## 1. Alternative Growth Scenarios ## Source details **Canonical URL:** [1. Alternative Growth Scenarios](https://www.imf.org/-/media/files/publications/cr/2026/english/1chlea2026001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2026/english/1chlea2026001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2026/english/1chlea2026001.pdf.json) --- ### Context and recent developments - Growth and activity: - Real GDP growth: 2.5 percent in 2025 (down from 2.8 percent in 2024). - Non-mining growth: 3 percent in 2025. - Real GDP contracted by 0.5 percent (y/y) in 2026Q1. - Investment grew 8.9 percent in 2025, supported by mining and renewable energy projects. - Mining output (about 13 percent of the economy) fell 1.3 percent in 2025 due to an accident in July 2025. - Labor market: - Seasonally adjusted unemployment rate: around 8.6 percent since 2023 (2015-19 average around 7 percent). - Real year-on-year hourly wages: increased by 2.8 percent in 2025; decelerated to 2.3 percent in 2026Q1. - Inflation and monetary policy: - Headline year-on-year inflation: 2.4 percent in February 2026; picked up to 3.9 percent in May 2026. - Core inflation: 3.2 percent (May 2026). - Central Bank policy rate: unchanged at 4.5 percent at last four meetings. - Fiscal and external positions: - Headline fiscal deficit: 2.8 percent of GDP in 2025 (broadly similar to 2024), 1.8 percentage points higher than budgeted. - Staff estimates structural deficit in 2025 at 3.3 percent of GDP. - End-2025 central government debt: 41.5 percent of GDP. - Liquid treasury assets: 0.01 percent of GDP. - Copper prices: rose on average by about 9 percent in 2025 relative to 2024; around 30 percent in 2026Q1 relative to the 2025 average. - Peso appreciation: 8 percent in 2025; strongest level in February 2026. - Current account deficit: 1.2 percent of GDP in 2025 (same as in 2024). - Goods trade surpluses: reached 6.8 percent of GDP in April and May 2026. - Administration priorities since March: - Raise growth to 4 percent over the medium-term, mainly by cutting red tape and reducing corporate income taxes (CIT). - Restore structural fiscal balance via across-the-board expenditure rationalization. - Submitted a National Reconstruction Plan (NRP) comprising revenue, expenditure, and structural reform measures. ### Impact of the Middle East conflict and financial conditions - External developments since escalation in February: - Brent oil prices and U.S. long-term interest rates have risen. - Global growth outlook for 2026-27 weakened. - Peso depreciated by about 6 percent in March 2026 (recovered somewhat in April but weaker than February average). - Financial conditions: - Tightened since the onset of the war, reversing easing from H2 2025. - Chilean stock market fluctuated with softer portfolio inflows. - Bank credit recovery tentative; weak credit demand and valuation effects on foreign-currency loans. - Issuance of non-financial corporate bonds increased in recent quarters as corporate bond yields declined. - Construction and real estate remained weak; mortgage subsidy program and lower lending rates supported housing sales and mortgage demand. ### Outlook and risks - Baseline projections and assumptions: - Real GDP: 1.8 percent in 2026 and 2.6 percent in 2027. - Current account deficit: projected to widen slightly in 2026, before widening toward 2 percent of GDP over the medium term as copper prices retreat. - Oil price path: gradual decline to around US$85/bbl in 2026Q4 and to around US$75/bbl in 2027Q4. - Copper production: contract by 2 percent in 2026, rebound by 4 percent in 2027. - Structural shift in copper prices to close to US$5 per pound (below the 2026Q1 peak of about US$6). - Pending finalization of NRP, staff projects a broadly neutral fiscal impulse in 2026 and a structural consolidation in 2027 through expenditure containment and revenue recovery. - External risks: - Tilted to the downside in the near term and balanced over the medium term. - Severe scenario: oil prices stay above US$130/bbl in 2026H2 and 2027 → inflation could rise above 5 percent in late 2026 and stay above that level through the first half of 2027, requiring significant monetary tightening. - Upside risk: persistently high copper prices from structurally higher demand (energy transition, AI-related infrastructure, defense spending). - Domestic risks and policy implication: - Government agenda (cutting red tape, lowering labor costs, reducing CIT rates) could support medium-term growth. - Scenario with sustained high copper prices and investment-enhancing reforms could result in growth reaching around 3 percent during 2027-30. - Sharp across-the-board public spending cuts to offset tax reductions risk limiting productivity-enhancing spending (e.g., childcare). - Social discontent amid high inequality remains a risk. - Climate events (possible “super El Niño”) could adversely affect agriculture, fishing, forestry, mining and raise food prices regionally. - Policy implication: rebuilding reserve and fiscal buffers essential to preserve policy space and mitigate shocks; if severe adverse shocks materialize, policies should focus on temporary and targeted support to vulnerable groups while letting automatic stabilizers operate. ### Box 1 — Alternative Growth Scenarios (upside and downside) - Upside scenario assumptions and estimated effects: - Copper prices: assumes around the US$6 per pound range over 2026-30, about 30 percent above the 2025 average. - Spillovers: about 0.5 percentage point annually in 2026-27 relative to the baseline, fading gradually thereafter. - Regulatory reform acceleration: baseline already assumes 0.1 percentage point gain from law to streamline sectoral permits; faster implementation and additional streamlining (environmental permits and construction) assumed to boost annual growth by an additional 0.1 percentage point relative to the baseline starting in 2027. - CIT rate cut: planned cut from 27 to 23 percent estimated via Hall-Jorgensen user-cost approach to increase growth by 0.15-0.2 percentage point over a decade starting in 2027. - Employment tax credit and full integration of CIT payment: assumed to raise growth by 0.1 percentage point relative to the baseline starting in 2027. - Downside scenario assumptions and estimated effects: - Prolonged conflict: assumes oil prices elevated at around US$130/bbl through 2026 and 2027 (about 100 percent higher than in the pre-war baseline). - Estimated impact: growth in 2026 and 2027 would be 1.1 and 1 percentage points lower, respectively, relative to the baseline. - Risk of smaller-than-expected deregulation impact: delay or weak investment response could remove the baseline 0.1 percentage point growth gain. ### Authorities’ views and fiscal policy direction - Fiscal targets and adjustments: - Administration targeting sustained improvement in the structural deficit through 2030 while maintaining the debt ceiling of 45 percent of GDP. - 2026 budget: previous government projected headline deficit of 1.5 percent of GDP; current administration revised to 2.4 percent of GDP in May Public Finance Report (PFR). - Staff projection: headline deficit of 2.5 percent of GDP in 2026. - Fiscal Policy Decree announced frontloaded reduction in the structural deficit—from 2.6 percent of GDP in 2026 to 1.8 percent in 2027, easing gradually thereafter to 1.5 percent by 2030. - Authorities envision expenditure cuts of around 0.4 percent of GDP in 2026, with further savings over the medium-term. - 2026 permanent measures incorporated in staff’s baseline: - Curbing misreporting of public sector medical leave. - Reducing hiring. - Rationalizing public investment. - Tightening control over goods and services. - Measures to permanently reduce below-the-line items by about 0.1 percent of GDP. - Authorities’ additional medium-term measures: - Improve targeting of social spending via cross-validation of beneficiary registries. - Strengthen medium-term financial planning framework. - Modernize state-owned enterprise and public asset management. - Further NRP savings: early retirement incentives, lower replacement of retirees, education-sector reforms. - Fuel stabilization fiscal note: - MEPCO adjustment estimated fiscal cost containment at about US$1.2 billion (0.3 percent of GDP) as of early May 2026. - Targeted mitigation measures adopted: support to selected sectors, paraffin subsidies targeted to low-income households, public transport fare freezes, partially offset by lower tax credit on the specific diesel tax. ### Revenue projection revisions and drivers (TCL and non-mining tax revenue) - Authorities revised Tax Compliance Law (TCL) yield estimates from "1.5 percent of GDP" to "0.5 percent cumulatively over the medium term". - Revision in TCL measures is main driver of downward revision in non-mining tax revenue projections. - Revision complements efforts to improve revenue forecasting, including ex post monitoring of TCL revenue yields. - Note: NRP tax measures not included in staff’s baseline would imply further revenue losses. ### Fiscal projection comparisons — key figures (authorities vs. staff) - Authorities' key projections (percent of GDP unless stated): - Targeted structural fiscal balance 1/: 2025 -2.6; 2026 -1.8; 2027 -1.7; 2028 -1.6; 2029 -1.5. - Estimated structural fiscal balance 2/: 2025 -3.7; 2026 -3.7; 2027 -2.6; 2028 -2.5; 2029 -2.2; 2030 -1.8. - Headline fiscal balance: 2025 -2.8; 2026 -2.4; 2027 -1.7; 2028 -1.8; 2029 -1.8; 2030 -1.4. - Total revenues 3/: 2025 21.6; 2026 21.7; 2027 22.1; 2028 22.1; 2029 22.0; 2030 22.0. - Non-mining tax revenues: 2025 16.4; 2026 15.8; 2027 16.3; 2028 16.7; 2029 16.8; 2030 17.0. - Private mining tax revenues: 2025 1.6; 2026 1.9; 2027 1.9; 2028 1.7; 2029 1.5; 2030 1.4. - Total expenditures 3/: 2025 24.4; 2026 24.1; 2027 23.8; 2028 23.9; 2029 23.8; 2030 23.5. - Public debt: 2025 41.5; 2026 43.1; 2027 44.4; 2028 45.4; 2029 46.3; 2030 46.5. - Copper Price (USD cents per pound): 2025 451; 2026 546; 2027 506; 2028 504; 2029 504; 2030 504. - Real GDP (annual percentage change): 2025 2.5; 2026 2.1; 2027 2.2; 2028 2.2; 2029 2.2; 2030 2.3. - Staff projections (percent of GDP unless stated): - Structural fiscal balance 4/: 2025 -3.3; 2026 -3.1; 2027 -2.4; 2028 -2.0; 2029 -2.0; 2030 -1.8. - Headline fiscal balance: 2025 -2.8; 2026 -2.5; 2027 -2.0; 2028 -2.0; 2029 -2.0; 2030 -1.8. - Total revenues: 2025 21.4; 2026 21.7; 2027 21.9; 2028 21.9; 2029 21.9; 2030 21.9. - Non-mining tax revenues: 2025 16.3; 2026 15.8; 2027 16.3; 2028 16.5; 2029 16.6; 2030 16.6. - Private mining tax revenues: 2025 1.6; 2026 1.9; 2027 1.8; 2028 1.7; 2029 1.6; 2030 1.6. - Total expenditures: 2025 24.2; 2026 24.2; 2027 23.9; 2028 23.9; 2029 23.9; 2030 23.8. - Unspecified measures: 2025 0.0; 