:
  - In May 2021, the Executive Board concluded the mid-term review of Chile’s two-year Flexible Credit Line (FCL) arrangement of SDR 17.443 billion (1,000 percent of quota, around US$24 billion).
  - Authorities wish to exit the FCL given the speedy recovery, unwinding of Covid-19 stimulus, and build-up of FX liquidity buffers.
- Staff view and recommendation:
  - Staff view: Chile meets the qualification criteria to access SLL resources (which are identical to the FCL criteria).
  - Staff recommendation: the Executive Board extends an SLL “offer” for SDR 2.529 billion (145 percent of quota, around US$3.5 billion).
- Process if approved:
  - Approval contingent on receiving written communication from the authorities stating they wish to avail themselves of the SLL arrangement and upon notification of the cancellation of the existing FCL arrangement.
  - The SLL arrangement would enter into effect when the Fund confirms receipt of the authorities’ written communication, allowing purchases (if needed) over its 12-month duration.
- Administrative timing:
  - The last Article IV was concluded in April 2021. The 2022 Article IV is planned for the fall, following the conclusion of the constitutional reform process.
  - Date on summary: May 5, 2022.

### Recent Developments — Health, Activity, External Account, and Financial Sector
- Health / Vaccination:
  - As of end-March, 91 percent of the population had received two doses of the Covid-19 vaccine, and 77 percent of the population had received a booster shot (with a second booster available for the elderly since February).
  - Covid-19 cases peaked in mid-February with the emergence of the Omicron variant, then fell quickly; ICU use remains well below past peaks.
- Economic activity:
  - GDP declined by 6.1 percent in 2020 and rebounded by 11.7 percent in 2021.
  - Economic activity surpassed pre-pandemic and pre-social unrest levels by mid-2021; staff estimates the output gap moved into positive territory in 2021.
  - Employment was about 4 percent below its pre-pandemic level in February (latest cited).
- Current account:
  - The current account deficit widened from 1.9 percent of GDP in 2020 to 6.7 percent in 2021.
  - The 2021 deficit reflected a surge in consumption of imported durable goods (including effects of exceptional pension fund withdrawals and large fiscal transfers), continued fall in tourism revenues, and a worsening income balance due to large repatriation of dividends from mining companies amid high copper prices.
- Financial sector and markets:
  - Non-resident portfolio outflows were substantial at the onset of the Covid-19 shock but flows recovered since mid-2020.
  - Compared to other EMs and LA5 countries, Chile experienced a larger increase in longer-term yields in peso-denominated sovereign bonds during 2021, linked to domestic uncertainty.
  - With the conclusion of elections at end-2021, uncertainty subsided, the stock market recovered, spreads compressed, and long-term yields declined.
  - In recent months, the peso yield curve has inverted as markets expect lower policy rates once inflation returns to target.
- Exchange rate and reserves:
  - The free-floating exchange rate continued to act as a shock absorber; the BCCh allowed the exchange rate to adjust without discretionary intervention since 2002, except for temporary and small FX interventions during the 2019 social unrest (US$2.5 billion in the spot market and US$4.5 billion in the forwards market).
  - The NEER appreciated by 12 percent from the onset of the pandemic until 2021Q1, then reversed by end-2021; it appreciated again in early 2022 as uncertainty declined after the elections.
- Banking sector soundness:
  - Banks’ capital adequacy ratio stood at 14.9 percent at end-2021, above the regulatory minimum.
  - Non-performing loan (NPL) ratios were low at 1.3 percent in February (latest cited).
  - Stress tests by the CMF show provisions would be sufficient to cover potential losses, including from Covid-19 related government-guaranteed loans (FOGAPE).
  - Banks’ return on equity recovered to 20.4 percent at end-2021.
  - Credit growth has picked up.
  - The CMF restructuring (supervision of insurance, securities, and banks under the same umbrella) has strengthened supervision.
  - Implementation of Basel III standards began in December 2021.

### Box 1 — Stimulus Measures in Response to COVID-19 (summary)
- Pension withdrawals and stimulus:
  - Three rounds of pension withdrawals, cumulative about 20 percent of 2020 GDP, boosted consumption but were poorly targeted and weakened the pension system.
- Main measures:
  - MoF multi-year fiscal package of about 18 percent of GDP, including 7.9 percent of GDP in transfers to the most vulnerable.
  - BCCh cut the policy rate to 0.5 percent in March 2020, conducted unconventional monetary policy via asset purchases, and expanded liquidity facilities.
  - CMF policies to facilitate flow of credit and issuance of securities.
- Fiscal measures by year (In percent of GDP):
  - Total size of the stimulus package: 2020: 4.4; 2021: 11.5; 2022: 2.2.
  - On budget: 2020: 3.7; 2021: 9.9; 2022: 1.9.
    - Revenue: 2020: 1.2; 2021: 0.0; 2022: 0.7.
    - Spending: 2020: 2.5; 2021: 9.9; 2022: 1.2.
      - Transfers to most vulnerable (IFE): 2020: 1.3; 2021: 6.6; 2022: 0.0.
  - Off budget: 2020: 0.7; 2021: 1.6; 2022: 0.3.

### Policies, Outlook, and Risks
- Monetary policy and inflation:
  - Headline (core) inflation reached 9.4 (7.4) percent in March.
  - Two-year ahead inflation expectations edged up to 3.7 percent; longer-horizon expectations remain anchored at the 3 percent target.
  - Since the start of the war in Ukraine, higher global food and fuel prices added to inflationary pressures.
  - The BCCh raised the policy rate from a low of 0.5 percent in July 2021 to 7 percent in March (substantially above the estimated neutral rate of 3.5 percent).
  - The BCCh intends to continue tightening as needed to ensure inflation returns to the 3 percent target, while remaining committed to a free-floating exchange rate and intervening only to prevent disorderly market conditions.
  - The BCCh is smoothly unwinding unconventional liquidity measures; the stock of acquired assets has been gradually decreasing since June 2021 upon their expiration.
- International reserves and FX liquidity:
  - In January 2021, the BCCh announced a program to gradually accumulate US$12 billion over 15 months; the program was suspended in October 2021 after cumulative purchases of US$7.4 billion.
  - The SDR general allocation further boosted reserves by about US$1.8 billion.
  - Reserves stood at US$48.3 billion in March.
  - Complementary instruments: bilateral swap facility with the PBOC (US$7.9 billion) and a liquidity line with FLAR (US$1.25 billion).
  - The BCCh is a subscriber of the FED’s FIMA repo facility.
- Fiscal policy and public debt:
  - Government committed to structural fiscal consolidation guided by the fiscal rule.
  - 2022 budget targets reduction in the structural fiscal deficit to 3.9 percent of GDP in 2022 (from 11.4 percent in 2021), underpinned by expiration of Covid-19 stimulus measures.
  - Within the budget envelope, authorities continue to target support to the most vulnerable.
  - Gross debt reached 36.3 percent of GDP by end-2021.
  - Medium-term plans guided by the fiscal rule aim to gradually reduce the structural deficit to below 1 percent of GDP and stabilize gross public debt below 45 percent of GDP, while replenishing the sovereign wealth fund.

