## EXECUTIVE SUMMARY

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### Context
- Economy described as "broadly balanced and growing at its potential."
- Global trade tensions have not yet significantly impacted the Chilean economy, but slower growth is anticipated as the global economy decelerates.
- Policy priorities: a prudent fiscal path to ensure debt sustainability; bringing inflation back to target; supply-side measures to boost economic dynamism (for example, streamlining processes to approve investment permits).
- Presidential and parliamentary elections scheduled for November 2025; new government to assume office in March 2026.
- Chile’s 24-month Flexible Credit Line (FCL) arrangement:
  - Approved August 27, 2024.
  - Amount: SDR 10.4658 billion (600 percent of quota).
  - Treated as precautionary and intended to be gradually exited conditional on external risk developments.
  - Staff view: Chile continues to meet the FCL qualification criteria; staff recommends the Board complete the review to allow purchases, if needed, until expiration on August 26, 2026.

### Real economy and labor — recent developments
- Real GDP and activity:
  - Expanded by 2.6 percent in 2024, slightly above estimated potential growth of 2-2.5 percent.
  - Grew by 2.3 percent (yoy) in 2025Q1.
  - Q2 2025 high-frequency indicators suggest growth at a similar pace, supported by strong mining activities.
  - Output gap: broadly closed.
- Expenditure and investment:
  - Private consumption and imports picked up in 2025 after adjustment in 2022-24.
  - Investment remained sluggish except in mining and energy.
- Labor market:
  - Three-month moving average unemployment rate (seasonally adjusted) has hovered around 8.5 percent since early 2024 (above the 2010-19 average of 6.5 percent).
  - Real hourly wage rate rose by 3.6 percent (yoy) as of April 2025.
  - Minimum wage increase in 2024: 4.3 percent in real terms.
  - Labor participation rate broadly returned to pre-pandemic levels.

### Inflation and external sector
- Inflation dynamics:
  - Headline inflation close to the 3 percent target in May 2024, then rose temporarily, peaking at 4.8 percent in 2025Q1.
  - Electricity price increase of 59 percent between May 2024 and February 2025 contributed an estimated 1.3 percentage points to inflation at the peak.
  - Headline inflation eased to 4.1 percent in June 2025.
  - Core inflation declined to 3.8 percent (yoy) as of June 2025.
  - Two-year inflation expectations have been well anchored.
- External sector:
  - Current account deficit narrowed to 1.5 percent of GDP in 2024 (from 3.1 percent of GDP in 2023) and remained nearly unchanged in 2025Q1.
  - Copper price: resilient and in early July stood above its 2024 average; drivers cited: tight global supply, increasing sectoral demand from the green transition, and increased defense spending in advanced economies.

### Public finances and fiscal developments
- Fiscal outturns:
  - Headline fiscal deficit widened by 0.4 percentage points to 2.8 percent of GDP in 2024, nearly 1 percent of GDP higher than budgeted.
  - Revenue underperformance driven mainly by lower-than-expected lithium prices and shortfalls in corporate income tax (CIT) collection; partly attributed to multiple pandemic-era tax policy changes.
- 2025 fiscal planning and measures:
  - Budget office in April lowered the revenue outlook for 2025 by 1.4 percentage points compared to the budget and by around 1.3 percentage points for the medium term.
  - Government raised the 2025 structural deficit target to 1.6 percent of GDP (about 0.5 percentage points higher than in the budget) and delayed reaching a broadly balanced position by one year to 2028.
  - 2025 structural deficit target corresponded to a 1.4 percent of GDP headline deficit in the April Public Finance Report.
  - Authorities’ corrective measures include administrative savings estimated at 0.17 percent of GDP and legislative measures aimed to yield another 0.25 percent of GDP in 2025.
  - Staff projects a headline deficit of 2.1 percent of GDP in 2025 under conservative assumptions about corrective measures.
  - Over the medium term, additional efforts of about 1.5 percent of GDP would be needed to reach a broadly balanced position in 2028.
  - Revenues from the tax compliance law could largely fill this gap, conditional on yields materializing and no new spending initiatives.

### Pension reform
- Landmark reform approved January 2025:
  - Employer contribution rate to increase by 7 percentage points (adding to the 10 percent employee contribution).
  - Allocation of the incremental 7 points:
    - 4.5 points to individual accounts to improve adequacy of self-financed pensions.
    - 2.5 points to the Social Security Fund: 1.0 point to address the gender life expectancy gap; 1.5 points to fund current pensions as a reimbursable contribution to individual accounts with interest.
  - Nonparametric changes to enhance competition of private pension funds and improve coverage for the self-employed and unemployed.
  - Minimum guaranteed pension (PGU) raised by 16.7 percent in nominal terms and indexed to inflation.
  - Authorities estimate annual fiscal costs of the reform to reach about 1 percent of GDP in the long term; these costs are incorporated in staff projections.
  - Staff notes potential long-term fiscal risks from broad PGU coverage and the lack of a link between retirement age and life expectancy.

### Financial sector and markets
- Banking sector soundness:
  - Capital and liquidity buffers comfortably above regulatory requirements.
  - Profitability back to pre-pandemic levels.
  - Non-performing loan (NPL) ratios slightly above pre-pandemic levels but recently stabilized with adequate provisions and strong collateral coverage.
- Sectoral risks:
  - Smaller firms with government-guaranteed loans and construction and real estate sectors face persisting risks due to high housing prices and still-elevated mortgage rates.
- Credit growth: subdued, mainly due to weak demand.
- Financial markets: remained stable except for a brief dip in April (following a U.S. tariff announcement); peso-U.S. dollar exchange rate fluctuated around its February-March level since May; local stock market index surged to a record high.

### Outlook, risks, and scenarios
- Growth projections:
  - 2025: economy anticipated to expand by 2.3 percent.
  - 2026: economy anticipated to expand by 2.0 percent.
  - Private consumption expected to be the main growth driver in 2025-26; net exports’ contribution will narrow as imports rise and mining export growth moderates.
- Trade policy shocks and external risk assessment:
  - Announced 10 percent U.S. tariff on Chile has limited direct macroeconomic impact given bilateral exports to the U.S. at 4.7 percent of GDP in 2024.
  - Announced 50 percent U.S. tariff on copper imports (to take effect August 1, 2025) is likely to have a limited impact on Chile’s copper exports due to the U.S.’s small share of global copper consumption and relatively low price elasticity of copper demand; nevertheless, weaker global growth due to trade frictions could materially affect Chile’s growth outlook starting in late 2025.
  - Staff estimates the impact of weaker global growth from trade frictions at around 0.3 percentage points over two years.
- Current account and inflation outlook:
  - Inflation could approach the 3 percent target in 2026Q1, following dissipation of year-over-year effects of the electricity tariff hike in February 2026.
  - Current account deficit forecast to moderately widen to 1.5-2 percent of GDP in 2025 before converging to around 3 percent of GDP in the medium term as mining export growth moderates.
- Contingent policy responses in adverse scenarios:
  - Floating exchange rate is primary shock absorber.
  - Monetary and macroprudential policies could be eased as appropriate, depending on inflation and financial market conditions.
  - Authorities view gradual structural fiscal adjustment as important to substantiate debt sustainability while allowing automatic stabilizers to operate.
  - Accelerating structural reforms and identifying medium-term fiscal consolidation measures would become more urgent if external downside risks materialize.

### Monetary policy stance and guidance
- Central Bank of Chile (BCCh) policy:
  - Nominal policy rate kept at 5 percent since November 2023 (as of executive-summary text).
  - Real policy rate (adjusted for expected inflation) broadly within estimated neutral range of 0.5-1.5 percent.
  - Guidance: future policy adjustments should be guided by impact on the inflation outlook over the target horizon; real policy rate should remain broadly neutral; nominal rates could be cautiously lowered if inflationary pressures continue to ease.
  - Main risks to inflation outlook: passthrough of peso exchange rate fluctuations driven by external factors (copper prices and U.S. interest rates) and potential sharp increases in oil prices due to geopolitical tensions.