2026 -0.4; 2027 -0.6; 2028 -0.8; 2029 -1.0. - Public debt: 2025 41.5; 2026 43.2; 2027 45.0; 2028 46.2; 2029 47.4; 2030 48.4. - Copper Price (USD cents per pound): 2025 451; 2026 563; 2027 489; 2028 487; 2029 485; 2030 485. - Real GDP (annual percentage change): 2025 2.5; 2026 1.8; 2027 2.6; 2028 2.3; 2029 2.3; 2030 2.3. - Notes: - 1/ Targeted structural fiscal balance includes methodological updates and impact of the NRP and revised GDP growth assumptions, which are not included in staff's baseline or the May PFR. - 2/ As reported in the May PFR. - 3/ The authorities' revenue and expenditure ratios in 2025 include the Fonasa digital voucher for comparability with the PFR. - 4/ Staff's higher structural copper price for 2025 relative to authorities explains the gap for the structural fiscal balance. ### Fiscal consolidation needs, risks, and options - Consolidation needs and risks: - Additional measures of around "0.5 percent of GDP" required to reach the government’s 2030 structural deficit target of "1.5 percent of GDP" (beyond the currently unidentified measures in the baseline of "1 percentage point"). - If the NRP is approved, additional consolidation likely because authorities estimate total costs of "0.3 percent of GDP by 2030". - Windfall revenues from elevated copper prices should not finance permanent tax cuts or spending commitments. - Policy recommendations and options: - Tax policy design under the NRP: - Reconfigure planned gradual CIT reduction to align with OECD average by combining moderate CIT cuts with provisions for accelerated depreciation, particularly in the non-mining sector. - Consider narrowing the tax employment credit to directly target new employment creation. - Reconsider measures not directly contributing to growth and employment objectives (e.g., housing-sector VAT and property tax exemptions). - Ensure estimates of growth-enhancing dividends from reforms are realistic as they affect revenue projections. - Fiscal framework refinements: - Reconsider formulation of committed expenditure in the medium-term fiscal path; operationalize corrective actions following target deviations; refine estimation of structural parameters; treat revisions to national accounts consistently. - Continue IMF technical assistance on budget classification, below-the-line operations, and tax gap estimates and administration capacity. - Additional consolidation options (Box 2 highlights): - Expert committees estimated medium-term expenditure containment and efficiency savings between "1 to 1.7 percent of GDP". - Parametric reform of the PGU: reducing coverage from "bottom 90 percent of the income distribution to 60 percent" could lower annual costs over the medium term by "0.8 percent of GDP". - Enhancing PIT revenue collection: raising the PIT-to-GDP ratio by "0.4 percent" would be feasible (e.g., lowering exemption threshold). - Caution: further capital spending containment risks given already low general government investment since 2015. ### Public debt assessment and scenarios - Debt sustainability and scenarios: - Public debt assessed sustainable with high probability, though keeping debt below the "45 percent of GDP" ceiling would require additional consolidation or favorable shocks. - Baseline (assuming a reduction in the structural deficit of "1.5 percent of GDP" and cumulative unidentified measures of "1 percent of GDP" through 2030): central government debt would breach the prudent ceiling in 2028 before stabilizing at about "50 percent of GDP". - Without further consolidation, debt would remain below the 45 percent anchor only under favorable conditions (persistently high copper prices and accelerated growth). - Otherwise, adhering to the debt ceiling would require additional measures of around "1 percent of GDP", uniformly phased in over the projection horizon. - Under a downside scenario (Box 1), the debt ratio would breach the 45 percent threshold already in 2027. ### Financial sector resilience, AML/CFT, and outstanding priorities - Recent progress: - Implementation of Basel III requirements completed. - Financial Market Resilience Law enacted. - Regulatory amendments to support repo market development. - Mandatory reporting to the Consolidated Debt Registry at the CMF began in April 2026. - Remaining priorities and recommendations: - Create an industry-funded deposit insurance. - Introduce a new Bank Resolution Law. - Implement risk-based supervision of insurance companies. - Grant budgetary independence to the CMF to ensure adequate resources. - Strengthen banks’ corporate governance and recovery planning; advance prudential regulation for domestically issued stablecoins. - AML/CFT framework: - Execution of the 2023-2027 National AML/CFT Strategy. - Proposed amendments to UAF law to enhance data sharing between UAF, tax, and customs authorities. - Need for sustained political support and staffing for implementation; expand coverage to DNFBPs such as lawyers and accountants. ### Structural reforms, labor market, childcare, and growth strategy - Core growth strategy elements: - Deregulation and tax reforms through omnibus NRP to simplify permitting and boost investment and activity. - Authorities estimate measures could raise GDP level by about 8.5 percent by 2040. - Complementary measures to boost productivity and investment: - Implement cabotage law to increase flexibility for foreign vessels in domestic maritime transportation. - Increase flexibility for university researchers participating in technology companies under proposed knowledge transfer law. - Policies: efficient regulation, faster permitting, accelerated depreciation allowances to support capital-intensive job creation and STEM incentives. - Labor market and female labor supply: - Reducing gender gap in employment quality to median OECD level could raise aggregate productivity by 3 percent. - Relaxing size-dependent childcare mandate and moving toward a more universal childcare system could raise female labor supply and productivity. - Minimum wage governance: - Following sharp increases in real minimum wages over 2022-25, a more modest increase pursued in 2026. - Recommendation: create a formal independent expert body to guide minimum wage decisions and improve data access. ### Staff appraisal: macroeconomic resilience and policy guidance - Macroeconomic assessment: - Chile’s macroeconomic position is sound with inflation near target and the external position in 2025 assessed broadly in line with medium-term fundamentals. - Public debt is relatively low and sustainable with high probability. - Elevated external risks warrant strengthening fiscal and external buffers. - Policy guidance: - Growth-focused deregulation and tax measures should consider fiscal impacts; clarify near-term fiscal implications to avoid adding consolidation pressures. - Prioritize measures with lower fiscal costs, such as swift permitting reform, and complement with productivity-enhancing measures. - Credible consolidation: authorities’ goal to reduce structural fiscal balance to 1.5 percent of GDP by 2030 would require additional revenue or expenditure measures of around 0.5 percentage points of GDP beyond staff’s baseline. - Keeping debt below 45 percent of GDP would likely necessitate an additional effort of around 1 percentage points of GDP beyond staff’s baseline. - Support consolidation with prioritization, spending efficiency, and protection of the most vulnerable (consolidate fragmented social programs; better target PGU). - Three-year reserve accumulation program launched in August 2025 operating as planned; completing the program would bolster external buffers. - Central bank should be ready to tighten monetary policy if shocks create second-round inflation effects. ### Annex highlights (selected metrics and measures) - Exchange rate determinants (BEER error-correction approach): - Real exchange rate convergence: estimates show reduction of gap by 50 percent in around ten months. - Peso moderately undervalued in 2025 (around 11 percent on average) and converged to equilibrium by early 2026 per model. - External sector (2025 snapshots): - NIIP: -20.2 (% GDP). - Gross Assets: 147.8 (% GDP). - Reserve Assets: 13.9 (% GDP). - Gross Liab: 167.9 (% GDP). - Ext. Debt: 77.6 (% GDP). - Actual CA (E): -1.2 (% of GDP); Staff CA gap: 0.4 (% of GDP); IMF staff projects CA to converge to about 2 percent of GDP over medium term. - Gross international reserves at end-May 2026: US$52.2 billion; cumulative BCCh reserve accumulation US$4.6 billion by end-May (average execution ~91 percent). - Risk Assessment Matrix (selected risks and policy advice): - Commodity price volatility: HIGH likelihood, HIGH impact — advice: let exchange rate act as shock absorber; save positive windfalls; targeted support for negative shocks. - Disorderly AI correction: HIGH likelihood, MEDIUM impact — advice: strengthen financial system resilience and continue building FX reserves. - Political polarization: MEDIUM likelihood, MEDIUM impact — advice: pursue broadly supported, pragmatic reforms. - National Reconstruction Plan (NRP) — fiscal and growth summary: - Direct fiscal cost of plan: 0.73 percent of GDP by 2030 and 0.46 percent of GDP by 2050. - Net fiscal cost by 2030: 0.3 percent of GDP after growth dividend and front-loaded collection. - Projected second-round fiscal effects by 2030: tax measures 0.17 percent of GDP; regulatory measures 0.23 percent of GDP; aggregate indirect effects 0.4 percent of GDP. - Authorities project growth dividends to increase to 1.21 percent of GDP by 2050. - Table 1 cumulative yields: Direct Fiscal Cost (A+B) 2030: -0.73; Fiscal Cost including growth dividend (A+B+C) 2030: -0.33; Growth dividends 2030: 0.40. - Debt consolidation across sectors and financial safety: - Foreign currency share of debt: stable at around a third of total debt. - Residual maturity: 10.3 years. - Debt fanchart module value: 33.2; Debt fanchart index (DFI): 1.3; risk signal: Moderate. - Average baseline GFN: 5.2 (percent of GDP). - Medium-term index: probability of missed crisis 9.1 percent; probability of false alarms 54.5 percent. - Financial sector implementation status and prudential measures: - Basel III full implementation completed in 2025; CCyB set to converge to neutral level of 1 percent of RWA over 24 months (May 2026 decision). - REDEC mandatory reporting started April 2026. - BCCh reserve accumulation program: may purchase up to US$25 million per day over three years, cumulative up to US$18.5 billion; purchases amounted to US$4.6 billion by end-May (and US$5 billion by end-June in subsequent annex summary). - Gender and productivity (Annex IX): - Reducing female occupational barriers to OECD median: estimated gain in per capita income for Chile of 3.6 percent. - 3.1 percent from higher labor productivity as women sort into occupations better aligned with abilities. - 0.5 percent from higher labor force participation. - Comparative occupational outcomes (employed women aged 35-44 with tertiary education): managers Chile 4.4 percent vs. United States 10.9 percent; elementary occupations Chile 42 percent vs. United States 11 percent. *Source: 1chlea2026001 — IMF staff report chapter.