### Qualification, Process, and Staff Assessment
- Staff conducted a fact-finding mission in March to assess qualification; the most recent Article IV consultation concluded April 2021 with a very positive assessment of Chile’s policies.
- An SLL arrangement would complement authorities’ strategy to exit the FCL and support external resilience by providing predictable liquidity support to address potential, moderate, short-term balance of payment needs stemming from capital account pressures.

*Prepared by a team comprising Ana Corbacho (head), José Torres, Chiara Fratto, Antonio Gabriel (all WHD), Christopher Evans (RES), Francisco Parodi (MCD), Luiza Antoun de Almeida (SPR), and Junghwan Mok (MCM), with support from Ivan Burgara and Adriana Veras (both WHD). May 5, 2022.*

### Policy objectives and planned reforms (new administration)
- Objectives:
  - Improve social services, tackle inequality, and transition to a green economy.
- Tax reform centerpieces:
  - Streamlining exemptions; fostering compliance; raising mining royalties, the carbon tax, and the progressivity of direct personal taxation (including through a new wealth tax).
  - Tax reform aims to mobilize permanent revenues to finance social spending needs.
- Social protection reforms:
  - Complement the recent approval of a universal basic pension; enhance the role of public service provision; improve quality and access.
- Other priorities: advancing the climate agenda, deepening capital markets, and boosting productivity.
- Timing and fiscal ambition:
  - Government plans to submit the tax reform to congress by mid-year, aiming to gradually raise about 4 percent of GDP over the next few years. Potential revenue gains are not included in the projections.

### Inclusive Recovery Plan (Box 2)
- The government’s Inclusive Recovery Plan targets support to the most vulnerable within the 2022 budget envelope.
- The 2022 budget returns real spending to its pre-pandemic level.
- The Plan allocates about 1.3 percent of GDP of reserve funds already included in the budget.
- Fund allocation (roughly equally split):
  - Employment sectors still affected by the pandemic:
    - extends employment subsidies for formal employment (IFE Laboral) until September;
    - increases access to childcare and subsidies for working mothers with small children;
    - measures to support tourism, culture, and entertainment sectors.
  - Households affected by high energy prices and new lockdowns:
    - smooths energy price increases for fuel and gas (through the MEPCO mechanism);
    - freezes public transport tariffs for the rest of the year;
    - increases aid for students and coverage of centers for the elderly;
    - intends to institutionalize activation of universal cash transfers (IFE) in case of new lockdowns.
  - Medium and small-sized enterprises (SMEs):
    - considers temporary subsidies for SMEs to alleviate the impact of the planned increase of 14.3 percent in the minimum wage;
    - measures to facilitate the flow of credit through FOGAPE, CORFO, and SERCOTEC.
- Note: Some measures require legislative changes.

### Macroeconomic outlook and projections
- With the necessary removal of macroeconomic stimulus, growth is expected to decelerate in 2022 and over the medium term.
- GDP growth projections:
  - 2022: decline to 1.5 percent;
  - 2023: 0.5 percent — closing the output gap from above;
  - medium term: converge to potential rate of 2.5 percent.
- Labor market: employment expected to reach its pre-pandemic level in the near term.
- Inflation: expected to peak by mid-2022 and converge to target in 2024.
- Current account deficit: projected to narrow with the unwinding of extraordinary stimulus and softening domestic demand, returning to values consistent with its historical average by the end of the forecast period.

### Risks and uncertainty
- Overall: Risks and uncertainty have declined since the onset of the pandemic but remain elevated.
- External risks:
  - Possible escalation of sanctions and ensuing deglobalization resulting from the war in Ukraine.
  - Rising global food and energy prices or further supply chain disruptions would add to inflationary pressures despite high copper prices.
  - Possible de-anchoring of inflation expectations in advanced economies leading to abrupt tightening of global financial conditions, selloffs of risky assets, and capital outflows.
  - Possible appearance of more lethal and highly contagious Covid-19 variants, which could result in subpar and volatile growth.
- Domestic risks:
  - Social discontent over high food and energy prices, the pace and content of reforms, or the still uncertain outcome of the ongoing constitutional reform.

### Assessment for a Short-Term Liquidity Line (SLL) — qualification (staff assessment)
- Staff’s assessment: Chile meets the qualification criteria for an SLL.
- Rationale highlights:
  - Sustainable external position.
  - Sovereign access to international markets at favorable rates.
  - Official reserves are adequate.
  - BCCh credibility and rapid tightening since July 2021 to ensure convergence of inflation to target.
  - 2021 FSAP: financial sector functions well overall, banks are sufficiently capitalized, and the regulatory framework is sound.
  - Public debt is sustainable and anchored by a strong fiscal framework guided by a structural fiscal balance rule.
- Staff’s baseline projections currently assume that debt stabilizes below 45 percent of GDP with some margin, pending further information on the government’s expenditure and tax reform plans.
- Government affirmed intention to pursue fiscal consolidation that would stabilize the gross public debt ratio below 45 percent of GDP (reported in its first quarterly fiscal report published on May 3).

### External position and capital flows
- 2021 Article IV Consultation: external position assessed as moderately stronger than implied by medium-term fundamentals and desirable policies.
- Net international investment position improved from -12 percent of GDP in 2020 to -4.9 percent of GDP in 2021.
- External debt decreased to 72 percent of GDP in 2021 and is robust to standard shocks.
- Real effective exchange rate: on average appreciated by about 3 percent in 2021; sharp depreciation of about 12 percent since April 2021 until end-2021 due to domestic uncertainty.
- Capital flows:
  - Predominantly private flows; nearly 90 percent of Chile’s external debt is owed to private creditors.
  - Private flows account for the bulk of total flows: 74 percent of asset flows and 89 percent of liability flows on average over the last three years.
  - The absolute value of general government plus central bank liability flows reached 36 percent of the total in 2021, unusually high but explained by large repatriation of foreign assets to meet pandemic-related needs.

### Sovereign market access and spreads
- Track record: steady sovereign access to international capital markets for several decades; uninterrupted access and investment grade status by the three major rating agencies.
- Foreign-currency ratings: A1 for Moody’s, A for S&P, and A- for Fitch.
- EMBIG and five-year CDS spreads stood at 157 and 70 bps at end-March, respectively.
- The central government issued external debt in each of the past five years, cumulative amount equivalent to about 1,500 percent of Chile’s Fund quota.

### International reserves
- Gross international reserves are about 91 percent of the Fund’s reserve adequacy metric (ARA) at end-2021.
- Mitigating factors supporting adequacy:
  - Central government’s usable liquid external assets (about US$20 billion in February, including US$6.4 billion in the sovereign wealth fund) would correspond to approximately 28 percent of the ARA metric if counted as reserves.
  - Reserves amply cover estimated potential short-term banks’ needs.
  - Complemented by FX liquidity lines.