### Flexible Credit Line (FCL) qualification and strategy
- FCL specifics:
  - 24-month arrangement approved August 27, 2024; amount SDR 10.4658 billion (600 percent of quota); treated as precautionary.
  - In a drawing scenario, FCL would not be used for budget financing, consistent with Chile’s institutional framework.
- Staff assessment:
  - Chile continues to meet FCL qualification criteria specified under Decision No. 14283-(09/29), adopted March 24, 2009, as amended.
  - Staff recommends the Board complete the review to allow purchases, if needed, until the arrangement’s expiration on August 26, 2026.
- Recommended policy priorities to strengthen resilience and support FCL exit strategy:
  - Rebuild and resume accumulation of international reserves.
  - Deepen capital markets in the context of implementing pension reform.
  - Finalize provision for central bank liquidity access by non-bank financial institutions.
  - Develop the repo market and advance the bank resolution framework.
  - Continue strengthening tax compliance and implement fiscal measures (up to 1.5 percent of GDP if needed) to meet medium-term fiscal path.

### Economic diversification and greener growth initiatives
- Authorities aim to reduce permit approval times by one third, focusing on: sectoral permits and authorizations, environmental evaluations, maritime concessions, and modernization of cultural heritage legislation.
- Government intensified efforts to strengthen trade agreements, with negotiations under way with India and the UAE.
- Near-term quantitative targets set for emerging sectors: clean and competitive mining, lithium, renewable energies, green hydrogen, digital economy, and tourism.
- Further progress targeted through enhancing R&D and increasing female labor participation via improved access to quality childcare.

### Fiscal projections — authorities vs. staff (selected series, percent of GDP or units as indicated)
- Authorities (2024–2029, key series):
  - Structural fiscal balance: -3.3, -1.6, -1.4, -0.7, -0.2, 0.1
  - Headline fiscal balance: -2.8, -1.4, -1.2, -0.7, -0.3, -0.1
  - Total revenues: 21.6, 22.9, 22.9, 23.2, 23.5, 23.4
  - Non-mining tax revenues: 16.8, 17.1, 17.5, 17.9, 18.4, 18.5
  - Private mining tax revenues: 1.1, 1.8, 1.6, 1.4, 1.3, 1.2
  - Total expenditures: 24.4, 24.3, 24.1, 23.9, 23.8, 23.5
  - Public debt: 41.7, 42.3, 43.0, 42.5, 41.8, 40.0
  - Copper price (USD cents/lb): 415, 426, 428, 433, 437, 437
  - Real GDP (percent change): 2.6, 2.5, 2.3, 2.2, 2.0, 2.0
- Staff projections (2024–2029, key series):
  - Structural fiscal balance: -3.2, -2.4, -1.7, -1.2, -0.9, -0.9
  - Headline fiscal balance: -2.8, -2.1, -1.5, -1.2, -0.9, -0.9
  - Total revenues: 21.6, 22.6, 23.0, 23.1, 23.1, 23.0
  - Non-mining tax revenues: 16.4, 16.7, 17.2, 17.4, 17.5, 17.5
  - Private mining tax revenues: 1.1, 1.8, 1.7, 1.6, 1.5, 1.4
  - Total expenditures: 24.4, 24.7, 24.5, 24.3, 24.0, 23.9
  - Unspecified measures: 0.0, -0.2, -0.5, -0.9, -1.0
  - Public debt: 41.7, 42.5, 43.7, 44.1, 44.3, 44.5
  - Copper price (USD cents/lb): 415, 433, 437, 439, 440, 441
  - Real GDP (percent change): 2.6, 2.3, 2.0, 2.3, 2.3, 2.3
- Note: Authorities' projections include corrective actions. Sources cited in the source document include Informe de Finanzas Publicas April 2025, and IMF staff projections.

### Financial sector regulatory progress
- Basel III requirements implemented smoothly, improving banks’ solvency and liquidity.
- BCCh updated countercyclical capital buffer (CCyB) framework: neutral level set at one percent of risk-weighted assets with gradual, state-contingent implementation.
- BCCh stress tests in May 2025 confirm capacity to withstand a range of shocks.
- Financial Market Resilience Law measures under implementation to strengthen market resilience:
  - Developing the interbank repo market.
  - Enabling BCCh to provide current/settlements accounts and liquidity facilities to nonbanks.
  - Allowing the Financial Market Commission (CMF) to strengthen liquidity regulations of mutual funds.
- Fintech Law enacted to bring fintech activities within regulatory perimeter.
- Ongoing initiatives: introduce industry-funded deposit insurance and bank resolution framework; upcoming regulations to enhance integrated risk management and corporate governance standards for banks.

### External position, reserves, and international liquidity buffers
- Key metrics:
  - Current account deficit: 1.5 percent of GDP in 2024.
  - Net international investment position: -17 percent of GDP at end-2024.
  - External debt: 74.4 percent of GDP in 2024.
  - Gross international reserves: averaged 82.8 percent of ARA (end-2021 to end-2024) and 83 percent at end-June 2025 (about 14 percent of GDP).
  - Usable liquid FX assets: US$5.3 billion as of May 2025, including US$3.8 billion in FEES and US$1.5 billion cash.
  - FX liquidity lines complementing reserves: total US$8.05 billion (FLAR credit line US$1.25 billion; bilateral swap with PBOC US$6.8 billion). BCCh subscriber to Fed’s FIMA repo facility (US$26 billion).
  - Banks’ short-term external debt: US$16.5 billion as of 2025Q1; banks’ liquid foreign assets: US$11.8 billion as of 2025Q4.
  - Short-term external debt composition: about one fifth represented by intercompany loans from foreign direct investors (US$9 billion as of 2025Q1).

### Public debt, fiscal institutions, and debt dynamics
- Debt structure and coverage:
  - Two-thirds of public debt denominated in domestic currency; average external debt maturity above ten years.
  - Residual maturity of debt: 11.6 years.
- Baseline public debt path (percent of GDP, selected years):
  - Actual 2024: Public debt 41.7
  - 2025: 42.5
  - 2026: 43.7
  - 2027: 44.1
  - 2028: 44.3
  - 2029: 44.5
  - 2030: 44.5
  - 2031: 44.3
  - 2032: 44.1
  - 2033: 44.0
  - 2034: 43.9
- Change in public debt (percent of GDP, selected years):
  - 2024: 2.2
  - 2025: 0.8
  - 2026: 1.2
  - 2027: 0.4
  - 2028: 0.2
  - 2029: 0.2
- Automatic debt dynamics and gross financing needs:
  - Automatic debt dynamics: 2024: -1.0; 2025: -1.1; 2026: -0.7.
  - Gross financing needs (GFN): 2024: 9.1; 2025: 3.5; 2026: 3.8; 2027: 3.7; 2028: 4.5.
- Annex assessments:
  - External debt increased to 74.4 percent of GDP in 2024, mainly due to peso depreciation; projected to decrease to around 70 percent of GDP over the medium term.
  - Public sector debt assessed sustainable with high probability; debt stabilizes below 45 percent of GDP under baseline assumptions and medium-term structural fiscal consolidation guided by the structural fiscal balance rule.
  - Medium-term risks assessed as Low; overall long-run risk indicator: Low.