* ### 1. Alternative Growth Scenarios ___________________________________________________________________ 8 ### 1. Alternative Growth Scenarios ### Context and recent developments - Domestic demand has picked up; export growth is robust; the current oil price shock is thus far manageable. - Structural challenges highlighted: - Income convergence has stalled. - Population expected to age rapidly. - Inequality remains elevated relative to the OECD average. - Fiscal buffers have shrunk. - New administration priorities since March: - Raise growth to 4 percent over the medium-term, mainly by cutting red tape and reducing corporate income taxes (CIT). - Restore structural fiscal balance via across-the-board expenditure rationalization. - Submitted a National Reconstruction Plan (NRP) comprising revenue, expenditure, and structural reform measures. - Recent activity and labor market: - Real GDP growth: 2.5 percent in 2025 (down from 2.8 percent in 2024). - Mining output (about 13 percent of the economy) fell 1.3 percent in 2025, largely due to an accident in July 2025. - Non-mining growth: 3 percent in 2025. - Investment grew 8.9 percent in 2025, supported by mining and renewable energy projects. - Real GDP contracted by 0.5 percent (y/y) in 2026Q1. - Seasonally adjusted unemployment rate: around 8.6 percent since 2023 (2015-19 average around 7 percent). - Real year-on-year hourly wages: increased by 2.8 percent in 2025; decelerated to 2.3 percent in 2026Q1. - Inflation and monetary policy: - Headline year-on-year inflation: 2.4 percent in February 2026; picked up to 3.9 percent in May 2026. - Core inflation: 3.2 percent. - Central Bank policy rate: unchanged at 4.5 percent at last four meetings. - Fiscal and external positions: - Headline fiscal deficit: 2.8 percent of GDP in 2025 (broadly similar to 2024), 1.8 percentage points higher than budgeted. - Staff estimates structural deficit in 2025 at 3.3 percent of GDP. - End-2025 central government debt: 41.5 percent of GDP. - Liquid treasury assets: 0.01 percent of GDP. - Copper prices: rose on average by about 9 percent in 2025 relative to 2024; around 30 percent in 2026Q1 relative to the 2025 average. - Peso appreciation: 8 percent in 2025; strongest level in February 2026. - Current account deficit: 1.2 percent of GDP in 2025 (same as in 2024). - Goods trade surpluses: reached 6.8 percent of GDP in April and May 2026. ### Impact of the Middle East conflict and financial conditions - Since escalation in February: - Brent oil prices and U.S. long-term interest rates have risen. - Global growth outlook for 2026-27 weakened. - Peso depreciated by about 6 percent in March 2026 (recovered somewhat in April but weaker than February average). - Financial conditions: - Tightened since the onset of the war, reversing easing from H2 2025. - Chilean stock market fluctuated with softer portfolio inflows. - Bank credit recovery tentative; weak credit demand and valuation effects on foreign-currency loans. - Issuance of non-financial corporate bonds increased in recent quarters as corporate bond yields declined. - Construction and real estate remained weak; mortgage subsidy program and lower lending rates supported housing sales and mortgage demand. ### Outlook and risks - Baseline assumptions: - Gradual decline in oil prices to around US$85/bbl in 2026Q4 and to around US$75/bbl in 2027Q4. - Copper production: contract by 2 percent in 2026, rebound by 4 percent in 2027. - Structural shift in copper prices to close to US$5 per pound (below the 2026Q1 peak of about US$6). - Pending finalization of NRP, staff projects a broadly neutral fiscal impulse in 2026 and a structural consolidation in 2027 through expenditure containment and revenue recovery. - Real GDP projections: 1.8 percent in 2026 and 2.6 percent in 2027. - Current account deficit projected to widen slightly in 2026, before widening toward 2 percent of GDP over the medium term as copper prices retreat. - External risks: - Tilted to the downside in the near term and balanced over the medium term. - Severe scenario: oil prices stay above US$130/bbl in 2026H2 and 2027 → inflation could rise above 5 percent in late 2026 and stay above that level through the first half of 2027, requiring significant monetary tightening. - Upside risk: persistently high copper prices from structurally higher demand (energy transition, AI-related infrastructure, defense spending). - Domestic risks: - Government agenda (cutting red tape, lowering labor costs, reducing CIT rates) could support medium-term growth. - Scenario with sustained high copper prices and investment-enhancing reforms could result in growth reaching around 3 percent during 2027-30. - Sharp across-the-board public spending cuts to offset tax reductions risk limiting productivity-enhancing spending (e.g., childcare). - Social discontent amid high inequality remains a risk. - Climate events (possible “super El Niño”) could adversely affect agriculture, fishing, forestry, mining and raise food prices regionally. - Policy implication: - Rebuilding reserve and fiscal buffers essential to preserve policy space and mitigate shocks. - If severe adverse shocks materialize, policies should focus on temporary and targeted support to vulnerable groups, while letting automatic stabilizers operate; could imply more gradual return to structural balance target. ### Box 1 — Alternative Growth Scenarios - Purpose: Discuss two alternative growth scenarios (upside and downside). - Upside scenario: - Copper prices: assumes around the US$6 per pound range over 2026-30, about 30 percent above the 2025 average. - Estimated spillovers: higher disposable income and investment-related input demand → about 0.5 percentage point annually in 2026-27 relative to the baseline, fading gradually thereafter. - Rationalization of regulations: baseline already assumes 0.1 percentage point gain from law to streamline sectoral permits; faster implementation and additional streamlining (environmental permits and construction) assumed to boost annual growth by an additional 0.1 percentage point relative to the baseline starting in 2027. - CIT rate cut: planned cut from 27 to 23 percent estimated via Hall-Jorgensen user-cost approach to increase growth by 0.15-0.2 percentage point over a decade starting in 2027. - Employment tax credit and full integration of CIT payment: assumed to raise growth by 0.1 percentage point relative to the baseline starting in 2027. - Downside scenario: - Prolonged conflict in the Middle East: assumes oil prices elevated at around US$130/bbl through 2026 and 2027 (about 100 percent higher than in the pre-war baseline). - Estimated impact: growth in 2026 and 2027 would be 1.1 and 1 percentage points lower, respectively, relative to the baseline. - Smaller-than-expected deregulation impact: if sectoral permitting law implementation delayed or investment responses weak, the baseline 0.1 percentage point growth gain would not materialize. ### Authorities’ views and fiscal policy direction - Authorities broadly agreed with staff’s assessment of the external position and near-term outlook; concurred that growth and inflation trajectories are contingent on the evolution of the conflict. - Fiscal targets and measures: - Administration targeting sustained improvement in the structural deficit through 2030 while maintaining the debt ceiling of 45 percent of GDP. - 2026 budget: previous government projected headline deficit of 1.5 percent of GDP; current administration revised to 2.4 percent of GDP in May Public Finance Report (PFR). - Staff projection: headline deficit of 2.5 percent of GDP in 2026. - In early June, authorities announced Fiscal Policy Decree targeting frontloaded reduction in the structural deficit—from 2.6 percent of GDP in 2026 to 1.8 percent in 2027, easing gradually thereafter to 1.5 percent by 2030. - Approach to consolidation: assumes growth recovery supported by NRP measures, expenditure rationalization, strengthened management of public companies and public assets/liabilities. - Debt ceiling maintained at 45 percent of GDP; authorities acknowledge possibility of temporary breaches under exceptional circumstances. - 2026 corrective actions and medium-term savings: - Authorities envision expenditure cuts of around 0.4 percent of GDP in 2026, with further savings over the medium-term. - Permanent 2026 measures (enacted by executive orders and incorporated in staff’s baseline) include: - Curbing misreporting of public sector medical leave. - Reducing hiring. - Rationalizing public investment. - Tightening control over goods and services. - Measures to permanently reduce below-the-line items by about 0.1 percent of GDP. - Medium-term additional spending measures planned through: - Improving targeting of social spending via cross-validation of beneficiary registries with administrative information. - Strengthening medium-term financial planning framework. - Modernizing state-owned enterprise and public asset management. - Further NRP savings: early retirement incentives, lower replacement of retirees, education-sector reforms. - Fiscal note on fuel stabilization: - Chile’s Fuel Price Stabilization Mechanism (MEPCO) adjusted to facilitate accelerated full pass-through of international fuel prices; authorities estimate fiscal cost containment at about US$1.2 billion (0.3 percent of GDP) as of early May 2026. - Government adopted targeted and temporary mitigation measures including support to selected sectors, paraffin subsidies targeted to low-income households, and public transport fare freezes, partially offset by lower tax credit on the specific diesel tax. *Source: 1. Alternative Growth Scenarios (IMF staff chapter).