### Public debt and fiscal framework
- Gradual fiscal consolidation guided by the fiscal rule to rebuild buffers and stabilize gross public debt below 45 percent of GDP.
- Public debt mostly in domestic currency, average maturity above ten years.
- Liquidity risks mitigated by the sovereign wealth fund and the large domestic banking sector.
- Staff assesses public debt sustainable with high probability and robust to standard shocks.
- 2021 Fiscal Transparency Evaluation: strong fiscal institutions and sound fiscal transparency practices.

### Monetary and exchange rate framework
- Credible inflation-targeting regime with free-floating exchange rate.
- Monthly (y/y) inflation averaged 3 percent over the past five years.
- BCCh tightened policy quickly in response to spike in inflation.
- BCCh maintains a small negative equity, not compromising policy solvency nor requiring immediate recapitalization.
- 2021 Transparency Review: BCCh high standards of analysis, conduct, and independence.

### Financial system soundness and supervision
- 2021 FSAP solvency stress tests: banking sector sufficiently capitalized; solvency risks low.
- Under adverse scenario, a few individual banks would fall below requirements; Basel III implementation will strengthen capital positions.
- Banking system resilient to sizeable funding and climate-related risks.
- Stress tests in fixed income mutual funds suggest need to enhance liquidity management practices.
- Pension funds have sound liquidity management.
- 2021 FSAP: banking supervisory framework robust; CMF capably staffed.
- GAFILAT regional peer assessment: strengths and progress in AML/CFT implementation.

### Data transparency
- Since March 2020, Chile is an adherent to the Fund’s Special Data Dissemination Standard Plus.

### Institutional strength and SLL rationale
- Chile has a sustained track record of implementing very strong policies.
- Fiscal and monetary policies have been strongly countercyclical, anchored in very strong institutional frameworks.
- Free-floating exchange rate regime allowed to act as shock absorber.
- Authorities’ pandemic response effective and well-coordinated.
- Ongoing removal of macro stimulus, while targeting the vulnerable, will help contain inflationary pressures, rebuild buffers, and mitigate risks.
- Rationale for SLL:
  - An SLL would complement existing buffers and provide predictable FX liquidity support on advantageous terms as authorities exit the FCL.
- Proposed access and coverage:
  - Proposed revolving access: 145 percent of quota (SDR 2.529 billion; about US$3.5 billion).
  - Coverage claim: 145 percent of quota would cover most moderate, potential, short-term balance of payment needs and would cover balance of payment needs resulting from capital outflow shocks up to the 75th percentile of past outflow episodes.

### Scenarios and quantitative implications (if full SLL purchase)
- Total external debt would increase moderately to 70 percent of GDP in 2023 and then decrease over the medium term.
- Peak and scenario figures:
  - Peak stock of Fund credit in percent of GDP: 1 percent.
  - Gross international reserves: 6.9 percent (of GDP).
  - Total external debt stock (increment shown): 1.5 percent (of GDP).
  - Peak debt service to the Fund in percent of GDP: 1 percent.
  - Peak debt service to exports of goods and services: 2.9 percent.
- All peaks are below typical exceptional access cases.

### Safeguards and repayment capacity
- Chile’s capacity to repay the Fund remains strong.
- Mitigating factors for Fund risks: adequate buffers, very strong policies and policy frameworks, proven resilience.
- Safeguards procedures:
  - BCCh authorized an update of safeguards procedures to be conducted by Fund staff.
  - Procedures based on review of the most recently completed external audit of BCCh annual financial statements.
  - Similar procedure conducted for Chile’s FCL arrangement with no significant issues.

### Staff appraisal and qualification
- Staff considers Chile meets the qualification criteria for access to SLL resources.
- Rationale: very strong fundamentals and policy frameworks, sustained track record of implementing very strong policies, and authorities committed to maintaining very strong policies.

### Recommendation and operational details
- Staff recommends the Board extend an SLL “offer” to Chile for 145 percent of quota (SDR 2.529 billion).
- Conditions for effectiveness and access:
  - Executive Board approval contingent on written communication from authorities requesting the SLL and notification of cancellation of the existing FCL.
  - Access window: 12 months following effectiveness of the SLL.
- Policy implications:
  - An SLL of the recommended size would support Chile’s external resilience and facilitate a managed exit from the FCL by offering contingent FX liquidity for potential short-term balance of payments needs related to capital account pressures.

### Key statistics (preserved exactly as reported)
- SLL offer size: 145 percent of quota (SDR 2.529 billion).
- Access window: 12 months following effectiveness of the SLL.
- Economic activity: 11.8% yoy S.A. in 2021Q4.
- Non-mining IMACEC growth: 8.3% (February).
- Mining IMACEC growth: -1.5% (February).
- Current account Q4: -9.3% of GDP.
- Net IIP Q4 2021: -5.0% of annualized GDP.
- Banks' profitability: 20.4% (December 2021).
- Credit growth: 8.4% (February).
- Reserves: US$48.3 billion (March).
- Gross debt: 36.3 percent of GDP (end-2021).

### Annex I. External Debt Sustainability Analysis — Key findings
- External debt decreased to 72 percent of GDP in 2021 and is projected to decline towards 60 percent of GDP by 2027.
- Baseline external debt series (percent of GDP): 2017: 62.5; 2018: 59.4; 2019: 66.7; 2020: 77.9; 2021: 72.4; 2022: 74.5; 2023: 68.8; 2024: 65.3; 2025: 62.7; 2026: 60.9; 2027: 59.6.
- Change in external debt (percent of GDP): 2017: -3.1; 2018: -3.1; 2019: 7.3; 2020: 11.2; 2021: -5.5; 2022: 2.1; 2023: -5.7; 2024: -3.5; 2025: -2.6; 2026: -1.8; 2027: -1.2.
- Identified external debt-creating flows (percent of GDP): 2017: -2.3; 2018: 3.4; 2019: 8.0; 2020: 9.2; 2021: -9.7; 2022: 3.9; 2023: 3.8; 2024: 2.2; 2025: 1.7; 2026: 1.4; 2027: 1.6.
- Current account deficit excluding interest payments (percent of GDP): 2017: 1.0; 2018: 2.9; 2019: 3.3; 2020: -0.3; 2021: 5.2; 2022: 2.6; 2023: 2.0; 2024: 1.5; 2025: 1.0; 2026: 1.0; 2027: 1.2.
- External debt-to-exports ratio (percent): 2017: 221.2; 2018: 208.9; 2019: 240.4; 2020: 248.4; 2021: 227.8; 2022: 202.2; 2023: 200.4; 2024: 200.7; 2025: 201.8; 2026: 202.8; 2027: 204.5.
- Gross external financing need (US$ billions): 2017: 37.3; 2018: 66.7; 2019: 71.9; 2020: 53.8; 2021: 67.8; 2022: 85.5; 2023: 54.0; 2024: 52.1; 2025: 49.1; 2026: 50.3; 2027: 52.7.
- Key macro assumptions (selected):
  - Real GDP growth (percent): 2017: 1.3; 2018: 4.0; 2019: 0.8; 2020: -6.1; 2021: 11.7; 2022: 2.6; 2023: 4.4; 2024: 1.5; 2025: 0.5; 2026: 1.7; 2027: 2.2; later: 2.5.
  - Exports (percent of GDP): 2017: 28.3; 2018: 28.4; 2019: 27.7; 2020: 31.4; 2021: 31.8; 2022: 36.9; 2023: 34.3; 2024: 32.5; 2025: 31.1; 2026: 30.0; 2027: 29.2.
  - Imports (percent of GDP): 2017: -27.6; 2018: -29.5; 2019: -29.6; 2020: -27.0; 2021: -32.2; 2022: -36.4; 2023: -32.3; 2024: -30.6; 2025: -29.0; 2026: -28.4; 2027: -27.8.