### Medium-term and long-term risks
- Medium-term risk indicators (selected):
  - Debt fanchart width (percent of GDP): 33.8
  - Probability of debt non-stabilization (percent): 28.8
  - Debt fanchart index (DFI): 1.1 — Risk signal: Low
  - Average baseline GFN (percent of GDP): 4.2
  - GFN financeability index (GFI): 4.5 — Risk signal: Low
- Final medium-term assessment: Medium-term index: Low risk.
- Long-term analysis highlights:
  - Under the baseline, debt stabilizes at around 40 percent of GDP in 2050.
  - Pension financing needs could increase from about 2.4 percent of GDP (current) to 4.8 percent of GDP between 2025 and 2054 in one scenario.
  - If solidarity pensions’ financing through general taxes remains at around 2.4 percent of GDP, debt could increase to about 70 percent of GDP by 2050.
  - Health costs and excess cost growth could also increase debt to about 70 percent of GDP by 2050 under certain assumptions.
  - Copper revenue assumptions: production growth and price path imply debt about 60 percent of GDP by 2050 in that sensitivity.

### Staff appraisal and policy recommendations (selected)
- Conclusion: Chile continues to meet all qualification criteria for an FCL arrangement; staff recommends completion of the FCL review.
- Authorities intend to maintain FCL access at 600 percent of quota as precautionary given higher external risks and to strengthen external buffers to enable gradual reduction of access when conditions permit.
- Recommended policy priorities:
  - Rebuild and resume accumulation of international reserves.
  - Deepen capital markets in the context of implementing pension reform.
  - Finalize provision for central bank liquidity access by non-bank financial institutions.
  - Develop the repo market and advance the bank resolution framework.
  - Continue strengthening tax compliance and implement fiscal measures (up to 1.5 percent of GDP if needed) to meet medium-term fiscal path.

### Box 1 — External Economic Stress Index (EESI) — summary
- EESI components and weights:
  - Variables: U.S. and China real GDP growth (output growth weight 0.15), copper price change (0.35), VXEEM index (0.25), detrended 10-year U.S. Treasury yield (0.25).
  - Lower values indicate higher stress.
- Recent developments:
  - External stress increased in the second half of 2024 and first half of 2025; higher than at the time of the 2024 FCL request.
  - Drivers: increased emerging market volatility and a smaller-than-expected copper price increase; rise in U.S. yields kept stress above average in early 2025.
- Projections:
  - Baseline: external stress expected to gradually fall to around historical average levels, stabilizing around historic averages from 2026Q1 onward.
  - Adverse scenario assumptions include: (i) decline of 1.6 percentage points in 2025 and 2026 of the average of U.S. and China growth relative to baseline; (ii) 15 percent decline in the copper price relative to baseline; (iii) two standard deviation increase in the VXEEM index; (iv) U.S. yields increase by 0.05 percentage points in 2025 and decrease by 0.2 percentage points in 2026 relative to baseline.

### Supplementary updates and August 2025 excerpts (selected)
- Activity and labor:
  - Real GDP growth: GDP grew 3.1 percent in 2025Q2; 2025Q1 revised to 2.5 percent.
  - Real GDP projections (selected): 2024 2.6; 2025 2.5; 2026 2.3.
  - Non-mining sectors expanded by 3.0 percent (y-o-y) in a referenced period.
  - Investment: gross fixed capital formation increased in 2025Q2 by 5.6 percent (y-o-y).
  - Unemployment rate (seasonally adjusted): 8.9 percent in June (three-month moving average).
  - Female labor force participation rate: 53 percent.
- Reserves program and monetary policy (August 2025 developments):
  - BCCh reserve accumulation program start date: August 8.
  - Under the three-year program, BCCh will purchase up to US$25 million per day and accumulate up to US$18.5 billion.
  - As of August 20, BCCh accumulated US$180 million in international reserves.
  - BCCh sterilizes reserve purchases through issuance of central bank securities.
  - BCCh cut policy rate by 25 basis points to 4.75 percent on July 29.
- Inflation and outlook (August 2025 excerpts):
  - Headline inflation: 4.3 percent (yoy) in July; 4.1 percent in June.
  - Core inflation: 4.0 percent in July.
  - Staff projects inflation will converge to the 3-percent target in early 2026 after electricity price effects dissipate.
- Fiscal revisions (Public Finance Report, July 2025 — selected):
  - Authorities’ revised fiscal projections (selected series, percent of GDP): Structural fiscal balance 2024 -3.3; 2025 -1.8; 2026 -1.6. Headline fiscal balance 2024 -2.8; 2025 -1.5; 2026 -1.3.
  - Public debt (selected): 2024 41.7; 2025 42.2; 2026 43.0.
  - Copper price (USD cents/lb): 2024 415; 2025 428; 2026 430.
- Assessment and implications:
  - Authorities confirm continued qualification for the FCL and treat it as precautionary.
  - BCCh’s reserve accumulation program described as part of gradual exit strategy from the FCL, aiming to adjust composition of external liquidity buffers while minimizing market disruptions.
  - Staff analysis concludes debt is sustainable with high probability.

*Source: EXECUTIVE SUMMARY.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- Economy is "broadly balanced and growing at its potential."
- Global trade tensions have not yet significantly impacted the Chilean economy, but slower growth is anticipated as the global economy decelerates.
- Policy priorities: a prudent fiscal path to ensure debt sustainability; bringing inflation back to target; supply-side measures to boost economic dynamism (for example, streamlining processes to approve investment permits).
- Presidential and parliamentary elections are scheduled for November 2025; the new government will assume office in March 2026.
- Chile’s 24-month Flexible Credit Line (FCL) arrangement approved on August 27, 2024, for SDR 10.4658 billion (600 percent of quota) is being treated as precautionary and intended to be gradually exited conditional on external risk developments.
- Staff view: Chile continues to meet the FCL qualification criteria; staff recommends the Board complete the review to allow Chile to make purchases, if needed, until the expiration of the FCL arrangement on August 26, 2026.

### Recent developments — real economy and labor
- Real GDP:
  - Expanded by 2.6 percent in 2024, slightly above estimated potential growth of 2-2.5 percent.
  - Grew by 2.3 percent (yoy) in 2025Q1.
  - Q2 2025 high-frequency indicators suggest growth at a similar pace, supported by strong mining activities.
- Output gap: broadly closed.
- Expenditure composition: private consumption and imports picked up in 2025 after adjustment in 2022-24; investment remained sluggish except in mining and energy.
- Labor market:
  - Three-month moving average unemployment rate (seasonally adjusted) has hovered around 8.5 percent since early 2024 (above the 2010-19 average of 6.5 percent).
  - Real hourly wage rate rose by 3.6 percent (yoy) as of April 2025.
  - Minimum wage increase in 2024: 4.3 percent in real terms.
  - Labor participation rate broadly returned to pre-pandemic levels.

### Inflation and external sector
- Inflation developments:
  - Headline inflation was close to the 3 percent target in May 2024, then rose temporarily, peaking at 4.8 percent in 2025Q1.
  - The 59 percent electricity price increase implemented between May 2024 and February 2025 contributed an estimated 1.3 percentage points to inflation at the peak.
  - Headline inflation eased to 4.1 percent in June 2025.
  - Core inflation declined to 3.8 percent (yoy) as of June 2025.
  - Two-year inflation expectations have been well anchored.
- Current account:
  - Current account deficit narrowed to 1.5 percent of GDP in 2024 (from 3.1 percent of GDP in 2023) and remained nearly unchanged in 2025Q1.
  - Copper price: resilient and in early July stood above its 2024 average; market analysts cite tight global supply, increasing sectoral demand from the green transition, and increased defense spending in advanced economies.