* ### 17. Revenue projections have been revised to reflect lower non-mining tax receipts, ### 17. Revenue projections have been revised to reflect lower non-mining tax receipts, ### Revenue projection revisions and drivers - Authorities revised estimates of yields from the Tax Compliance Law (TCL) from "1.5 percent of GDP" to "0.5 percent cumulatively over the medium term", in line with past IMF technical assistance. - The revision in TCL measures is the main driver of the downward revision in non-mining tax revenue projections. - The revision complements ongoing efforts to improve revenue forecasting, including via ex post monitoring of TCL revenue yields. - The NRP’s tax measures, not included in staff’s baseline, would imply further revenue losses (Annex V). ### Fiscal projection comparisons (authorities vs. staff) — key figures by year - Authorities' projections (percent of GDP unless stated): - Targeted structural fiscal balance 1/: 2025 -2.6; 2026 -1.8; 2027 -1.7; 2028 -1.6; 2029 -1.5; 2030 (not shown) - Estimated structural fiscal balance 2/: 2025 -3.7; 2026 -3.7; 2027 -2.6; 2028 -2.5; 2029 -2.2; 2030 -1.8 - Headline fiscal balance: 2025 -2.8; 2026 -2.4; 2027 -1.7; 2028 -1.8; 2029 -1.8; 2030 -1.4 - Total revenues 3/: 2025 21.6; 2026 21.7; 2027 22.1; 2028 22.1; 2029 22.0; 2030 22.0 - Non-mining tax revenues: 2025 16.4; 2026 15.8; 2027 16.3; 2028 16.7; 2029 16.8; 2030 17.0 - Private mining tax revenues: 2025 1.6; 2026 1.9; 2027 1.9; 2028 1.7; 2029 1.5; 2030 1.4 - Total expenditures 3/: 2025 24.4; 2026 24.1; 2027 23.8; 2028 23.9; 2029 23.8; 2030 23.5 - Public debt: 2025 41.5; 2026 43.1; 2027 44.4; 2028 45.4; 2029 46.3; 2030 46.5 - Copper Price (USD cents per pound): 2025 451; 2026 546; 2027 506; 2028 504; 2029 504; 2030 504 - Real GDP (annual percentage change): 2025 2.5; 2026 2.1; 2027 2.2; 2028 2.2; 2029 2.2; 2030 2.3 - Staff projections (percent of GDP unless stated): - Structural fiscal balance 4/: 2025 -3.3; 2026 -3.1; 2027 -2.4; 2028 -2.0; 2029 -2.0; 2030 -1.8 - Headline fiscal balance: 2025 -2.8; 2026 -2.5; 2027 -2.0; 2028 -2.0; 2029 -2.0; 2030 -1.8 - Total revenues: 2025 21.4; 2026 21.7; 2027 21.9; 2028 21.9; 2029 21.9; 2030 21.9 - Non-mining tax revenues: 2025 16.3; 2026 15.8; 2027 16.3; 2028 16.5; 2029 16.6; 2030 16.6 - Private mining tax revenues: 2025 1.6; 2026 1.9; 2027 1.8; 2028 1.7; 2029 1.6; 2030 1.6 - Total expenditures: 2025 24.2; 2026 24.2; 2027 23.9; 2028 23.9; 2029 23.9; 2030 23.8 - Unspecified measures: 2025 0.0; 2026 -0.4; 2027 -0.6; 2028 -0.8; 2029 -1.0; 2030 (not shown) - Public debt: 2025 41.5; 2026 43.2; 2027 45.0; 2028 46.2; 2029 47.4; 2030 48.4 - Copper Price (USD cents per pound): 2025 451; 2026 563; 2027 489; 2028 487; 2029 485; 2030 485 - Real GDP (annual percentage change): 2025 2.5; 2026 1.8; 2027 2.6; 2028 2.3; 2029 2.3; 2030 2.3 - Sources for projections: Informe de Finanzas Publicas (PFR) May 2026, Fiscal Policy Decree 2026-2030, and IMF staff projections. - Notes: - 1/ Targeted structural fiscal balance includes methodological updates and impact of the NRP and revised GDP growth assumptions, which are not included in staff's baseline or the May PFR. - 2/ As reported in the May PFR. - 3/ The authorities' revenue and expenditure ratios in 2025 include the Fonasa digital voucher for comparability with the PFR. - 4/ Staff's higher structural copper price for 2025 relative to authorities explains the gap for the structural fiscal balance; staff assume a lower deviation of actual and reference copper prices compared to authorities and a lower implied structural adjustment. ### Fiscal consolidation needs and risks - Given the worse-than-expected outcome in 2025, additional measures of around "0.5 percent of GDP" will be required to reach the government’s 2030 structural deficit target of "1.5 percent of GDP" (beyond the currently unidentified measures in the baseline of "1 percentage point"). - Should the NRP be approved, additional consolidation efforts will likely be needed because authorities estimate total costs of "0.3 percent of GDP by 2030", even after incorporating anticipated growth dividends from the reforms (Annex V). - Windfall revenues from elevated copper prices should not be used to finance permanent tax cuts or spending commitments, consistent with the structural balance target rule. ### Policy recommendations and options - Tax policy design under the NRP: - Reconfigure the planned gradual reduction in the CIT rate to align with the OECD average by combining more moderate CIT cuts with provisions for accelerated depreciation, particularly in the non-mining sector, to support investment while limiting fiscal costs. - Consider narrowing the tax employment credit to directly target new employment creation. - Reconsider measures not directly contributing to growth and employment objectives, such as changes in the housing-sector VAT and property tax exemptions, to safeguard the consolidation path. - Ensure estimates of growth-enhancing dividends from reforms are realistic as they affect revenue projections. - Fiscal framework refinements: - Further enhance the effectiveness of Chile’s fiscal framework by reconsidering: the formulation of committed expenditure in the medium-term fiscal path; the operationalization of corrective actions following target deviations; the estimation of structural parameters; and the treatment of revisions to national accounts. - Continue IMF technical assistance on budget classification and analysis on below-the-line operations, and on tax gap estimates and enhancing tax administration capacity. - Additional consolidation options (Box 2 highlights): - Expenditure containment and efficiency measures: expert committees estimated medium-term savings of between "1 to 1.7 percent of GDP". - Parametric reform of the PGU: reducing coverage from "bottom 90 percent of the income distribution to 60 percent" could lower annual costs over the medium term by "0.8 percent of GDP". - Enhancing PIT revenue collection: raising the PIT-to-GDP ratio by "0.4 percent" would be feasible, for instance by lowering the exemption threshold. - Caution: further capital spending containment presents risks given already low general government investment since 2015. ### Public debt assessment and scenarios - Public debt is assessed to be sustainable with high probability, though keeping debt below the "45 percent of GDP" ceiling would require additional consolidation or favorable shocks. - In the baseline (assuming a reduction in the structural deficit of "1.5 percent of GDP" and cumulative unidentified measures of "1 percent of GDP" through 2030), central government debt would breach the prudent ceiling in 2028 before stabilizing at about "50 percent of GDP" (Annex VII). - Without further consolidation, debt would remain below the 45 percent anchor only under favorable conditions, such as persistently high copper prices and accelerated growth rates. - Otherwise, adhering to the debt ceiling would require additional measures of around "1 percent of GDP", uniformly phased in over the projection horizon through the end of the administration. - Under a downside scenario (Box 1), the debt ratio would breach the 45 percent threshold already in 2027. ### Authorities' views and actions - Authorities reaffirmed commitment to the medium-term fiscal consolidation plan and to strengthening revenue projections, including revisiting yields of the TCL measures. - The authorities requested IMF technical assistance to review budget item classifications under the GFSM framework, validate tax-gap estimates, strengthen tax administration governance and operational performance, and assess the impact of past tax reforms. - The authorities indicated that the NRP already incorporates offsetting fiscal measures and expect that the residual net fiscal cost of the NRP could be accommodated through expenditure containment and efficiency gains, including in public investment. - Authorities noted approximately "US$2 billion" in consolidation measures already identified and an expected additional "US$1 billion" from ongoing review efforts; they also pointed to potential additional revenue from liquidation of some public non-financial assets and measures to streamline regulation. *Source: 1chlea2026001 - 17. Revenue projections have been revised to reflect lower non-mining tax receipts,* ### 29. Chile has made notable progress in strengthening financial sector resilience, in line ### 29. Chile has made notable progress in strengthening financial sector resilience, in line ### Financial sector resilience: progress and outstanding priorities - Recent advances implemented: - Implementation of the Basel III requirements. - Financial Market Resilience Law. - Regulatory amendments to support repo market development (Annex VIII). - Mandatory reporting to the Consolidated Debt Registry at the CMF, which began in April 2026. - Proposed and ongoing measures: - Proposed expansion of access to Real-Time Gross Settlement System for non-bank financial institutions to enhance systemic liquidity. - Regulatory proposals to strengthen banks’ corporate governance and recovery planning to improve risk management framework and crisis preparedness. - BCCh working on introducing prudential regulations for domestically issued stablecoins. - Staff recommendations / outstanding priorities: - Continued efforts in creating an industry-funded deposit insurance. - Introducing a new Bank Resolution Law. - Risk-based supervision of insurance companies. - Granting budgetary independence to the CMF to ensure adequate resources as responsibilities expand and to strengthen governance in financial sector oversight. ### AML/CFT supervisory framework: enhancements and implementation needs - Recent and expected improvements: - Execution of the 2023-2027 National AML/CFT Strategy. - Extension of AML/CFT coverage to some non-financial sectors and updated regulations on financial institutions to address deficiencies from the 2021 AML/CFT Mutual Evaluation Report. - Proposed amendments to the Financial Intelligence Unit (UAF) law to establish a collaboration framework enhancing data sharing between the UAF, tax, and customs authorities and strengthening financial investigation and coordination capabilities. - Implementation requirements: - Sustained political support and adequate staffing are critical for timely and orderly implementation. - Need to secure staffing commensurate with expanded UAF responsibilities to ensure effective application of a risk-based approach. - Expand coverage to key designated nonfinancial businesses and professions (DNFBPs) such as lawyers and accountants. ### Authorities’ views on financial and AML/CFT risks - Authorities’ assessment: - Risks to the resilient financial system are mostly external. - Vulnerabilities being carefully monitored: construction and real estate sectors, smaller firms with government-guaranteed loans, and low-income indebted households. - Noted broad-based resilience-building efforts and the enhancement of resilience through Basel III capital regulations. - A timely and gradual conversion to the positive-neutral CCyB level would strengthen buffers against shocks. - Policy commitments: - Continue implementing FSAP recommendations: bank resolution framework, risk-based supervision of insurance companies, evaluation of an industry-funded deposit insurance, enhancement of bank corporate