- Stress tests and scenario results show external debt remains sustainable under a wide range of adverse shocks, including interest rate, growth, and exchange rate shocks; combined and one-time real depreciation shocks are analyzed in the Annex.

*Source: IMF staff report chapter on Chile (content unit 1chlea2022001).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- Chilean economy has rapidly recovered from the fallout of the Covid-19 pandemic, supported by an impressive vaccination campaign and effective policy support.
- Authorities will continue leveraging Chile’s very strong fundamentals and policy frameworks to safeguard the recovery, preserve macroeconomic stability, and boost inclusive and green growth.
- Risks and uncertainty have abated since the onset of Covid-19 but remain elevated:
  - External risks: an escalation of the war in Ukraine; an adverse turn of the pandemic; sharply tighter global financial conditions.
  - Domestic risks: social discontent stemming from high energy and food prices, unmet social demands, or the uncertain outcome of the constitutional reform.
- Chile’s resilience is supported by low public debt, a sustained track record of very strong policies, and very strong institutional policy frameworks.

### Short-term Liquidity Line (SLL) — Rationale and Proposal
- In May 2021, the Executive Board concluded the mid-term review of Chile’s two-year Flexible Credit Line (FCL) arrangement of SDR 17.443 billion (1,000 percent of quota, around US$24 billion) on the back of very strong fundamentals and institutional policy frameworks.
- Considering the speedy recovery, the ongoing unwinding of the extraordinary Covid-19 stimulus, and the build-up of foreign exchange (FX) liquidity buffers, the authorities wish to exit the FCL.
- Staff view: Chile meets the qualification criteria to access SLL resources (which are identical to the FCL criteria).
- Staff recommendation: the Executive Board extends an SLL “offer” for SDR 2.529 billion (145 percent of quota, around US$3.5 billion) to support the authorities’ exit strategy and the country’s external resilience.
- Process if approved:
  - Approval contingent on receiving written communication from the authorities stating they wish to avail themselves of the SLL arrangement and upon notification of the cancellation of the existing FCL arrangement.
  - The SLL arrangement would enter into effect when the Fund confirms receipt of the authorities’ written communication, allowing purchases (if needed) over its 12-month duration.
- The last Article IV was concluded in April 2021. The 2022 Article IV is planned for the fall, following the conclusion of the constitutional reform process.
- Date on summary: May 5, 2022.

### Recent Developments — Health, Activity, External Account, and Financial Sector
- Health / Vaccination:
  - As of end-March, 91 percent of the population had received two doses of the Covid-19 vaccine, and 77 percent of the population had received a booster shot (with a second booster available for the elderly since February).
  - Covid-19 cases peaked in mid-February with the emergence of the Omicron variant, then fell quickly; ICU use remains well below past peaks.
- Economic activity:
  - GDP declined by 6.1 percent in 2020 and rebounded by 11.7 percent in 2021.
  - Economic activity surpassed pre-pandemic and pre-social unrest levels by mid-2021; staff estimates the output gap moved into positive territory in 2021.
  - Employment was about 4 percent below its pre-pandemic level in February (latest cited).
- Current account:
  - The current account deficit widened from 1.9 percent of GDP in 2020 to 6.7 percent in 2021.
  - The 2021 deficit reflected a surge in consumption of imported durable goods (including effects of exceptional pension fund withdrawals and large fiscal transfers), continued fall in tourism revenues, and a worsening income balance due to large repatriation of dividends from mining companies amid high copper prices.
- Financial sector and markets:
  - Non-resident portfolio outflows were substantial at the onset of the Covid-19 shock but flows recovered since mid-2020.
  - Compared to other EMs and LA5 countries, Chile experienced a larger increase in longer-term yields in peso-denominated sovereign bonds during 2021, linked to domestic uncertainty.
  - With the conclusion of elections at end-2021, uncertainty subsided, the stock market recovered, spreads compressed, and long-term yields declined.
  - In recent months, the peso yield curve has inverted as markets expect lower policy rates once inflation returns to target.
- Exchange rate and reserves:
  - The free-floating exchange rate continued to act as a shock absorber; the BCCh allowed the exchange rate to adjust without discretionary intervention since 2002, except for temporary and small FX interventions during the 2019 social unrest (US$2.5 billion in the spot market and US$4.5 billion in the forwards market).
  - The NEER appreciated by 12 percent from the onset of the pandemic until 2021Q1, then reversed by end-2021; it appreciated again in early 2022 as uncertainty declined after the elections.
- Banking sector soundness:
  - Banks’ capital adequacy ratio stood at 14.9 percent at end-2021, above the regulatory minimum.
  - Non-performing loan (NPL) ratios were low at 1.3 percent in February (latest cited).
  - Stress tests by the CMF show provisions would be sufficient to cover potential losses, including from Covid-19 related government-guaranteed loans (FOGAPE).
  - Banks’ return on equity recovered to 20.4 percent at end-2021.
  - Credit growth has picked up.
  - The CMF restructuring (supervision of insurance, securities, and banks under the same umbrella) has strengthened supervision.
  - Implementation of Basel III standards began in December 2021.

Box 1 — Stimulus Measures in Response to COVID-19 (summary of measures and sizes)
- Authorities deployed a broad set of fiscal, monetary, and financial stimulus measures; congress approved three rounds of pension withdrawals, cumulative about 20 percent of 2020 GDP, which boosted consumption but were poorly targeted and weakened the pension system.
- Main measures:
  - The MoF implemented a multi-year fiscal package of about 18 percent of GDP, including 7.9 percent of GDP in transfers to the most vulnerable.
  - The BCCh cut the policy rate to 0.5 percent in March 2020, conducted unconventional monetary policy via asset purchases, and expanded liquidity facilities.
  - The CMF implemented policies to facilitate flow of credit and issuance of securities.
- Fiscal measures by year (In percent of GDP):
  - Total size of the stimulus package: 2020: 4.4; 2021: 11.5; 2022: 2.2.
  - On budget: 2020: 3.7; 2021: 9.9; 2022: 1.9.
    - Revenue: 2020: 1.2; 2021: 0.0; 2022: 0.7.
    - Spending: 2020: 2.5; 2021: 9.9; 2022: 1.2.
      - Transfers to most vulnerable (IFE): 2020: 1.3; 2021: 6.6; 2022: 0.0.
  - Off budget: 2020: 0.7; 2021: 1.6; 2022: 0.3.