### Public finances and fiscal developments
- Fiscal outturns:
  - Headline fiscal deficit widened by 0.4 percentage points to 2.8 percent of GDP in 2024, nearly 1 percent of GDP higher than budgeted.
  - Revenue underperformance driven mainly by lower-than-expected lithium prices and shortfalls in corporate income tax (CIT) collection; partly attributed to multiple pandemic-era tax policy changes.
- 2025 fiscal planning:
  - Budget office in April lowered the revenue outlook for 2025 by 1.4 percentage points compared to the budget and by around 1.3 percentage points for the medium term.
  - Government raised the 2025 structural deficit target to 1.6 percent of GDP (about 0.5 percentage points higher than in the budget) and delayed reaching a broadly balanced position by one year to 2028.
  - The 2025 structural deficit target corresponded to a 1.4 percent of GDP headline deficit in the April Public Finance Report.
  - Authorities’ corrective measures include administrative savings estimated at 0.17 percent of GDP and legislative measures aimed to yield another 0.25 percent of GDP in 2025.
  - Staff projects a headline deficit of 2.1 percent of GDP in 2025 under conservative assumptions about corrective measures.
  - Over the medium term, additional efforts of about 1.5 percent of GDP would be needed to reach a broadly balanced position in 2028.
  - Revenues from the tax compliance law could largely fill this gap, conditional on yields materializing and no new spending initiatives.

### Pension reform
- A landmark pension reform approved in January 2025:
  - Employer contribution rate to increase by 7 percentage points (adding to the 10 percent employee contribution).
  - Allocation of the incremental 7 points:
    - 4.5 points to individual accounts to improve adequacy of self-financed pensions.
    - 2.5 points to the Social Security Fund: 1.0 point to address the gender life expectancy gap; 1.5 points to fund current pensions as a reimbursable contribution to individual accounts with interest.
  - Nonparametric changes to enhance competition of private pension funds and improve coverage for the self-employed and unemployed.
  - Minimum guaranteed pension (PGU) raised by 16.7 percent in nominal terms and indexed to inflation.
  - Authorities estimate annual fiscal costs of the reform to reach about 1 percent of GDP in the long term; these costs are incorporated in staff projections.
  - Staff notes potential long-term fiscal risks from broad PGU coverage and the lack of a link between retirement age and life expectancy.

### Financial sector and markets
- Banking sector:
  - Capital and liquidity buffers comfortably above regulatory requirements.
  - Profitability back to pre-pandemic levels.
  - Non-performing loan (NPL) ratios slightly above pre-pandemic levels but recently stabilized with adequate provisions and strong collateral coverage.
- Sectoral risks: smaller firms with government-guaranteed loans and construction and real estate sectors face persisting risks due to high housing prices and still-elevated mortgage rates.
- Credit growth: subdued, mainly due to weak demand.
- Financial markets: remained stable except for a brief dip in April (following a U.S. tariff announcement); peso-U.S. dollar exchange rate fluctuated around its February-March level since May; local stock market index surged to a record high.

### Outlook and risks
- Growth projections:
  - 2025: economy anticipated to expand by 2.3 percent.
  - 2026: economy anticipated to expand by 2.0 percent.
  - Private consumption expected to be the main growth driver in 2025-26; net exports’ contribution will narrow as imports rise and mining export growth moderates.
- Trade policy shocks and external risks:
  - The announced 10 percent U.S. tariff on Chile (announced tariffs) has limited direct macroeconomic impact given bilateral exports to the U.S. at 4.7 percent of GDP in 2024.
  - The announced 50 percent U.S. tariff on copper imports (to take effect August 1, 2025) is likely to have a limited impact on Chile’s copper exports due to the U.S.’s small share of global copper consumption and the relatively low price elasticity of copper demand; nevertheless, weaker global growth due to trade frictions could have a more substantial negative impact on Chile’s growth outlook starting in late 2025.
  - Staff estimates the impact of weaker global growth from trade frictions at around 0.3 percentage points over two years.
- Current account and inflation outlook:
  - Inflation could approach the 3 percent target in 2026Q1, following dissipation of year-over-year effects of the electricity tariff hike in February 2026.
  - Current account deficit forecast to moderately widen to 1.5-2 percent of GDP in 2025 before converging to around 3 percent of GDP in the medium term as mining export growth moderates.
- External risk indicators:
  - External downside risks have increased since FCL approval in August 2024; the External Economic Stress Index indicates increased external risks relative to the time of 2024 FCL approval.
- Contingent policy responses in adverse scenarios:
  - Floating exchange rate is considered the primary shock absorber.
  - Monetary and macroprudential policies could be eased as appropriate, depending on inflation and financial market conditions.
  - Authorities view proceeding with gradual structural fiscal adjustment as important to substantiate debt sustainability while allowing automatic stabilizers to operate.
  - Accelerating structural reforms and identifying medium-term fiscal consolidation measures would become more urgent if external downside risks materialize.

### Monetary policy stance
- Central Bank of Chile (BCCh) nominal policy rate has been kept at 5 percent since November 2023.
- Real policy rate (adjusted for expected inflation) is broadly within estimated neutral range of 0.5-1.5 percent.
- Guidance:
  - Future policy adjustments should be guided by their impact on the inflation outlook over the target horizon.
  - Real policy rate should remain broadly neutral; nominal rates could be cautiously lowered if inflationary pressures continue to ease.
- Main risks to inflation outlook: passthrough of peso exchange rate fluctuations driven by external factors (copper prices and U.S. interest rates) and potential sharp increases in oil prices due to geopolitical tensions.

### Flexible Credit Line (FCL) and qualification
- FCL details:
  - 24-month arrangement approved August 27, 2024.
  - Amount: SDR 10.4658 billion (600 percent of quota).
  - Treated as precautionary; authorities intend gradual exit conditional on external risk developments.
  - In a drawing scenario, the FCL would not be used for budget financing, consistent with Chile’s institutional framework.
- Staff assessment:
  - Chile continues to meet FCL qualification criteria specified under Decision No. 14283-(09/29), adopted March 24, 2009, as amended.
  - Staff recommends the Board complete the review to allow purchases, if needed, until the arrangement’s expiration on August 26, 2026.

*Source: EXECUTIVE SUMMARY.*

### 17.      Other important efforts are under way for a more dynamic and greener economy. To

### 1chlea2025003-source-pdf - 17.      Other important efforts are under way for a more dynamic and greener economy. To

### Economic diversification and greener growth
- Authorities aim to reduce permit approval times by one third, focusing on: sectoral permits and authorizations, environmental evaluations, maritime concessions, and modernization of cultural heritage legislation.
- Government intensified efforts to strengthen trade agreements, with negotiations under way with India and the UAE.
- Near-term quantitative targets set for emerging sectors where Chile could have comparative advantage: clean and competitive mining, lithium, renewable energies, green hydrogen, digital economy, and tourism.
- Further progress targeted through: enhancing R&D and increasing female labor participation via improved access to quality childcare.