governance. - Implement the Financial Market Resilience and Fintech Laws and advance the digital payment agenda, including on stablecoins. - Continue addressing AML/CFT shortcomings identified in the 2021 AML/CFT Mutual Evaluation Report. ### Structural reforms and medium-term growth strategy - Core elements of growth strategy: - Administration centers on deregulation and tax reforms through an omnibus bill (NRP) under discussion in Congress to simplify permitting and boost investment and activity. - Authorities estimate these measures could raise the level of GDP relative to the baseline by about 8.5 percent by 2040. - Uncertainties and historical context: - Timing and size of gains from permitting reforms and corporate tax cuts could be uncertain in practice. - Mining investment dynamics appear closely influenced by copper prices; the non-mining investment-to-GDP ratio has remained broadly stable since 2005, including after the 2014-17 CIT increase. - Cross-country comparison: higher-income economies that once had income levels comparable to Chile grew by 2.9 percent per year on average; adjusting for more favorable demographics and global growth those economies enjoyed, their average growth rate would have been closer to 2 percent. - Complementary measures to boost productivity and investment: - Implement cabotage law to increase flexibility for foreign vessels in domestic maritime transportation to facilitate trade and logistics. - Increase flexibility for university researchers participating in technology companies and sharing research proceeds under the proposed knowledge transfer law to promote university-business collaboration at a minimum fiscal cost. - Policies to foster investment (efficient regulation, faster permitting, accelerated depreciation allowances) can support job creation in capital-intensive industries and expand STEM incentives. ### Labor market, childcare, and minimum wage policy - Labor and skills recommendations: - Address investment bottlenecks in capital-intensive sectors to foster job creation and strengthen incentives for youths to acquire STEM skills. - Reducing the gender gap in employment quality to the median OECD level could raise aggregate productivity by 3 percent (Annex IX). - Childcare and female labor supply: - Relaxing the distortionary size-dependent childcare mandate and moving toward a more universal childcare system could raise female labor supply and productivity (aligned with the 2023 “Marfan Commission Report”). - Minimum wage governance: - Following sharp increases in real minimum wages over 2022-25, a more modest increase was pursued in 2026. - Recommendation to create a formal independent expert body to help align minimum wage decisions with economic fundamentals and improve access to data (e.g., wage distribution from administrative data). ### Staff appraisal: macroeconomic resilience and policy guidance - Macroeconomic assessment: - Chile’s macroeconomic position is sound with inflation near target and the external position in 2025 assessed to be broadly in line with medium-term fundamentals and desirable policies. - Public debt is relatively low and sustainable with high probability. - Elevated external risks (high copper price vs. spillovers from conflict in the Middle East) warrant policies to strengthen fiscal and external buffers. - Fiscal policy guidance: - Growth-focused deregulation and tax measures should consider fiscal impacts; near-term fiscal implications should be clarified to avoid adding consolidation pressures. - Prioritize measures with lower fiscal costs, such as swift permitting reform, and complement with productivity-enhancing measures. - Credible consolidation path: authorities’ goal to reduce the structural fiscal balance in a sustained manner to 1.5 percent of GDP by 2030 would require additional revenue or expenditure measures of around 0.5 percentage points of GDP beyond staff’s baseline. - Keeping debt below 45 percent of GDP would likely necessitate an additional effort of around 1 percentage points of GDP beyond staff’s baseline. - Support consolidation with prioritization, spending efficiency, and protection of the most vulnerable (consolidate fragmented social programs; better target minimum guaranteed pension (PGU)). - Fiscal framework and reserves: - Fiscal framework is very sound; further refinements could integrate expenditure pressures and clearer corrective actions for deviations from fiscal targets. - Three-year reserve accumulation program launched in August 2025 has been operating as planned; completing the program as designed would bolster external buffers. - Monetary policy: - Central bank should be ready to tighten monetary policy if current shocks create second-round inflation effects; inflation trajectory will be influenced by oil and copper prices. - Financial system assessment and policy priorities: - Banking sector: capital adequacy, liquidity, profitability, and asset quality are better than or comparable to pre-pandemic levels; Basel III capital and liquidity requirements implemented with comfortable voluntary buffers. - Vulnerabilities persist in construction and real estate sectors given elevated housing inventories and significant financial sector exposures. - Continued implementation of the 2021 FSAP recommendations and resilience measures remains important (Financial Market Resilience Law, repo market support, Consolidated Debt Registry). - Outstanding priorities reiterated: industry-funded deposit insurance, new Bank Resolution Law, risk-based supervision of insurance companies, and granting budgetary independence to the Financial Market Commission. - Pension reform transition risks: - Implementation of the recent pension reform requires a gradual and well-coordinated approach to avoid abrupt asset reallocations. - The transition to a generational-fund system and the biennial auction mechanism could complicate pension fund management; making full use of implementation flexibility under the law is important for a smooth transition. *Source: IMF staff report excerpt (Chile).* ### 48. Staff recommends that the next Article IV consultation take place on the standard 12- ### 48. Staff recommends that the next Article IV consultation take place on the standard 12-month cycle. ### Economic activity - Growth has moderated since the second half of 2025. - Moderation is mostly driven by smaller contributions from net exports. - Weaker exports largely reflect a decline in mining activity following an accident in July 2025. - Stronger imports in 2025 reflect a pickup in investment and still-robust consumption growth. - Business confidence improved through 2025 and early 2026 but has softened since the Middle East conflict. ### External sector - The current account deficit narrowed through 2026Q1. - Imports have continued to grow, consistent with robust consumption and investment growth. - The higher trade balance mainly reflects higher copper export prices. - The peso appreciated as copper prices rose, despite temporary volatility following the Middle East conflict. - Gross international reserves increased in 2025 but are below 100% of the ARA metric. - FX buffers held by the government (not counted as international reserves) have stabilized at a low level. - Gross official reserves (US$ billions): 2021: 51.3; 2022: 39.2; 2023: 46.4; 2024: 44.4; 2025: 49.5. - Gross official reserves (percent of ARA metric): 2021: 95.5; 2022: 71.0; 2023: 83.2; 2024: 81.1; 2025: 78.7. ### Inflation - After briefly falling below target, headline inflation has picked up following the conflict in the Middle East. - Disinflation in 2025 and the pickup in inflation since March 2026 have broadly mirrored regional trends. - Prior to the war, disinflation was led by tradable prices, reflecting falling import prices and peso appreciation, and fading base effects from electricity price hikes implemented during 2024-25. - The rise in inflation since March is driven by fuel and transportation prices, with limited second-round effects. - Two-year inflation expectations remain close to the target. ### Monetary policy and reserves (policy actions and recommendations) - Recommendation: A cautious data-dependent approach to the pace of future monetary policy rate cuts is recommended. - BCCh policy action: the BCCh lowered its policy rate from 5.0 percent to 4.5 percent in 2025. In 2026, noting a rise in short-term inflationary pressures following the conflict in the Middle East, the BCCh has kept its policy rate unchanged at 4.5 percent. - Recommendation: Rebuilding international reserve buffers is essential for enhancing resilience. - BCCh action: started a foreign reserve accumulation program in August 2025, under which it may purchase up to US$25 million per day over three years, for a cumulative total of up to US$18.5 billion. By June 1, 2026, it had accumulated US$ 4.6 billion. ### Public finances and fiscal stance - Fiscal deficit was unchanged in 2025 mainly due to weaker-than-expected revenue performance linked to the persistently low non-mining tax revenue-to-GDP ratio. - Capital spending execution increased somewhat in 2025 but remained below pre-pandemic levels. - Chile’s gross debt-to-GDP ratio is relatively low by international standards; the government continues to borrow at favorable rates, while Treasury assets have not recovered. - Key fiscal figures (percent of GDP unless noted): - Revenues: 2025: 21.4. - Taxes: 2025: 17.8. - Expenditures: 2025: 24.2. - Expense: 2025: 22.7. - Interest payments: 2025: 1.2. - Net acquisition of nonfinancial assets (Investment): 2025: 1.4. - Net Lending/Borrowing: 2025: -2.8. - Primary balance: 2025: -2.0. - Structural fiscal balance: 2025: -3.3. - Structural Non-Mining Primary Balance (% of NGDP): 2025: -4.2. - Central government gross debt: 2025: 41.5 (projected to rise to 49.2 by 2031). - Central government debt net of treasury assets: 2025: 37.5 (projected to 46.2 by 2031). - Public sector gross debt: 2025: 60.6. - Nominal GDP (trillions of pesos): 2025: 340. - Policy recommendations and actions: - Adhere to the government’s target of a broadly balanced fiscal position in the medium term — fiscal deficit targets were missed in 2024 and 2025; authorities received IMF technical assistance to strengthen revenue forecasting, leading to methodological improvements and downward alignments of revenue projections in 2025 and 2026. The new administration plans to steadily reduce the structural fiscal deficit to 1.5 percent of GDP by 2030. - Tax and social spending reforms should be conditional on revenue performance to preserve fiscal sustainability — authorities indicated new measures would be contingent on reaching structural deficit targets. ### Financial sector and markets - Banks