### Policies, Outlook, and Risks
- Monetary policy and inflation:
  - Headline (core) inflation reached 9.4 (7.4) percent in March.
  - Two-year ahead inflation expectations edged up to 3.7 percent; longer-horizon expectations remain anchored at the 3 percent target.
  - Since the start of the war in Ukraine, higher global food and fuel prices added to inflationary pressures.
  - The BCCh raised the policy rate from a low of 0.5 percent in July 2021 to 7 percent in March (substantially above the estimated neutral rate of 3.5 percent).
  - The BCCh has communicated intention to continue tightening as needed to ensure inflation returns to the 3 percent target, while remaining committed to a free-floating exchange rate and intervening only to prevent disorderly market conditions.
  - The BCCh is smoothly unwinding unconventional liquidity measures; the stock of acquired assets has been gradually decreasing since June 2021 upon their expiration.
- International reserves and FX liquidity:
  - In January 2021, the BCCh announced a program to gradually accumulate US$12 billion over 15 months; the program was suspended in October 2021 after cumulative purchases of US$7.4 billion.
  - The SDR general allocation further boosted reserves by about US$1.8 billion.
  - Reserves stood at US$48.3 billion in March.
  - Complementary instruments: bilateral swap facility with the PBOC (US$7.9 billion) and a liquidity line with FLAR (US$1.25 billion).
  - The BCCh is a subscriber of the FED’s FIMA repo facility.
- Fiscal policy and public debt:
  - Government committed to structural fiscal consolidation guided by the fiscal rule.
  - 2022 budget targets reduction in the structural fiscal deficit to 3.9 percent of GDP in 2022 (from 11.4 percent in 2021), underpinned by expiration of Covid-19 stimulus measures.
  - Within the budget envelope, authorities continue to target support to the most vulnerable (see Box 2 referenced in contents).
  - Gross debt reached 36.3 percent of GDP by end-2021.
  - Medium-term plans guided by the fiscal rule aim to gradually reduce the structural deficit to below 1 percent of GDP and stabilize gross public debt below 45 percent of GDP, while replenishing the sovereign wealth fund.

### Qualification, Process, and Staff Assessment
- Staff conducted a fact-finding mission in March to assess qualification; the most recent Article IV consultation concluded April 2021 with a very positive assessment of Chile’s policies.
- The 2022 Article IV is tentatively planned for the fall, following the conclusion of the constitutional reform process.
- An SLL arrangement would complement authorities’ strategy to exit the FCL and support external resilience by providing predictable liquidity support to address potential, moderate, short-term balance of payment needs stemming from capital account pressures.

*Prepared by a team comprising Ana Corbacho (head), José Torres, Chiara Fratto, Antonio Gabriel (all WHD), Christopher Evans (RES), Francisco Parodi (MCD), Luiza Antoun de Almeida (SPR), and Junghwan Mok (MCM), with support from Ivan Burgara and Adriana Veras (both WHD). May 5, 2022.*

### 13.      The new administration envisions far-reaching reforms to improve the lives of

### 13.      The new administration envisions far-reaching reforms to improve the lives of

### Policy objectives and planned reforms
- The new government aspires to improve social services, tackle inequality, and transition to a green economy.
- A forthcoming ambitious tax reform is centered on:
  - streamlining exemptions;
  - fostering compliance;
  - raising mining royalties, the carbon tax, and the progressivity of direct personal taxation (including through a new wealth tax).
- The tax reform aims to mobilize permanent revenues to finance social spending needs.
- Reforms of social protection systems would:
  - complement the recent approval of a universal basic pension;
  - enhance the role of public service provision; and
  - improve quality and access.
- Other key priorities: advancing the climate agenda, deepening capital markets, and boosting productivity.
- The government plans to submit the tax reform to congress by mid-year, aiming to gradually raise about 4 percent of GDP over the next few years. Potential revenue gains are not included in the projections.

### Inclusive Recovery Plan (Box 2)
- The government’s Inclusive Recovery Plan targets support to the most vulnerable within the 2022 budget envelope.
- The 2022 budget returns real spending to its pre-pandemic level.
- The Plan allocates about 1.3 percent of GDP of reserve funds already included in the budget.
- Funds are roughly equally split among three main areas:
  - Employment sectors still affected by the pandemic:
    - extends employment subsidies for formal employment (IFE Laboral) until September;
    - increases access to childcare and subsidies for working mothers with small children;
    - includes measures to support tourism, culture, and entertainment sectors.
  - Households affected by high energy prices and new lockdowns:
    - mitigates impact of high energy prices by smoothing energy price increases for fuel and gas (through the MEPCO mechanism);
    - freezes public transport tariffs for the rest of the year;
    - increases aid for students and coverage of centers for the elderly;
    - intends to institutionalize activation of universal cash transfers (IFE) in case of new lockdowns.
  - Medium and small-sized enterprises (SMEs):
    - considers temporary subsidies for SMEs to alleviate the impact of the planned increase of 14.3 percent in the minimum wage;
    - measures to facilitate the flow of credit through FOGAPE, CORFO, and SERCOTEC.
- Note: Some measures require legislative changes.

### Macroeconomic outlook and projections
- With the necessary removal of macroeconomic stimulus, growth is expected to decelerate in 2022 and over the medium term.
- GDP growth projections:
  - 2022: decline to 1.5 percent;
  - 2023: 0.5 percent — closing the output gap from above;
  - medium term: converge to potential rate of 2.5 percent.
- Labor market: employment expected to reach its pre-pandemic level in the near term.
- Inflation: expected to peak by mid-2022 and converge to target in 2024.
- Current account deficit: projected to narrow with the unwinding of extraordinary stimulus and softening domestic demand, returning to values consistent with its historical average by the end of the forecast period.

### Risks and uncertainty
- Overall: Risks and uncertainty have declined since the onset of the pandemic but remain elevated.
- External risks:
  - Possible escalation of sanctions and ensuing deglobalization resulting from the war in Ukraine.
  - While Chile would benefit from high copper prices, rising global food and energy prices or further supply chain disruptions would add to inflationary pressures.
  - Possible de-anchoring of inflation expectations in advanced economies leading to abrupt tightening of global financial conditions, selloffs of risky assets, and capital outflows.
  - Possible appearance of more lethal and highly contagious Covid-19 variants, which could result in subpar and volatile growth.
- Domestic risks:
  - Social discontent over high food and energy prices, the pace and content of reforms, or the still uncertain outcome of the ongoing constitutional reform (see Box 3).

### Assessment for a Short-Term Liquidity Line (SLL) — qualification (staff assessment)
- Staff’s assessment: Chile meets the qualification criteria for an SLL.
- Rationale highlights:
  - Sustainable external position.
  - Sovereign access to international markets at favorable rates.
  - Official reserves are adequate.
  - BCCh remains highly credible and, since July 2021, has embarked in a rapid tightening cycle to ensure convergence of inflation to target.
  - 2021 FSAP: financial sector functions well overall, banks are sufficiently capitalized, and the regulatory framework is sound.
  - Public debt is sustainable and anchored by a strong fiscal framework guided by a structural fiscal balance rule.
- Staff’s baseline projections currently assume that debt stabilizes below 45 percent of GDP with some margin, pending further information on the government’s expenditure and tax reform plans.
- The government affirmed its intention to pursue a fiscal consolidation that would stabilize the gross public debt ratio below 45 percent of GDP (reported in its first quarterly fiscal report published on May 3).