### Fiscal projections and key fiscal figures (authorities and staff comparisons)
- Authorities (2024–2029, in percent of GDP unless indicated):
  - Structural fiscal balance: -3.3, -1.6, -1.4, -0.7, -0.2, 0.1
  - Headline fiscal balance: -2.8, -1.4, -1.2, -0.7, -0.3, -0.1
  - Total revenues: 21.6, 22.9, 22.9, 23.2, 23.5, 23.4
  - Non-mining tax revenues: 16.8, 17.1, 17.5, 17.9, 18.4, 18.5
  - Private mining tax revenues: 1.1, 1.8, 1.6, 1.4, 1.3, 1.2
  - Total expenditures: 24.4, 24.3, 24.1, 23.9, 23.8, 23.5
  - Public debt: 41.7, 42.3, 43.0, 42.5, 41.8, 40.0
  - Copper price (USD cents/lb): 415, 426, 428, 433, 437, 437
  - Real GDP (percent change): 2.6, 2.5, 2.3, 2.2, 2.0, 2.0
- Staff projections (2024–2029, in percent of GDP unless indicated):
  - Structural fiscal balance: -3.2, -2.4, -1.7, -1.2, -0.9, -0.9
  - Headline fiscal balance: -2.8, -2.1, -1.5, -1.2, -0.9, -0.9
  - Total revenues: 21.6, 22.6, 23.0, 23.1, 23.1, 23.0
  - Non-mining tax revenues: 16.4, 16.7, 17.2, 17.4, 17.5, 17.5
  - Private mining tax revenues: 1.1, 1.8, 1.7, 1.6, 1.5, 1.4
  - Total expenditures: 24.4, 24.7, 24.5, 24.3, 24.0, 23.9
  - Unspecified measures: 0.0, -0.2, -0.5, -0.9, -1.0
  - Public debt: 41.7, 42.5, 43.7, 44.1, 44.3, 44.5
  - Copper price (USD cents/lb): 415, 433, 437, 439, 440, 441
  - Real GDP (percent change): 2.6, 2.3, 2.0, 2.3, 2.3, 2.3
- Note: Authorities' projections include corrective actions. Sources: Informe de Finanzas Publicas April 2025, and IMF staff projections.

### Financial sector regulatory and supervisory reforms
- Basel III requirements implemented smoothly, improving banks’ solvency and liquidity.
- BCCh updated countercyclical capital buffer (CCyB) framework: neutral level set at one percent of risk-weighted assets with gradual, state-contingent implementation.
- BCCh stress tests in May 2025 confirm capacity to withstand a range of shocks.
- Financial Market Resilience Law measures under implementation to strengthen market resilience by:
  - Developing the interbank repo market.
  - Enabling BCCh to provide current/settlements accounts and liquidity facilities to nonbanks.
  - Allowing the Financial Market Commission (CMF) to strengthen liquidity regulations of mutual funds.
- Fintech Law enacted to bring fintech activities within regulatory perimeter.
- Ongoing initiatives: introduce industry-funded deposit insurance and bank resolution framework; upcoming regulations to enhance integrated risk management and corporate governance standards for banks.

### Qualification for Flexible Credit Line (FCL) — staff assessment
- Staff assesses Chile continues to meet all FCL qualification criteria; no substantive changes since the approval of the current arrangement in August 2024.
- Key qualification elements and indicators:
  - Sustainable external position: 2024 current account deficit narrowed to 1.5 percent of GDP (versus projected 2.3 percent of GDP); net international investment position at -17 percent of GDP at end-2024.
  - Capital account dominated by private flows: over 2022-24, private flows account for 77.0 percent of total asset flows and 91.2 percent of total liability flows.
  - Track record of sovereign access: central government issued external debt in each of past five years; cumulative amount equivalent to about 1,500 percent of quota.
  - Reserve metrics: gross international reserves averaged 82.8 percent of ARA between end-2021 and end-2024 and stood at 83 percent at end-June 2025 (about 14 percent of GDP).
  - Public debt: assessed sustainable with high probability; planned fiscal consolidation guided by structural fiscal balance rule would stabilize gross public debt just below authorities’ prudent debt ceiling of 45 percent of GDP.
  - Inflation: 2020-2024 inflation (yoy) averaged 6.1 percent.
  - Financial sector soundness: banks’ capital adequacy ratio stood at 16.7 percent in April 2025.
  - Data transparency: Chile is an SDDS Plus subscriber.

### External position, reserves, and international liquidity buffers
- Current account deficit: 1.5 percent of GDP in 2024 (narrower than projected 2.3 percent of GDP).
- Net international investment position: minus 17 percent of GDP at end-2024.
- External debt: 74.4 percent of GDP in 2024.
- Gross international reserves: averaged 82.8 percent of ARA (end-2021 to end-2024) and 83 percent at end-June 2025 (about 14 percent of GDP).
- Usable liquid FX assets: US$5.3 billion as of May 2025, including US$3.8 billion in FEES and US$1.5 billion cash.
- Short-term external debt composition: about one fifth represented by intercompany loans from foreign direct investors (US$9 billion as of 2025Q1).
- Banks’ short-term external debt: US$16.5 billion as of 2025Q1; banks’ liquid foreign assets: US$11.8 billion as of 2025Q4.
- FX liquidity lines complementing reserves: total US$8.05 billion (FLAR credit line US$1.25 billion; bilateral swap with PBOC US$6.8 billion). BCCh is a subscriber to Fed’s FIMA repo facility (US$26 billion).

### Public debt and fiscal institutions
- Two-thirds of public debt denominated in domestic currency; average external debt maturity above ten years.
- Cumulative fiscal measures of up to 1.5 percent of GDP will be needed to achieve the medium-term fiscal path unless tax compliance bill provides expected revenue increase.
- Liquidity risks mitigated by sovereign wealth and pension reserve fund assets, and large domestic banking and rising pension fund sectors.
- 2021 Fiscal Transparency Evaluation: Chile has strong fiscal institutions and sound fiscal transparency practices; Fiscal Responsibility Law implemented in 2024 strengthened monitoring role of Autonomous Fiscal Council.

### Monetary policy, inflation, and BCCh credibility
- Well-functioning inflation-targeting framework; inflation (yoy) averaged 6.1 percent during 2020-2024.
- Inflation spike April 2022–March 2023 explained by higher global inflation, shipping costs, peso depreciation, and a strong cyclical position.
- BCCh raised policy rate decisively in 2021-22; inflation declined close to 3-percent target by May 2024 before upward adjustment in electricity prices.
- Inflation expectations remain well-anchored; BCCh maintains a small negative equity in 2024 that does not compromise policy solvency or require immediate recapitalization.
- 2021 Transparency Review: BCCh has high standards of policy analysis, conduct, and independence.

### Financial stability and supervision
- Financial sector sound overall; banks’ capital adequacy and liquidity buffers comfortably above regulatory requirements.
- Stress tests confirm financial stability resilience; Basel III implementation strengthened buffers.
- Adoption of positive neutral CCyB will enhance resilience.
- 2021 FSAP assessed banking supervisory framework as robust; 2024 Article IV found no substantial concerns.
- CMF is capably staffed; granting CMF budgetary independence recommended to ensure adequate resources for expanding responsibilities (fintech, cybersecurity).
- Progress under way to implement 2021 FSAP recommendations.

### Staff appraisal and policy recommendations
- Conclusion: Chile continues to meet all qualification criteria for an FCL arrangement; staff recommends completion of the FCL review.
- Access level and exit strategy:
  - Authorities intend to maintain FCL access at 600 percent of quota as precautionary given higher external risks.
  - Authorities treat FCL as precautionary and committed to strengthening external buffers to enable gradual reduction of access when conditions permit.
- Recommended policy priorities to strengthen resilience and support the FCL exit strategy:
  - Rebuild and resume accumulation of international reserves.
  - Deepen capital markets in the context of implementing pension reform.
  - Finalize provision for central bank liquidity access by non-bank financial institutions.
  - Develop the repo market and advance the bank resolution framework.
  - Continue strengthening tax compliance and implement fiscal measures (up to 1.5 percent of GDP if needed) to meet medium-term fiscal path.

*Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1chlea2025003-source-pdf.pdf*

### Box 1. Chile: External Economic Stress Index

### Box 1. Chile: External Economic Stress Index

### EESI definition and composition
- The External Economic Stress Index (EESI) summarizes Chile’s exposure to external shocks.
- The EESI is based on four variables—standardized around their mean—which capture Chile’s external risks:
  - U.S. and China real GDP growth (to proxy for risks to exports),
  - change in the copper price (to proxy for risks to the copper industry including inward FDI),
  - the emerging market volatility index (VXEEM), and
  - the (detrended) 10-year U.S. Treasury yield (to proxy for changes to global financial conditions).
- Lower values indicate higher stress.
- Chile’s EESI is computed using the following unchanged weights:
  - output growth in the U.S. and China (0.15);
  - copper price change (0.35);
  - the VXEEM index (0.25);
  - U.S. long-term yield (0.25).
- The U.S. long-term yield is detrended. The choice of the weights draws on the balance of payments and international investment position data, expressed as a share of GDP, and normalized.