implemented Basel III requirements by end-2025 with a comfortable level of voluntary buffers. - Credit growth was sluggish, with a mild recovery in the second half of 2025. - NPL ratios stabilized at a level slightly above the pre-pandemic average with provision coverage ratios similar to pre-pandemic levels. - Lending rates gradually decreased; weaknesses in housing markets remain given still-elevated inventory levels and subdued sales. - Financial markets: - Equity index remains close to its 2025 historical highs while the price-to-earnings ratio is below its past average. - Long-term rates and the sovereign spread have largely been stable in the recent period. - After a gradual decline following monetary policy rate cuts, short-term nominal rates have increased since the War. - The dollar funding premium is largely unchanged. - Domestic non-financial corporate bond issuance has seen some dynamism in recent quarters. - Equity and bond fund inflows softened since the War. ### Pension fund sector and reforms - A landmark pension reform was approved in January 2025, which will gradually increase the employer contribution rate by 7 percentage points, adding to the 10 percent employee contribution. - Pension fund assets-to-GDP ratio is projected to increase thanks to the increased contribution rate. - The pension fund system operates under a multi-fund system with five funds of different riskiness; pension funds are the primary long-term investors in domestic capital markets. - The size of asset reallocations due to the transition will crucially depend on the design of the glide path. - Pension funds have been rapidly building derivative positions on U.S. interest rates since 2023. The pension supervisor has amended regulations on derivative limits based on the size of risk exposure. ### Structural reforms and other policy actions - Streamline the investment permit process: A law was approved in July 2025 to streamline sectoral permitting and reduce regulatory uncertainty for investment. The National Reconstruction Plan includes reforms to streamline the Environmental Impact Assessment System (SEIA), facilitate aquaculture concession procedures, and reduce the time window for invalidating granted permits. - Boost female labor participation: A bill that would replace the current firm-level childcare mandate remains pending in Congress. - Reduce trade costs: A new maritime cabotage law approved in 2025 is expected to facilitate competition and lower trade costs. The EU-Chile Interim Trade Agreement and UAE-Chile Comprehensive Economic Partnership Agreement entered into force in 2025. Chile continues to advance bilateral trade agreements with other economies, including India, the United States, and the Philippines. - Financial sector resilience: Continued implementation of the 2021 FSAP recommendations and other resilience-enhancing measures is important. Authorities fully implemented the Basel III capital and liquidity requirements by end-2025, implemented regulatory amendments to support repo market development, the consolidated debt registry (REDEC) became operational in November 2025, and mandatory reporting started in April (year implied in source). *Source: IMF staff report content as provided in the supplied PDF excerpt.* ### 2026. The authorities continue to implement the ### 1chlea2026001 - 2026. The authorities continue to implement the ### Financial sector reforms and macroprudential actions - Authorities continue implementing the Financial Market Resilience Law, enhancing policy responses in scenarios of financial stress, and strengthening the mutual fund liquidity management framework. - Authorities are implementing the Fintech Law, which places fintech activities within the regulatory perimeter. - Ongoing pension reform is expected to help deepen the domestic capital markets and promote long-term investment. - Recommendations and monitoring priorities: - Continue monitoring the quality of banks and insurers’ portfolios. - Address data gaps in commercial real estate price indices. - Continue to improve stress tests to assess real estate sector risks effectively. - Authorities have been closely monitoring developments in the real estate and construction sectors. ### Annex II — Determinants of the Exchange Rate in Chile (error-correction approach) - Methodology: - Two-stage error-correction model using monthly data since 2000 (Boussard, 2026). - Stage 1 (BEER): log real exchange rate (q_t) linked to long-run factors: - lagged net foreign assets to GDP (nfa_{t−1}) - log LME copper price (cop_t) - log tradable-to-non-tradable productivity differentials in Chile and the U.S. (y_t and y_t^{US}) - log Chilean government consumption (cg_t) - long-term real interest rates (rr_t and rr_t^{US}) - economic policy uncertainty (EPU_t) - residual ec_t measures deviations from model-implied equilibrium. - Stage 2: change in log nominal exchange rate (Δe_t) modeled as a function of: - lagged error correction term (ec_t) - trade balance (tb_t) - Δcop_t, ΔVIX_t - monthly changes in real monetary policy rates (Δr_t and Δr_t^{US}) - inflation levels (Π_t and Π_t^{US}) - plus constant and error term. - Long-run (BEER) findings: - Higher net foreign assets, higher government consumption, lower economic policy uncertainty, higher Chilean tradable-to-non-tradable productivity, lower U.S. tradable-to-non-tradable productivity, tighter Chilean financing conditions and looser U.S. financing conditions are associated with a more appreciated Chilean peso. - Short-run dynamics: - Higher trade balance, lower uncertainty, and tighter (looser) current and expected monetary policy in Chile (U.S.) are associated with nominal appreciation of the peso. - Nominal exchange rate adjustment ensures rapid convergence: estimates show a reduction of the gap by 50 percent in around ten months. - Role of copper prices: - Long run: higher copper prices weakly associated with a more depreciated currency. - Short run: higher copper prices strongly associated with nominal appreciation. - Contributions to recent exchange rate variations: - Real depreciation since end of the previous commodity boom mainly driven by: - deterioration in external position: Chile’s net foreign assets decreased from +7 percent in 2007 to -20 percent of GDP in 2025. - higher economic policy uncertainty since 2019 amid social unrest, the Covid pandemic, and two referenda on changing the constitution. - Despite stabilization since 2022, the real exchange rate remained about 16 percent more depreciated at end-2025 than its 2000-2018 average. - Nominal exchange rate appreciation in 2025-2026Q1 explained by convergence to a slightly more appreciated equilibrium and recent increase in copper prices; monetary policy stance relative to the U.S. and global financial stress played relatively minor roles. - Valuation and equilibrium: - Peso was moderately undervalued in 2025 (around 11 percent on average) and had converged to equilibrium by early 2026 according to the model. *Italic: Source — IMF staff summary from content unit 1chlea2026001* ### Annex III — External Sector Assessment (key findings and metrics) - Overall assessment: - Estimated external position of Chile in 2025 was broadly in line with medium-term fundamentals and desirable policies, anchored on the current account (CA) assessment. - CA deficit stabilized in 2025 amid a pickup in private investment; projected to widen in 2026 due to higher oil prices and weaker copper and agricultural export volumes, converging to 2 percent of GDP over the medium term. - Net international investment position (NIIP) deteriorated slightly in 2025 due to strong FDI inflows. - Foreign assets and liabilities (2025 snapshots and levels): - NIIP: -20.2 (% GDP) - Gross Assets: 147.8 (% GDP) - Reserve Assets: 13.9 (% GDP) - Gross Liab: 167.9 (% GDP) - Ext. Debt: 77.6 (% GDP) - External debt composition at end-2025: - 31.9 percent of GDP owed by NFCs (excluding FDI entities) - 16.2 percent of GDP by FDI entities - 17.2 percent of GDP by the general government - Assessment of external vulnerability: - Large gross external liabilities largely offset by gross foreign assets. - FDI is a significant share of gross liabilities: 54.1 percent of gross liabilities as of 2025Q4. - Sectoral net positions: consolidated public sector, pension funds, and other non-bank financial institutions have positive net positions; banks and NFCs have negative net positions of 13.8 and 45.8 percent of GDP, respectively, with over two thirds of NFCs’ liabilities being FDI. - Regulatory mitigation: banks’ short FX positions due in thirty days cannot exceed long positions by more than banks’ capital. - Conclusion: external vulnerabilities due to the negative NIIP remain limited. - Current Account (2025 figures and assessments): - Actual CA (E): -1.2 (% of GDP) - Cycl.-Adj. CA (E): -1.7 (% of GDP) - EBA CA Norm: -1.0 (% of GDP) - EBA CA gap: -0.7 (% of GDP) - Adjustors: 1.1 (% of GDP) - Staff CA gap: 0.4 (% of GDP) - IMF staff projects CA deficit to converge to about 2 percent of GDP over the medium term. - Real Exchange Rate (REER) developments: - REER depreciated by 7.1 percent on average in 2024 and appreciated by 1.2 percent on average in 2025. - As of January 2026, REER was 5.6 percent stronger than the 2025 average. - Between end-January and end-April (2026), the peso depreciated by about 4 percent due to increased uncertainty associated with the conflict in the Middle East. - Assessment: model-implied CA gap implies a small undervaluation by 1.6 percent ± 2.1 percent (elasticity 0.24). Considering model uncertainties and that REER remained 11 percent below long-term equilibrium in 2025 (Annex II), staff assesses REER is undervalued with a midpoint of 6 percent ± 5 percent. - Capital and financial accounts (flows, 2025): - FDI accounted for bulk of net inflows (~1.6 percent of GDP) against a CA deficit of 1.2 percent of GDP. - Pension funds’ net purchases of foreign assets: 3.3 percent of GDP (US$11.8 billion). - Central bank net purchases of foreign assets: 0.5 percent of GDP (US$1.8 billion). - Net inflows to general government: 2.9 percent of GDP (US$10.4 billion). - FX intervention and reserves: - BCCh foreign reserve accumulation program (announced Aug 8, 2025): purchase up to US$25 million per day and accumulate up to US$18.5 billion over three years; sterilized via central bank securities; reviews every six months or when market conditions change. Average execution ~91 percent; cumulative accumulation US$4.6 billion by end-May. - BCCh purchased US$1 billion worth of gold in February 2026. - Gross international reserves at end-May 2026: US$52.2 billion, increase of US$7.8 billion since end-2024. - Reserves adequacy: - Gross international reserves amounted