### External position and capital flows
- 2021 Article IV Consultation: Chile’s external position assessed as moderately stronger than implied by medium-term fundamentals and desirable policies.
- Staff continues to assess the external position as sustainable.
- 2021 current account deficit increased mainly due to transitory Covid-19 stimulus measures but is projected to decline to its historical average with ongoing tightening of macroeconomic policies.
- Net international investment position improved from -12 percent of GDP in 2020 to -4.9 percent of GDP in 2021.
- External debt decreased to 72 percent of GDP in 2021 and is robust to standard shocks.
- Real effective exchange rate: on average, appreciated by about 3 percent in 2021; however, there was a sharp depreciation of about 12 percent since April 2021 until end-2021, driven by domestic uncertainty.
- Capital flows:
  - Predominantly private flows; nearly 90 percent of Chile’s external debt is owed to private creditors.
  - Private flows account for the bulk of total flows: 74 percent of asset flows and 89 percent of liability flows on average over the last three years.
  - The absolute value of general government plus central bank liability flows reached 36 percent of the total in 2021, unusually high but explained by large repatriation of foreign assets to meet pandemic-related needs.

### Sovereign market access and spreads
- Track record: steady sovereign access to international capital markets for several decades; uninterrupted access and investment grade status by the three major rating agencies.
- Foreign-currency ratings reported as: A1 for Moody’s, A for S&P, and A- for Fitch (after downgrades from S&P in April 2020, and from Fitch in March 2020).
- Sovereign bond spreads remained relatively stable over the past 18 months after correcting from a sharp deterioration at the onset of the pandemic, and are consistently below those from other EMs.
- EMBIG and five-year CDS spreads stood at 157 and 70 bps at end-March, respectively.
- The central government issued external debt in each of the past five years, with a cumulative amount equivalent to about 1,500 percent of Chile’s Fund quota.

### International reserves
- Gross international reserves are adequate, at about 91 percent of the Fund’s reserve adequacy metric (ARA) at end-2021.
- Although somewhat below the recommended 100 percent ARA metric, staff assesses reserves as adequate, citing mitigating factors:
  - In mature market economies reserves act mainly as a second line of defense and Chile’s reserves amply cover estimated potential short-term banks’ needs.
  - If counted as reserves, the central government’s usable liquid external assets (about US$20 billion in February, including US$6.4 billion in the sovereign wealth fund) would correspond to approximately 28 percent of the ARA metric.
  - Standard benchmarks show Chile compares favorably to other commodity-intensive mature market economies.
  - Authorities’ strong commitment to the free-floating exchange rate regime reduces the need for reserves.
  - Reserves are complemented with several FX liquidity lines.

### Public debt and fiscal framework
- Gradual fiscal consolidation guided by the fiscal rule is expected to rebuild buffers and stabilize gross public debt below 45 percent of GDP.
- Public debt is mostly denominated in domestic currency, with an average maturity above ten years.
- Liquidity risks are mitigated by the sovereign wealth fund and the large domestic banking sector, with abundant room to absorb sovereign issuances in case of abrupt tightening of global financial conditions.
- Staff assesses public debt to be sustainable with high probability; public debt trajectory is robust to standard shocks.
- The government’s intent to introduce a debt anchor and provide more predictability to medium-term fiscal paths will further enhance the strong fiscal framework.
- The 2021 Fiscal Transparency Evaluation concluded Chile has strong fiscal institutions and sound fiscal transparency practices.

### Monetary and exchange rate framework
- Chile maintains a highly credible inflation-targeting regime with a free-floating exchange rate system.
- In the past five years, monthly (y/y) inflation averaged 3 percent.
- Medium-term inflation expectations have remained anchored over the past decade.
- The BCCh responded to the recent spike in inflation by quickly tightening monetary policy.
- The BCCh maintains a small negative equity, which does not compromise policy solvency nor require immediate recapitalization.
- The 2021 Transparency Review underscored BCCh’s high standards of policy analysis, conduct, and independence.

### Financial system soundness and supervision
- 2021 FSAP solvency stress tests: banking sector sufficiently capitalized; solvency risks are low.
- Under the adverse scenario, a few individual banks would fall below requirements; implementation of Basel III will strengthen banks’ capital positions.
- Banking system appears resilient to sizeable funding risks and climate-related risks.
- Systemic risk from non-financial sector external debt is low.
- Stress tests in fixed income mutual funds suggest the need for enhancing liquidity management practices.
- Pension funds are equipped with sound liquidity management.
- 2021 FSAP: banking supervisory framework assessed as robust and the CMF capably staffed with expertise in monitoring individual risks.
- Regional peer assessment by GAFILAT highlighted strengths and considerable progress in implementation of AML/CFT prevention systems.

### Data transparency
- Since March 2020, Chile is an adherent to the Fund’s Special Data Dissemination Standard Plus—the highest tier of the IMF’s Data Standards Initiatives.

*Source: IMF staff report chapter on Chile (content unit 1chlea2022001).*

### 26.      Institutional strength and track record of strong policies. Chile has a sustained track

### Institutional strength and track record of strong policies. Chile has a sustained track record of implementing  very strong policies.

### Institutional strength and policy stance
- Chile has a sustained track record of implementing very strong policies.
- Fiscal and monetary policies have been strongly countercyclical, anchored in very strong institutional frameworks.
- The free-floating exchange rate regime has been allowed to work as a shock absorber.
- The authorities’ response to the pandemic was effective and well-coordinated, making appropriate use of Chile’s hard-won policy space.
- The ongoing removal of macroeconomic stimulus, while targeting support to the most vulnerable, will help contain inflationary pressures, rebuild buffers, and mitigate risks.
- The new administration is committed to maintaining very strong macroeconomic policies.

### Rationale for a SLL arrangement and access considerations
- An SLL arrangement would appropriately support Chile’s external resilience by complementing existing buffers and providing predictable FX liquidity support on advantageous terms.
- The authorities wish to exit the FCL against the backdrop of a speedy recovery, ongoing removal of extraordinary Covid-19 stimulus, and build-up of adequate FX liquidity buffers.
- Chile remains exposed to shocks, including volatility in international capital markets that could potentially inflict pressure on the capital account.
- The BCCh foresees drawing on the SLL only under exceptional circumstances; the authorities plan to treat the proposed SLL arrangement as precautionary.

Key access proposal and coverage:
- Proposed revolving access: 145 percent of quota (SDR 2.529 billion; about US$3.5 billion).
- Coverage claim: 145 percent of quota would cover most moderate, potential, short-term balance of payment needs and would cover balance of payment needs resulting from capital outflow shocks up to the 75th percentile of past outflow episodes.
- Reference: For a full explanation of this special balance of payment need, see Policy Paper No. 20/025.