### Recent developments (timing and drivers)
- External stress, as measured by the EESI, increased in the second half of 2024 and the first half of 2025.
- External stress is higher than that envisaged at the time of the 2024 FCL request, driven by:
  - increased emerging market volatility and,
  - to a lesser degree, a smaller-than-expected copper price increase.
- In the first half of 2025:
  - the rise in U.S. yields kept stress above average, despite a copper price rally,
  - emerging market volatility increased further following the April tariffs announcement.
- Since April 9th, the VXEEM index has decreased but, as of June 2025, remains elevated.

### Baseline scenario projection
- Under the baseline scenario, external stress is expected to gradually fall to around historical average levels.
- The baseline scenario broadly follows the April 2025 WEO “reference” scenario.
- Projections for the remainder of 2025 and beyond:
  - External stress is projected to remain elevated but decrease during the rest of 2025, reflecting a projected decline in U.S. yields.
  - From 2026Q1 onward, external stress is expected to stabilize around historic average levels due to the scenario’s stable outlook for copper prices, growth in China and the U.S., and financial conditions.
- Caveat: This trajectory could be highly sensitive to fluctuations in copper prices, U.S. yields and the VXEMM index, as observed in April.

### Adverse scenario (assumptions and implications)
- An adverse scenario shows that Chile continues to face elevated external risks; it aligns with the downside scenario from the April 2025 WEO.
- The adverse scenario assumptions:
  - (i) a decline of 1.6 percentage points in 2025 and 2026 of the average of U.S. and China growth relative to the baseline (in annual terms);
  - (ii) a 15 percent decline in the copper price relative to the baseline;
  - (iii) a two standard deviation increase in the VXEEM index relative to the baseline; and
  - (iv) an increase in U.S. yields by 0.05 percentage points in 2025 and a decrease by 0.2 percentage points in 2026 relative to the baseline (in annual terms).
- Assumptions (i) and (iv) are in line with the April 2025 WEO downside scenarios on increased global divergence, a trade war, an increase in global uncertainty, and tighter global financial conditions.
- Assumptions (ii) and (iii) are identical to the adverse scenario at the 2024 FCL request.
- The text chart suggests that Chile faces external risks above the level observed at the time of the 2024 FCL request.

*Source: Box 1. Chile: External Economic Stress Index (from the provided IMF content).*

### Annex I. External Debt Sustainability Analysis

### Annex I. External Debt Sustainability Analysis

### External debt and projections
- External debt increased to 74.4 percent of GDP in 2024, mainly due to the depreciation of the peso.
- Over 2025-26, external debt is expected to decrease somewhat to 73 percent of GDP driven by a narrowing current account deficit, when excluding interest payments.
- Over the medium term, external debt is projected to decrease to around 70 percent of GDP.
- Despite sensitivity to the exchange rate, external debt remains sustainable under a wide range of shocks.

### Sectoral composition and vulnerabilities
- The non-financial corporate sector appears highly leveraged, but a large share of its debt is FDI-related (i.e., intercompany loans) and has foreign exchange hedging or a long maturity.

*Italic: Source: Fund staff.*

### Annex II. Sovereign Risk and Public Debt Sustainability Analysis

### Overall assessment and medium-term outlook
- Final assessment: Sustainable with high probability.
- Debt stabilization in the baseline: Yes.
- Medium-term risks: Low, reflecting the strength of the fiscal framework in guiding fiscal policy and rebuilding buffers.
- Overall long-run risk indicator: Low.

### Key commentary and assumptions
- Public sector debt is assessed to be sustainable under a wide range of plausible shock scenarios and with high probability, with low medium-term sovereign and financing risks.
- Medium-term structural fiscal consolidation plans, guided by the structural fiscal balance rule and the prudent debt ceiling, are fully consistent with fiscal sustainability.
- The authorities are considering implementing ambitious reforms (corrective actions) in the medium term which are not included in the baseline.
- Under the baseline, debt stabilizes at below 45 percent of GDP, reflecting a primary balance broadly in line with the debt-stabilizing one under the government's medium-term fiscal commitment.
- Aging-related expenditure linked to health and pension are expected to be largely paired to higher revenues, with costs related to solidarity pensions potentially doubling by 2050.
- Copper production and revenues are not expected to fall dramatically over the next decades compared to its 2023 level, which was low by historical standards.

*Italic: Source: Fund staff.*

### Debt Coverage, Public Debt Structure, and Disclosures

### Coverage and consolidation
- Chosen coverage: Central government (CG) per table labels.
- Subsector inclusion (baseline): Budgetary central government: Yes; Extra budgetary funds (EBFs): No; Social security funds (SSFs): No; State governments: No; Local governments: No; Public nonfinancial corporations: No; Central bank: No; Other public financial corporations: No.
- Commentary: The authorities continually manage state-contingent debts, which are clearly detailed in a published annual report. The provision of credit guarantees (FOGAPE and CAE) is only expected to result in modest fiscal costs in the medium term.

### Public debt structure highlights (central government perimeter)
- Residual maturity of debt: 11.6 years.
- Commentary: Chile has a well-diversified investor base with a large presence of domestic creditors. The share of foreign currency debt increased in 2021 due to the pension withdrawals but is still relatively small and expected to return to historical levels. Most debt is traded on secondary markets.

*Italic: Source: Fund staff.*

### Baseline Fiscal and Debt Projections (Table 4)

### Public debt path (percent of GDP)
- Actual 2024: Public debt 41.7
- 2025: 42.5
- 2026: 43.7
- 2027: 44.1
- 2028: 44.3
- 2029: 44.5
- 2030: 44.5
- 2031: 44.3
- 2032: 44.1
- 2033: 44.0
- 2034: 43.9

### Change in public debt (percent of GDP)
- 2024: 2.2
- 2025: 0.8
- 2026: 1.2
- 2027: 0.4
- 2028: 0.2
- 2029: 0.2
- 2030: 0.0
- 2031: -0.2
- 2032: -0.2
- 2033: -0.2
- 2034: -0.1

### Contributions and fiscal flows (percent of GDP)
- Contribution of identified flows (2025): 0.4; (2026): 0.9; (2027): 0.1; (2028): -0.3; (2029): -0.2; (2030): -0.4; (2031): -0.4; (2032): -0.4; (2033): -0.4.
- Primary deficit: 2024: 2.1; 2025: 1.3; 2026: 0.6; 2027: 0.2; 2028: -0.1; 2029: -0.1; 2030: -0.2; 2031: -0.6; 2032: -0.6; 2033: -0.6; 2034: -0.6.
- Noninterest revenues (percent of GDP): 2024: 21.2; 2025: 22.1; 2026: 22.5; 2027: 22.7; 2028: 22.7; 2029: 22.6; 2030: 22.5; 2031: 22.7; 2032: 22.8; 2033: 22.9; 2034: 22.8.
- Noninterest expenditures (percent of GDP): 2024: 23.2; 2025: 23.4; 2026: 23.2; 2027: 22.9; 2028: 22.6; 2029: 22.5; 2030: 22.5; 2031: 22.2; 2032: 22.2; 2033: 22.2; 2034: 22.2.