to 82.4 percent of IMF ARA on average over 2021–25 — 78.7 percent at end-2025, and up to 81.1 percent in May 2026. - Staff assesses reserves to be adequate given mitigating factors: - Government usable liquid FX assets: US$5.3 billion as of end-April 2026 (up 45 percent since end-2024), including US$3.9 billion in the economic and social stabilization fund and US$1.4 billion cash (equivalent to improvement in reserve coverage up to 8.2 percentage points). - Around 16 percent of short-term debt represents intercompany loans for foreign direct investors (US$8.6 billion as of 2026Q1). - Around 60 percent of banks’ short-term external debt (US$21.5 billion at end-2026Q1) is covered by banks’ liquid foreign assets (US$12.8 billion). - FX liquidity lines totaling US$8.05 billion: FLAR credit line (US$1.25 billion) and bilateral 5-year renewable swap with PBOC (US$6.8 billion) without RMB use restrictions. - BCCh subscriber to Fed’s FIMA repo facility (US$26 billion) enabling temporary exchange of U.S. Treasuries for U.S. dollars. - Authorities remain strongly committed to a flexible exchange rate. *Italic: Source — IMF staff summary from content unit 1chlea2026001* ### Annex IV — Risk Assessment Matrix (selected risks, likelihood, impact, and policy advice) - External risks: - Commodity price volatility (HIGH likelihood, HIGH impact) - Effect: higher copper/lithium prices beneficial; higher oil prices harmful. - Policy advice: - Let the exchange rate act as shock absorber. - For negative shocks (e.g., sharply higher oil prices): provide targeted fiscal support to vulnerable groups and advance reforms addressing social demands. - For positive shocks: save stronger-than-projected fiscal revenues. - Trade-related risks — Protectionism and Trade Disruptions (HIGH likelihood, MEDIUM impact) - Effect: indirect effects via demand in trading partners and growth. - Policy advice: reduce trade costs by expanding trade agreements and improving trade infrastructure. - Climate change (MEDIUM likelihood, MEDIUM impact) - Effect: exposure to floods, storms, wildfires; potential demand boost for copper, lithium, renewables. - Policy advice: continue adaptation and mitigation, build fiscal buffers for sudden climate shocks. - Disorderly AI correction (HIGH likelihood, MEDIUM impact) - Effect: tighter global financial conditions, reduced risk appetite, exchange rate volatility, potential downward pressure on copper prices. - Policy advice: strengthen financial system resilience per 2021 FSAP reforms and continue building FX reserves. - Domestic risks: - Political polarization and fragmentation (MEDIUM likelihood, MEDIUM impact) - Effect: possible reform gridlock. - Policy advice: continue dialogue and pursue broadly supported, pragmatic reforms. - Social discontent (LOW likelihood, MEDIUM impact) - Effect: potential negative effects on business confidence and investment. - Policy advice: prioritize spending cuts while protecting vulnerable groups, ensure equal access to opportunities, and accelerate policies for faster and inclusive growth. *Italic: Source — IMF staff summary from content unit 1chlea2026001* ### Annex V. National Reconstruction Plan ### Annex V. National Reconstruction Plan ### Overview - The National Reconstruction Plan (NRP) encompasses expenditure, revenue, and regulatory facilitation measures aimed at boosting investment and lifting potential output. - Key regulatory reforms: - Streamlining of the Environmental Impact Assessment System (SEIA). - Facilitating aquaculture concession procedures. - Strengthening the Environmental Assessment Service’s (SEA) role in coordinating other sectoral agencies. - Reducing the time window for invalidating granted permits. - Reforms to fast-track investment projects. - A tax invariability measure fixing the maximum tax burden for 25 years for major investment projects. - Notable tax and labor measures: - Gradual reduction of the CIT rate from 27 to 23 percent. - Shift to a fully-integrated tax system allowing 100 percent of the CIT payment as credits against final income taxes. - Tax credits for firms that hire or retain workers at high risk of informality (earning less than 150 percent of the minimum wage). ### Direct fiscal cost and structure of measures - The direct fiscal cost of the plan is estimated at 0.73 percent of GDP by 2030 and 0.46 percent of GDP by 2050. - Revenue-side transitory measures to front-load collection include: - A substitute tax. - Capital repatriation provisions and regularization incentives, such as preferential rates on inheritance and donation tax. - A one-year VAT exemption on housing sales to address the high unsold housing inventory. - An increase in the Transitory Emergency Fund for Fires (FET). - Permanent revenue measures include: - Corporate income tax (CIT) reform. - Employment tax credit. - Full tax integration. - Property tax exemption for primary residences of owners aged 65 and above. - Elimination of the capital gains tax on exchange-traded securities. - Small-property tax benefit to support housing supply. - Enhanced enforcement against tobacco smuggling. - Elimination of tax exemptions for training expenses. - Expenditure measures include: - Deferral of free education expansion to additional income deciles. - Moratorium on the entry of new higher education institutions (HEIs). - Reduction in the public wage bill through enhanced retirement incentives and a lower replacement rate. - Strengthened enforcement against sick leave abuse. - Reduced utilization of the Single Employment Subsidy (SUE). - Additional fiscal savings from data cross-referencing initiatives in the NRP are not costed. ### Net fiscal cost, growth dividends, and timing - Net fiscal cost by 2030 is estimated at 0.3 percent of GDP by 2030 even after accounting for a growth dividend, front-loaded collection, and some permanent expenditure measures. - Projected second-round fiscal effects (impact of tax and regulatory reforms on economic activity and tax base broadening): - By 2030, tax measures are estimated to yield an additional revenue of 0.17 percent of GDP. - Regulatory measures are estimated to contribute a further 0.23 percent of GDP. - Aggregate indirect effects by 2030: 0.4 percent of GDP. - Authorities project growth dividends to increase to 1.21 percent of GDP by 2050. - Fiscal balance trajectory: - The NRP entails a net fiscal cost over the medium term, reaching 0.3 percent of GDP by 2030. - The fiscal balance turns positive by 2035. - NRP yields significant net fiscal gains of up to 0.76 percent of GDP by 2050. ### Table 1: Chile — Cumulative Yields from Measures Under the National Reconstruction Plan (Percent of GDP) - Years reported: 2026, 2027, 2028, 2029, 2030, 2031, 2035, 2040, 2050. - Direct Fiscal Cost (A+B) - 2026: -0.20 - 2027: -0.50 - 2028: -0.65 - 2029: -0.68 - 2030: -0.73 - 2031: -0.72 - 2035: -0.67 - 2040: -0.55 - 2050: -0.46 - Fiscal Cost including growth dividend (A+B+C) - 2026: -0.20 - 2027: -0.37 - 2028: -0.46 - 2029: -0.38 - 2030: -0.33 - 2031: -0.21 - 2035: 0.24 - 2040: 0.54 - 2050: 0.76 - Transitory measures (A) - 2026: -0.02 - 2027: -0.01 - 2028: -0.03 - 2029: 0.02 - 2030: -0.02 - 2031: -0.02 - 2035: -0.02 - 2040: 0.01 - 2050: -0.02 - Emergency Fund for Fires (FET) resource increase - 2026: -0.02 - 2027: -0.05 - 2028: -0.03 - 2029: 0.00 - 2030: 0.00 - 2031: 0.00 - 2035: 0.00 - 2040: 0.00 - 2050: 0.00 - Moratorium on free-tuition eligibility for new HEIs - 2026: 0.00 - 2027: 0.00 - 2028: 0.03 - 2029: 0.05 - 2030: 0.00 - 2031: 0.00 - 2035: 0.00 - 2040: 0.00 - 2050: 0.00 - Exemption of VAT on housing - 2026: -0.12 - 2027: -0.17 - 2028: 0.00 - 2029: 0.00 - 2030: 0.00 - 2031: 0.00 - 2035: 0.00 - 2040: 0.00 - 2050: 0.00 - Inheritance and gift tax reduction - 2026: 0.03 - 2027: 0.04 - 2028: -0.01 - 2029: -0.01 - 2030: -0.01 - 2031: -0.01 - 2035: -0.01 - 2040: 0.00 - 2050: 0.00 - Capital repatriation and foreign income tax amnesty - 2026: 0.01 - 2027: 0.07 - 2028: 0.00 - 2029: 0.00 - 2030: 0.00 - 2031: 0.00 - 2035: 0.00 - 2040: 0.00 - 2050: 0.00 - Substitute taxation - 2026: 0.08 - 2027: 0.11 - 2028: -0.02 - 2029: -0.02 - 2030: -0.02 - 2031: -0.02 - 2035: -0.02 - 2040: 0.00 - 2050: 0.00 - Intellectual Property Fund - 2026: 0.00 - 2027: 0.00 - 2028: 0.00 - 2029: 0.00 - 2030: 0.00 - 2031: 0.00 - 2035: 0.00 - 2040: 0.00 - 2050: 0.00 - Permanent measures (B) - 2026: -0.18 - 2027: -0.49 - 2028: -0.62 - 2029: -0.70 - 2030: -0.71 - 2031: -0.70 - 2035: -0.65 - 2040: -0.56 - 2050: -0.44 - Lower CIT tax rate - 2026: 0.00 - 2027: -0.16 - 2028: -0.31 - 2029: -0.42 - 2030: -0.44 - 2031: -0.44 - 2035: -0.44 - 2040: -0.44 - 2050: -0.44 - Employment tax credit - 2026: -0.19 - 2027: -0.41 - 2028: -0.38 - 2029: -0.35 - 2030: -0.32 - 2031: -0.29 - 2035: -0.19 - 2040: -0.10 - 2050: 0.00 - Full integration tax system - 2026: 0.00 - 2027: 0.00 - 2028: -0.01 - 2029: -0.02 - 2030: -0.04 - 2031: -0.05 - 2035: -0.10 - 2040: -0.12 - 2050: -0.12 - Delayed expansion to free education - 2026: 0.00 - 2027: 0.00 - 2028: 0.00 - 2029: 0.00 - 2030: 0.00 - 2031: 0.00 - 2035: 0.00 - 2040: 0.03 - 2050: 0.05 - Public employment measures - 2026: -0.01 - 2027: 0.02 - 2028: 0.02 - 2029: 0.02 - 2030: 0.02 - 2031: 0.02 - 2035: 0.02 - 2040: 0.02 - 2050: 0.02 - Lower use of SUE subsidy - 2026: 0.00 - 2027: 0.02 - 2028: 0.02 - 2029: 0.02 - 2030: 0.02 - 2031: 0.01 - 2035: 0.01 - 2040: 0.00 - 2050: 0.00 - Property tax exemption - 2026: 0.00 - 2027: -0.04 - 2028: -0.04 - 2029: -0.04 - 2030: -0.04 - 2031: -0.04 - 2035: -0.04 - 2040: -0.04 - 2050: -0.04 - Elimination of special capital gains tax - 2026: 0.00 - 2027: -0.01 - 2028: -0.01 - 2029: -0.01 - 2030: -0.01 - 2031: -0.01 - 2035: -0.01 - 2040: -0.01 - 2050: -0.01 - Housing tax benefit - 2026: 0.00 - 2027: -0.01 - 2028: -0.01 - 2029: -0.01 - 2030: -0.01 - 2031: -0.01 - 2035: -0.01 - 2040: -0.01 - 2050: -0.01 - Sanctions against tobacco smuggling - 2026: 0.00 - 2027: 0.01 - 2028: 0.01 - 2029: 0.02 - 2030: 0.02 - 2031: 0.02 - 2035: 0.02 - 2040: 0.02 - 2050: 0.02 - Elimination of training tax exemption (SENCE) - 2026: 0.01 - 2027: 0.08 - 2028: 0.08 - 2029: 0.08 - 2030: 0.08 - 2031: 0.08 - 2035: 0.08 - 2040: 0.08 - 2050: 0.08 - Acuaculture patents - 2026: 0.00 - 2027: 0.00 - 2028: 0.00 - 2029: 0.00 - 2030: 0.00 - 2031: 0.00 - 2035: 0.00 - 2040: 0.00 - 2050: 0.00 - Growth dividends (C) - 2026: 0.00 - 2027: 0.12 - 2028: 0.19 - 2029: 0.30 - 2030: 0.40 - 2031: 0.51 - 2035: 0.91 - 2040: 1.09 - 2050: 1.21 - Lower CIT tax rate (growth effect) - 2026: 0.00 - 2027: 0.01 - 2028: 0.04 - 2029: 0.07 - 2030: 0.11 - 2031: 0.14 - 2035: 0.27 - 2040: 0.33 - 2050: 0.33 - Full integration tax system (growth effect) - 2026: 0.00 - 2027: 0.00 - 2028: 0.01 - 2029: 0.01 - 2030: 0.02 - 2031: 0.02 - 2035: 0.05 - 2040: 0.06 - 2050: 0.06 - Employment tax credit (growth effect) - 2026: 0.00 - 2027: 0.01 - 2028: 0.02 - 2029: 0.03 - 2030: 0.04 - 2031: 0.06 - 2035: 0.10 - 2040: 0.11 - 2050: 0.11 - Reduction in permit processes (growth effect) - 2026: 0.00 - 2027: 0.04 - 2028: 0.08 - 2029: 0.12 - 2030: 0.15 - 2031: 0.19 - 2035: 0.33 - 2040: 0.37 - 2050: 0.36 - Investment facilitation (growth effect) - 2026: 0.00 - 2027: 0.06 - 2028: 0.04 - 2029: 0.03 - 2030: 0.01 - 2031: 0.00 - 2035: 0.00 - 2040: 0.00 - 2050: 0.00 - Tax invariability (growth effect) - 2026: 0.00 - 2027: 0.00 - 2028: 0.00 - 2029: 0.04 - 2030: 0.07 - 2031: 0.10 - 2035: 0.16 - 2040: 0.23 - 2050: 0.35 ### Legislative and implementation notes - Note: The elimination of the SENCE training tax exemption, initially included in the NPR, was repealed during the Chamber of Deputies' deliberations. As such, this measure remains subject to further modifications in the course of Senate discussions. The remaining measures presented were approved by the Chamber of Deputies. *Source: Annex V. National Reconstruction Plan, IMF staff summary of the provided content.