### Scenarios and quantitative implications
- In the event of a full purchase of SLL resources:
  - Total external debt would increase moderately to 70 percent of GDP in 2023 and then decrease over the medium term.
  - The peak stock of Fund credit in percent of GDP: 1 percent.
  - Gross international reserves: 6.9 percent (of GDP).
  - Total external debt stock (increment shown): 1.5 percent (of GDP).
  - Peak debt service to the Fund in percent of GDP: 1 percent.
  - Peak debt service to exports of goods and services: 2.9 percent.
- All the above peaks are stated to be below typical exceptional access cases.

### Safeguards and repayment capacity
- Chile’s capacity to repay the Fund remains strong.
- Several factors mitigate risks to the Fund, including Chile’s adequate buffers, very strong policies and policy frameworks, and proven resilience.
- SLL safeguards procedures are underway:
  - The BCCh has provided authorization for an update of the safeguards procedures to be conducted by Fund staff in relation to the proposed arrangement.
  - Safeguards procedures will be conducted based on a review of the most recently completed external audit of BCCh annual financial statements.
  - A similar procedure was carried out for Chile’s FCL arrangement based on staff’s review of the 2019 audit results and discussions with the BCCh and its external auditors; no significant issues emerged.

### Staff appraisal and qualification
- Staff considers that Chile meets the qualification criteria for access to SLL resources.
- Rationale: Chile has very strong fundamentals and policy frameworks, a sustained track record of implementing very strong policies that have supported resilience in the face of large shocks, and authorities committed to maintaining very strong policies in the future.
- Staff concludes Chile meets all the qualification criteria for an SLL (which are identical to the FCL).

*Source: IMF staff report.*

### 32.      Staff recommends that the Board extends an SLL “offer” to Chile for 145 percent of

### 32.      Staff recommends that the Board extends an SLL “offer” to Chile for 145 percent of quota (SDR 2.529 billion)

### Recommendation and Rationale
- Staff recommends extending a Standby Liquidity Line (SLL) “offer” to Chile for 145 percent of quota (SDR 2.529 billion).
- Rationale:
  - Risks and uncertainty have declined since the onset of the pandemic, but they remain elevated.
  - An SLL would complement the authorities’ strategy to exit the FCL and support external resilience.
  - An SLL is an appropriate instrument to provide access to FX liquidity to counter potential, moderate, short-term balance of payments needs related to capital account pressures.

### Conditions and Operational Details
- Executive Board approval of the SLL arrangement would be contingent upon:
  - Receiving written communication from the authorities stating that they wish to avail themselves of the SLL arrangement.
  - Notification to the Fund by the authorities of the cancellation of the existing FCL arrangement.
- Access timing:
  - Funds from the new SLL arrangement could be accessed at any point during the next 12 months following effectiveness of the SLL.

### Supporting Evidence and Context (selected points from figures and tables)
- Historical context of Fund exposure and debt service ratios for recent Exceptional Access cases is provided (panel comparisons include Chile 2020 and Chile 2022 among others).
- Portfolio flows and reserves:
  - Chile: Portfolio flows charted in percent of IMF quota, with the red line indicating 145% of quota, showing episodes of portfolio outflows during past stress events.
  - International reserves increased notably over the past 2 years and gross international reserves are reported in Table 3.
- COVID-19 developments:
  - New COVID-19 cases and deaths, testing, vaccinations, and economic activity indicators are presented, showing sharp falls in cases after February surges and recovery in economic activity.
- Economic activity:
  - Economic activity grew 11.8% yoy S.A. in 2021Q4.
  - Non-mining IMACEC grew 8.3% in February; mining IMACEC growth was -1.5%.
- External sector:
  - Current account in Q4 remained negative at -9.3% of GDP.
  - Net IIP reached -5.0% of annualized GDP in 2021Q4.
  - Gross international reserves remain close to the ARA metric.
- Financial sector:
  - Banks' profitability stood at 20.4% in December 2021.
  - Credit growth reached 8.4% in February (recovered from a sharp drop in 2021H1).
  - Non-performing loans have remained low.
  - Tier 1 capital ratios are lower than in other countries but are expected to increase in line with Basel III.

### Key Statistics (preserve exact figures as reported)
- SLL offer size: 145 percent of quota (SDR 2.529 billion).
- Access window: 12 months following effectiveness of the SLL.
- Economic activity: 11.8% yoy S.A. in 2021Q4.
- Non-mining IMACEC growth: 8.3% (February).
- Mining IMACEC growth: -1.5% (February).
- Current account Q4: -9.3% of GDP.
- Net IIP Q4 2021: -5.0% of annualized GDP.
- Banks' profitability: 20.4% (December 2021).
- Credit growth: 8.4% (February).
- Gross international reserves (Table 3, levels and months of imports reported in source).

### Policy Implications
- Providing an SLL of the recommended size would:
  - Support Chile’s external resilience during a period of elevated but moderating uncertainty.
  - Facilitate a managed exit from the FCL by offering contingent access to FX liquidity for potential short-term balance of payments needs related to capital account pressures.
- Preconditions ensure deliberate uptake and replacement of the FCL:
  - Authorities must formally request to avail themselves of the SLL.
  - Authorities must cancel the existing FCL arrangement prior to accessing SLL resources.

*Source: IMF staff report excerpt.*

### Annex I.   External Debt Sustainability Analysis

### Annex I.   External Debt Sustainability Analysis

### Key findings and assessment
- External debt decreased to 72 percent of GDP in 2021, partly due to exchange rate valuation effects and higher growth, and is projected to further decline towards 60 percent of GDP by 2027.
- External debt remains sustainable under a wide range of adverse scenarios, including shocks to interest rates, growth, and the exchange rate.
- The non-financial corporate sector appears highly leveraged, but most debt is FDI-related (with parent companies) and has foreign exchange hedging or long maturity.