### Automatic debt dynamics and financing needs
- Automatic debt dynamics: 2024: -1.0; 2025: -1.1; 2026: -0.7; 2027: -0.7; 2028: -0.6; 2029: -0.6; 2030: -0.6; 2031: -0.7; 2032: -0.7; 2033: -0.7.
- Real interest rate and relative inflation: 2024: -0.9; 2025: -0.2; 2026: 0.2; 2027: 0.3; 2028: 0.4; 2029: 0.4; 2030: 0.4; 2031: 0.3; 2032: 0.3; 2033: 0.3.
- Gross financing needs (GFN): 2024: 9.1; 2025: 3.5; 2026: 3.8; 2027: 3.7; 2028: 4.5; 2029: 4.5; 2030: 5.1; 2031: 2.5; 2032: 2.2; 2033: 4.1; 2034: 2.9.
- Debt service (of which): 2024: 7.4; 2025: 2.7; 2026: 3.6; 2027: 3.9; 2028: 5.0; 2029: 5.1; 2030: 5.6; 2031: 3.4; 2032: 3.2; 2033: 5.0; 2034: 3.9.
- GFN by currency (local/foreign): Local currency (2024): 6.6; (2025): 1.2; (2026): 1.2; (2027): 2.1; (2028): 1.7; (2029): 2.8; (2030): 2.4; (2031): 1.4; (2032): 1.4; (2033): 2.5; (2034): 2.0. Foreign currency (2024): 0.5; 2025: 1.2; 2026: 1.1; 2027: 1.3; 2028: 1.1; 2029: 1.5; 2030: 1.0; 2031: 1.4; 2032: 1.3; 2033: 1.1; 2034: 1.4.

### Macro memo items (selected)
- Real GDP growth (percent): 2024: 2.6; 2025: 2.3; 2026: 2.0; 2027: 2.3; 2028: 2.3; 2029: 2.3; 2030: 2.2; 2031: 2.3; 2032: 2.3; 2033: 2.3.
- Inflation (GDP deflator; percent): 2024: 7.7; 2025: 4.4; 2026: 3.2; 2027: 3.0; 2028: 2.7; 2029: 2.7; 2030: 2.7; 2031: 3.0; 2032: 3.0; 2033: 3.0.
- Nominal GDP growth (percent): 2024: 10.6; 2025: 6.7; 2026: 5.3; 2027: 5.3; 2028: 5.1; 2029: 5.0; 2030: 5.0; 2031: 5.4; 2032: 5.4; 2033: 5.4.
- Effective interest rate (percent): 2024: 3.4; 2025: 3.3; 2026: 3.3; 2027: 3.3; 2028: 3.4; 2029: 3.3; 2030: 3.3; 2031: 3.3; 2032: 3.3; 2033: 3.4.

### Baseline commentary
- Public debt is expected to stabilize below 45 percent of GDP under the assumption that the government adheres to its medium-term target of a broadly balanced fiscal position.

*Italic: Source: Fund staff.*

### Realism of Baseline Assumptions

### Forecast track record and realism checks
- Commentary: The realism analysis does not point to major concerns, and the forecast track record does not reveal any systematic bias. The projected fiscal consolidation is reasonable, when considering Chile’s history and other country experiences.
- The residual contribution to the projected debt ratio comes from "other flows," including below-the-line operations like SOE recapitalization and payments on government-guaranteed student loans.

*Italic: Source: IMF Staff.*

### Medium-Term Risk Analysis (Table 6)

### Key indices and metrics
- Debt fanchart width (percent of GDP): 33.8
- Probability of debt non-stabilization (percent): 28.8
- Terminal debt-to-GDP x institutions index: 16.9
- Debt fanchart index (DFI): 1.1 — Risk signal: Low
- Average baseline GFN (percent of GDP): 4.2
- Initial banks' claims on the general government (pct bank assets): 7.4
- Change in banks' claims in stress (pct bank assets): 2.0
- GFN financeability index (GFI): 4.5 — Risk signal: Low

### Final medium-term assessment
- Medium-term index: Low risk.
- Final assessment commentary: The debt fanchart and gross financing needs modules point to a low level of risk, underpinned by the government's commitment of keeping debt below a prudent ceiling of 45 percent of GDP, moderate gross financing needs, and the ability of the banking sector to act as a residual creditor under a stress scenario.
- The medium-term risk analysis also points to a low level of risk under a stress scenario of a natural disaster shock in the magnitude of 4.5 percent of GDP and a commodity price shock.
- Conditional note: Under broadly unchanged fiscal policies, i.e. an overall deficit of 2 percent of GDP, the debt-to-GDP ratio is projected to exceed 45 percent in 2026.

### Probabilities (2025-2030)
- Prob. of missed crisis, 2025-2030, if stress not predicted: 9.1 pct.
- Prob. of false alarms, 2025-2030, if stress predicted: 62.5 pct.

*Italic: Source: IMF staff estimates and projections.*

### Long-Term Risk Analysis: Triggered Modules and Scenarios

### Long-run amortization and overall risk
- Commentary: The long-run amortization module does not trigger an overall risk indication. The overall long-run risk indicator is low.
- Under the baseline, debt stabilizes at around 40 percent of GDP in 2050, reflecting the government's commitment to a broadly balanced fiscal balance over the medium term.
- If historical 10-year averages are used, debt could rise from around 42 percent to almost 100 percent of GDP by 2050. This simulation may not be representative as it reflects historically elevated gross financing needs, including the impact of the COVID-19 pandemic.

### Demographics, pensions, and long-term fiscal costs (Table 8)
- Pension financing needs:
  - Increase from about 2.4 percent of GDP (current) to 4.8 percent of GDP between 2025 and 2054 under demographic dynamics in one scenario.
  - If available financing through general taxes for solidarity pensions remains at around 2.4 percent of GDP throughout the forecast period, this would imply an increase in debt to about 70 percent of GDP by 2050 (about 30 pp of GDP higher than in the baseline).
  - Authorities project fiscal costs of solidarity pensions to increase to around 4.5 percent of GDP in 30 years if pensions are adjusted in real terms in line with real wage growth.
  - If the value of solidarity pensions is kept constant in real terms (as foreseen by law), projected cost: around 3.2 percent of GDP in 30 years.

### Health costs and excess cost growth (Table 9)
- Commentary: Higher health costs due to demographic dynamics as well as excess cost growth of health (difference between health prices and aggregate CPI) would increase debt to about 70 percent of GDP by 2050.

### Natural resources / copper revenue sensitivity
- Assumptions: Copper production assumed to increase on average 1 percent annually between 2025-2035 and an annual production of 5 million tonnes assumed thereafter.
- Copper revenues were around 1.4 percent of GDP in 2024.
- Copper prices assumed to grow in line with US inflation at 2 percent after 2029, lower than Chile's GDP nominal growth.
- Taking changes in copper revenues into account, debt would be about 60 percent of GDP by 2050, and the GFN-to-GDP ratio would be about 3 percentage points of GDP higher than under the baseline by 2050.

*Italic: Source: Fund staff.*

### Supplementary Information (Post-report update)

- Economic activity in the first half of the year was slightly stronger than expected, while the labor market remained sluggish.
- Real GDP growth for the first quarter was revised upward by 0.2 percentage points (y-o-y).
- The economy grew by 3.1 percent in the second quarter (y-o-y), marginally above staff projections.
- The main driver in 2025Q2 was a strong performance of the mining sector.