### Baseline debt path (selected series from Table 1)
- External debt (in percent of GDP): 2017: 62.5; 2018: 59.4; 2019: 66.7; 2020: 77.9; 2021: 72.4; 2022: 74.5; 2023: 68.8; 2024: 65.3; 2025: 62.7; 2026: 60.9; 2027: 59.6.
- Change in external debt (percent of GDP): 2017: -3.1; 2018: -3.1; 2019: 7.3; 2020: 11.2; 2021: -5.5; 2022: 2.1; 2023: -5.7; 2024: -3.5; 2025: -2.6; 2026: -1.8; 2027: -1.2.
- Identified external debt-creating flows (4+8+9, percent of GDP): 2017: -2.3; 2018: 3.4; 2019: 8.0; 2020: 9.2; 2021: -9.7; 2022: 3.9; 2023: 3.8; 2024: 2.2; 2025: 1.7; 2026: 1.4; 2027: 1.6.
- Current account deficit, excluding interest payments (percent of GDP): 2017: 1.0; 2018: 2.9; 2019: 3.3; 2020: -0.3; 2021: 5.2; 2022: 2.6; 2023: 2.0; 2024: 1.5; 2025: 1.0; 2026: 1.0; 2027: 1.2.
- Balance of goods and services (percent of GDP): 2017: 0.7; 2018: -1.1; 2019: -1.9; 2020: 4.4; 2021: -0.4; 2022: 0.4; 2023: 2.0; 2024: 1.9; 2025: 2.0; 2026: 1.6; 2027: 1.4.
- Exports (percent of GDP): 2017: 28.3; 2018: 28.4; 2019: 27.7; 2020: 31.4; 2021: 31.8; 2022: 36.9; 2023: 34.3; 2024: 32.5; 2025: 31.1; 2026: 30.0; 2027: 29.2.
- Imports (percent of GDP): 2017: -27.6; 2018: -29.5; 2019: -29.6; 2020: -27.0; 2021: -32.2; 2022: -36.4; 2023: -32.3; 2024: -30.6; 2025: -29.0; 2026: -28.4; 2027: -27.8.
- Net non-debt creating capital inflows (negative, percent of GDP): 2017: 1.2; 2018: 2.9; 2019: -0.6; 2020: 0.8; 2021: -0.8; 2022: 0.5; 2023: 0.7; 2024: 0.4; 2025: 0.4; 2026: 0.4; 2027: 0.5.
- Automatic debt dynamics (percent of GDP): 2017: -4.4; 2018: -2.3; 2019: 5.3; 2020: 8.7; 2021: -14.1; 2022: 0.8; 2023: 1.1; 2024: 0.3; 2025: 0.3; 2026: 0.0; 2027: -0.1.
- Contribution from nominal interest rate (percent of GDP): 2017: 1.8; 2018: 1.7; 2019: 1.9; 2020: 2.2; 2021: 1.5; 2022: 1.9; 2023: 1.4; 2024: 1.4; 2025: 1.6; 2026: 1.4; 2027: 1.3.
- Contribution from real GDP growth (percent of GDP): 2017: -0.8; 2018: -2.3; 2019: -0.5; 2020: 4.5; 2021: -7.3; 2022: -1.1; 2023: -0.3; 2024: -1.1; 2025: -1.4; 2026: -1.5; 2027: -1.4.
- Residual, incl. change in gross foreign assets (2-3, percent of GDP): 2017: -0.8; 2018: -6.5; 2019: -0.7; 2020: 2.0; 2021: 4.3; 2022: -1.8; 2023: -9.5; 2024: -5.7; 2025: -4.3; 2026: -3.2; 2027: -2.8.

### External debt ratios and financing needs
- External debt-to-exports ratio (in percent): 2017: 221.2; 2018: 208.9; 2019: 240.4; 2020: 248.4; 2021: 227.8; 2022: 202.2; 2023: 200.4; 2024: 200.7; 2025: 201.8; 2026: 202.8; 2027: 204.5.
- Gross external financing need (in billions of US dollars): 2017: 37.3; 2018: 66.7; 2019: 71.9; 2020: 53.8; 2021: 67.8; 2022: 85.5; 2023: 54.0; 2024: 52.1; 2025: 49.1; 2026: 50.3; 2027: 52.7.
- Gross external financing need (in percent of GDP): 2017: 13.5; 2018: 22.6; 2019: 25.8; 2020: 21.3; 2021: 21.4; 2022: 10-Year; 2017–2026 and 10-Year26.9; 15.4; 13.7; 12.1; 11.7; 11.5. (Note: table shows "in percent of GDP 4/ 10-Year 10-Year26.9 15.4 13.7 12.1 11.7 11.5" in original layout.)

### Stress tests and scenario results (figure highlights)
- Scenario with key variables at their historical averages results: 74.5; 73.9; 74.4; 75.2; 76.3; 77.6; 0.1 (as presented in table).
- Bound tests and scenarios in figures include:
  - Non-interest current account shock (permanent one-half standard deviation shocks).
  - Interest rate shock (permanent one-half standard deviation shocks).
  - Growth shock (permanent one-half standard deviation shocks).
  - Real depreciation shock (one-time real depreciation of 30 percent occurs in 2021).
  - Combined shock (permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance).
- Figure captions note: shaded areas represent actual data; figures in boxes represent average projections for the respective variables in the baseline and scenario; ten-year historical average for the variable is shown.

### Key macroeconomic assumptions underlying the baseline (selected)
- Real GDP growth (in percent): 2017: 1.3; 2018: 4.0; 2019: 0.8; 2020: -6.1; 2021: 11.7; 2022: 2.6; 2023: 4.4; 2024: 1.5; 2025: 0.5; 2026: 1.7; 2027: 2.2; projection later: 2.5.
- GDP deflator in US dollars (change in percent): 2017: 9.4; 2018: 2.8; 2019: -6.5; 2020: -3.4; 2021: 12.2; 2022: 0.0; 2023: 7.0; 2024: -1.2; 2025: 10.0; 2026: 6.2; 2027: 4.8; later: 3.7; 3.4.
- Nominal external interest rate (in percent): 2017: 3.1; 2018: 2.8; 2019: 3.0; 2020: 3.0; 2021: 2.4; 2022: 2.9; 2023: 0.3; 2024: 2.6; 2025: 2.1; 2026: 2.1; 2027: 2.7; later: 2.4; 2.2.
- Growth of exports (US dollar terms, in percent): 2017: 12.6; 2018: 7.6; 2019: -8.0; 2020: 2.5; 2021: 27.2; 2022: 1.3; 2023: 12.2; 2024: 16.3; 2025: 2.9; 2026: 2.3; 2027: 2.3; later: 2.7; 3.0.
- Growth of imports (US dollar terms, in percent): 2017: 9.1; 2018: 14.2; 2019: -5.3; 2020: -17.4; 2021: 49.8; 2022: 3.1; 2023: 19.1; 2024: 13.6; 2025: -2.0; 2026: 2.2; 2027: 1.7; later: 4.0; 3.6.
- Current account balance, excluding interest payments (percent of GDP): 2017: -1.0; 2018: -2.9; 2019: -3.3; 2020: 0.3; 2021: -5.2; 2022: -2.3; 2023: 1.7; 2024: -2.6; 2025: -2.0; 2026: -1.5; 2027: -1.0; later: -1.0; -1.2.
- Net non-debt creating capital inflows (percent of GDP): 2017: -1.2; 2018: -2.9; 2019: 0.6; 2020: -0.8; 2021: 0.8; 2022: 0.2; 2023: 1.8; 2024: -0.5; 2025: -0.7; 2026: -0.4; 2027: -0.4; later: -0.4; -0.5.

### Additional observations from annex context
- Figures and notes clarify methodological details: individual shocks are permanent one-half standard deviation shocks; historical averages are calculated over the ten-year period and used to project debt dynamics five years ahead.
- Definitions: gross external financing need is defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.
- The contribution from price and exchange rate changes and automatic debt dynamics are defined using formulas involving r (nominal effective interest rate), g (real GDP growth), e (nominal appreciation), and a (share of domestic-currency denominated debt).

*Source: Annex I. External Debt Sustainability Analysis (Chile) — IMF staff report.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1chlea2022001.pdf_