*Italic: Source: IMF staff.*

### 4.0 percent (y-o-y). Non-mining sectors expanded by 3.0 percent, reflecting in part

### Chile — IMF Staff Report Excerpts (August 2025)

### Macroeconomic performance and labor market
- Real GDP growth:
  - GDP grew 3.1 percent in 2025Q2; 2025Q1 was revised up to 2.5 percent.
  - Real GDP (percent change) projections: 2024 2.6; 2025 2.5; 2026 2.3; 2027 2.2; 2028 2.2; 2029 2.2.
  - Year-on-year growth noted as 4.0 percent (y-o-y) in the source passage for a referenced period.
- Sectoral performance:
  - Non-mining sectors expanded by 3.0 percent (reference to y-o-y growth).
  - Investment: gross fixed capital formation increased in 2025Q2 by 5.6 percent (y-o-y).
- External balance:
  - Four-quarter moving average current account deficit edged up to 2.2 percent of GDP in 2025Q2.
  - Current account deficit remained at 2.2 percent of GDP (authorities' statement).
  - Short-term external debt-to-GDP ratio: 19 percent.
- Labor market:
  - Unemployment rate (seasonally adjusted) held steady at 8.9 percent in June (three-month moving average).
  - Female labor force participation rate reached 53 percent.
  - Employment quality improved due to a decrease in informal employment.

### External sector, copper exports, and reserves program
- U.S. tariffs and trade:
  - Most of Chile’s copper exports to the U.S. are exempted from the 50 percent tariffs announced on July 30.
  - The exemptions (232 tariffs and reciprocal tariffs) apply to refined copper, which make up the vast majority of Chile’s copper exports to the United States.
  - Non-copper exports from Chile to the U.S. remain subject to a 10 percent tariff.
  - Copper prices in the first half of August declined marginally relative to July but were still about 5 percent above the 2024 average.
- Central Bank of Chile (BCCh) reserve accumulation program:
  - Program start date: August 8.
  - Under the three-year program, the BCCh will purchase up to US$25 million per day in foreign reserves and accumulate up to a total of US$18.5 billion.
  - The BCCh will review the program every six months or when there are relevant changes in market conditions.
  - As of August 20, the BCCh accumulated US$180 million in international reserves.
  - Reserve purchases will be sterilized through the issuance of central bank securities to avoid any effect on liquidity.
  - The program is described as aiming to gradually replace part of existing foreign currency credit lines with own international reserves, limit impact on the exchange rate, and provide flexibility to deal with unforeseen developments.

### Monetary policy and inflation outlook
- Policy rate:
  - On July 29, the BCCh cut its policy rate by 25 basis points to 4.75 percent.
  - The BCCh communicated that future policy rate cuts would consider the evolution of the macroeconomic scenario and its implications on inflation.
  - The BCCh reaffirmed its commitment to conduct monetary policy with flexibility so that projected inflation stands at the targeted 3 percent over the two-year horizon.
- Inflation developments and expectations:
  - Headline inflation: 4.3 percent (yoy) in July; 4.1 percent in June.
  - Core inflation: 4.0 percent in July.
  - The July headline inflation increase largely reflects a rebound following a 0.4 percent month-on-month CPI decline in June.
  - Staff projects that inflation will converge to the 3-percent target in early 2026 after the effects of the electricity price hike dissipate.
  - Based on financial instrument prices and surveys, headline inflation is expected to decline to 3.8 percent by year-end.
  - Two-year inflation expectations remain anchored at 3 percent.

### Fiscal outlook and public finances
- Authorities’ revised fiscal projections (Public Finance Report, July 2025):
  - Structural fiscal balance: 2024 -3.3; 2025 -1.8; 2026 -1.6; 2027 -1.0; 2028 -0.5; 2029 -0.2 (in percent of GDP).
  - Headline fiscal balance: 2024 -2.8; 2025 -1.5; 2026 -1.3; 2027 -0.8; 2028 -0.4; 2029 -0.2.
  - Total revenues: 2024 21.6; 2025 22.8; 2026 22.9; 2027 23.4; 2028 23.7; 2029 23.7 (in percent of GDP).
  - Non-mining tax revenues: 2024 16.8; 2025 17.2; 2026 17.6; 2027 18.2; 2028 18.7; 2029 18.8 (in percent of GDP).
  - Private mining tax revenues: 2024 1.1; 2025 1.6; 2026 1.6; 2027 1.5; 2028 1.3; 2029 1.2 (in percent of GDP).
  - Total expenditures: 2024 24.4; 2025 24.3; 2026 24.2; 2027 24.2; 2028 24.1; 2029 23.9 (in percent of GDP).
  - Public debt: 2024 41.7; 2025 42.2; 2026 43.0; 2027 43.0; 2028 42.3; 2029 41.6 (in percent of GDP).
  - Copper price (USD cents/lb): 2024 415; 2025 428; 2026 430; 2027 435; 2028 439; 2029 439.
- Revisions and drivers:
  - The July PFR foresees structural and headline deficits in 2025 to reach 1.8 percent of GDP and 1.5 percent of GDP, respectively, which is 0.2 pps and 0.1 pps higher than in the April PFR.
  - Revisions reflect weaker mining revenue projections, mostly due to changes in the authorities’ projected exchange rate, and stronger non-mining tax collection which partially offsets the downward revision of the former.
  - Expenditure ratios remain broadly unchanged.
  - Over the medium term, authorities revised marginally upwards their outlook for the fiscal deficit relative to the previous PFR, expecting the headline deficit to narrow by 0.1 pps less in 2026-29.
  - Authorities project effective revenues to grow by 8.4 percent compared to 2024, reflecting greater dynamism of the economy and reforms such as the Mining Royalty and the Tax Compliance Law.
  - Central government spending, considering corrective actions, is projected to grow 2.2 percent.

### Financial sector resilience and macroprudential stance
- Banking sector:
  - Solvency indicators improved in line with convergence to Basel III standards.
  - Banks have built up sufficient provisions and collateral and exhibit sufficient liquidity buffers.
  - Stress test exercises indicate banks are well prepared to withstand severe adverse scenarios.
  - Robust banking regulation and supervision aligned with international standards.
- Macroprudential tools and buffers:
  - Countercyclical Capital Buffer (CCyB) activated in May 2023 and maintained at 0.5 percent of risk-weighted assets.
  - Authorities emphasize pre-established capital buffers that can be released in severely stressed financial events.
  - Resilience Law introduced new powers; coordination instances exist between regulators and supervisors.
- Pension reform:
  - Approved pension reform will gradually increase the employer contribution rate and, in the medium term, is expected to increase assets under management of pension funds (currently about 60 percent of GDP) back to pre-pandemic levels, strengthening capital market depth.

### Assessment, risks, and policy implications
- FCL and precautionary stance:
  - The authorities confirm continued qualification for the Flexible Credit Line (FCL) and intend to treat the FCL as a precautionary facility.
  - The FCL is viewed as valuable against tail risks and has boosted market confidence.
  - In a drawing scenario, FCL resources would not be used for budget financing, consistent with institutional framework.
- Risks and external environment:
  - External macroeconomic environment is considerably more uncertain due to U.S. trade actions and tariff agreements.
  - Chile’s external economic stress index is now higher than when the 2024 FCL was approved, reflecting greater vulnerability to external shocks.
  - Episodes such as April spikes in U.S. long-term yields and EM volatility underscore elevated external risks.
- Policy implications highlighted:
  - Precautionary financial buffers are crucial complements to strengthen resilience and justify continued access to the FCL.
  - The BCCh’s reserve accumulation program is part of a gradual exit strategy from the FCL and aims to adjust composition of external liquidity buffers — international reserves and credit lines — while prioritizing transparent standards and minimizing market disruptions.
  - The CBC will consider external developments when adjusting policy rate to ensure inflation convergence to 3 percent over the two-year horizon.
  - Authorities remain committed to fiscal responsibility and debt sustainability; staff analysis concludes debt is sustainable with high probability.

*Prepared by the Chile Team of the Western Hemisphere Department, August 20, 2025.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1chlea2025003-source-pdf.pdf_