* ### 5. Debt consolidation across sectors: ### 5. Debt consolidation across sectors ### Coverage, recording, and intra-government holdings - Color code indicators shown for chosen coverage, missing from recommended coverage, and not applicable (visual legend present). - Holders/issuers listed: Budget. central govt; Extra-budget. funds; Social security funds; State govt.; Local govt.; Nonfin pub. corp.; Central bank; Oth. pub. fin. corp. (all entries shown with 0 in the provided table excerpt). - Basis of recording / Valuation of debt stock: Not applicable. - Reporting on Intra-Government Debt Holdings: Nonfin. pub. corp. GG: expected. State govt. Local govt. CG CPS Not applicable. - 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. - Notes on debt concepts and recording preserved as in source: e.g., CG=Central government; GG=General government; NFPS=Nonfinancial public sector; PS=Public sector; stock of arrears as proxy; IPSGSs (Insurance, Pension, and Standardized Guarantee Schemes); definitions and distinctions among nominal value, face value, market value, non-cash basis, cash basis. ### Public debt structure and market characteristics - Investor base: well-diversified with a large presence of domestic creditors. - Foreign currency share: stable at around a third of total debt. - Residual maturity: 10.3 years. - Most debt: traded on secondary markets. - Debt composition indicators shown by: Debt by Currency; Public Debt by Holder; Public Debt by Governing Law, 2025; Debt by Instruments; Public Debt by Maturity (central government perimeter noted). ### Baseline scenario and realism of assumptions - Realism analysis commentary: Does not point to major concerns; forecast track record does not reveal any systematic bias. - Projected fiscal consolidation: described as reasonable considering Chile’s history and other country experiences. - Residual contribution to projected debt ratio arises from "other flows," including below-the-line operations like SOE recapitalization and payments on government-guaranteed student loans. - Fiscal adjustment scenarios illustrated with multipliers (Multiplier=0.5, 1, 1.5) and distributions of 3-year debt/primary-balance adjustments (figures and percentile ranks shown in source). ### Medium-term risk analysis and stress indicators - Debt fanchart module: - Value: 33.2 - Contrib 1/: 0.5 (percent of GDP) [as shown in table headings] - Debt fanchart index (DFI): 1.3 - Risk signal: Moderate - Probability indicators: - Probability of debt non-stabilizaiton: 47.1 (contrib 0.4) - Terminal debt-to-GDP x: 18.6 (contrib 0.4) - Gross Financing Needs (GFN) module: - Average baseline GFN: 5.2 (percent of GDP) (contrib 1.8) - Initial Banks' claims on the gen. govt: 7.4 (pct bank assets) (contrib 2.4) - Chg. in banks' claims in stress: 5.5 (pct banks' assets) (contrib 1.9) - GFN financeability index (GFI): 6.0 - Risk signal: Low - Medium-term index and final assessment: - Medium-term index: Risk signal: 5/ Final assessment: Prob. of missed crisis, 2026-2031, if stress not predicted: 9.1 pct. - Prob. of false alarms, 2026-2031, if stress predicted: 54.5 pct. - Commentary: Debt fanchart module points to moderate risk (close to lower bound of moderate range); GFN module points to low risk, underpinned by moderate gross financing needs and the banking sector’s ability to act as residual creditor under stress. Medium-term analysis also points to a low level of risk under a natural disaster shock of 4.5 percent of GDP and a commodity price shock. ### Long-term risk analysis — pensions, health, and natural resources - Pensions (Demographics): - PGU Costs: 30 years: 4.4; 50 years: 5.7; Until 2100: 6.3 - Pension financing needs: 30 years: 2.2; 50 years: 3.5; Until 2100: 4.1 - Commentary: Demographic dynamics would increase fiscal costs of solidarity pensions (including mainly the PGU) from about 2 to about 4.5 percent of GDP in the next 30 years, under the assumption that solidarity pensions increase in real terms in line with real GDP growth. - Fiscal implication: Assuming available financing through general taxes for solidarity pensions remains at around 2 percent of GDP, this would imply an increase in debt to about 75 percent of GDP by 2050 (25 percentage points above the baseline scenario). - Health (Demographics and excess cost growth): - 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 75 percent of GDP by 2050. - Natural resources (copper revenues): - Copper revenues: around 2.1 percent of GDP in 2025. - Assumptions: copper production increases on average 1 percent annually between 2026-2035; annual production of 5 million tonnes assumed thereafter; copper prices assumed to grow in line with US inflation at 2 percent after 2031 (lower than Chile's GDP nominal growth). - Impact: Taking changes in copper revenues into account, debt would be about 70 percent of GDP by 2050, and the GFN-to-GDP ratio would be about 4 percentage points of GDP higher than under the baseline by 2050. ### Implementation status excerpt: 2021 FSAP — Bank solvency and liquidity - Recommendation: Ensure banks transition to Basel III-compliant capital structures and complete announced plans for capital raises in a timely manner. - Status highlights: - The Basel III solvency requirements have been adopted, with full implementation completed in 2025. Only minor elements remain under a gradual implementation scheduled to be finalized by 2027. - Since March 2021, the capital adequacy ratio has taken into account credit, market, and operational risks. - The Financial Market Commission (CMF) expects to issue a normative update to requirements for internal ratings-based models (IRB) in 2026. The normative is planned to be published for public consultation during July/August 2026. In April 2026, the CMF announced that it will allocate additional resources to the validation of IRB models. - In March 2026, the CMF published its proposal to amend the standard model for market risk-weighted assets (RWA). Following comments received, the proposal is expected to include the duration method as an alternative for measuring market risks, requiring a new consultation process. - Capital Conservation buffer, AT1 requirement, and capital discounts (e.g., goodwill, deferred tax assets) were phased in from December 2021 to December 2025. - Since May 2022, the Central Bank of Chile (BCCh) has held Financial Policy Meetings twice a year to determine whether to activate the Counter Cyclical Buffer (CCyB), set its level, and establish its compliance deadline, in coordination with CMF. - In May 2023, the BCCh activated the CCyB, setting the charge at 0.5 percent of RWA, which was completed in May. *Source: IMF staff estimates and projections (chapter: 5. Debt consolidation across sectors).* ### 2024. In November 2024, the BCCh updated the CCyB framework, ### 1chlea2026001 - 2024. In November 2024, the BCCh updated the CCyB framework, ### A. Capital and Prudential Framework - BCCh updated the CCyB framework in November 2024, defining a positive-neutral CCyB level at 1 percent of RWA, with a gradual, state-contingent implementation path after the full implementation of Basel III capital requirements. - In May 2026, the BCCh decided to converge to the neutral CCyB level, over a 24-month implementation period. - From March 2021 until March 2026, the CMF identified and defined additional capital charges for systemically important banks (D-SIBs); additional capital charges were phased in from December 2022 to December 2025. - The process for defining D-SIBs is carried out annually by CMF, in coordination with the BCCh, with identification and associated charges completed each March. - In February 2024, the CMF lowered threshold scores for determining D-SIBs. - As of March 2026, six banks remain classified as D-SIB with capital requirements ranging from 1.0% to 1.5% of RWA. - Since 2020, banks submit annually the Effective Equity Self-Assessment Report (IAPE) to the CMF as part of ICAAP, enabling CMF to assess banks’ specific risk profiles and potentially define additional Pillar 2 capital charges. - In July 2023, CMF published "Guidelines on Stress Testing in Banking Institutions" for IAPE; final version published in January 2024. - October 2024: CMF published proposals to amend Pillar 2 regulations; July 2025: CMF published finalized regulations. - April 2023: Basel III Pillar 3 disclosure requirements introduced; February 2024: CMF clarified requirements. - CMF imposed additional capital requirements under Basel III Pillar 2 in January 2024, January 2025, and January 2026. Implementation schedule for additional capital requirements: 25 percent for 2024, 50 percent for 2025, and 75 percent for 2026; remaining percentages built up annually per CMF and ICAAP. - As of January 2026, seven banks were required to hold additional capital, with values ranging from 0.1% to 2.4% of RWA. ### B. Collateral Valuation, Reporting, and Loan Loss Reserves - August 2023: CMF published proposal for new reporting framework for foreclosures and liquidation cash flows, with instructions for early interventions. - March 2024: CMF issued a standard method for computing loan loss reserves for consumer loans, coming into force in January 2025; completes standard methodologies for retail, corporate and mortgage loan loss reserves. - January 2024: CMF published new information requirement to capture recoveries, expenses, and renegotiations of defaulted loans; first data reports received in January 2025, containing information as of December 2024. - January 2025: CMF published proposal to review banks’ collateral valuation regulations (requirements for collateral as credit risk mitigators, valuation criteria, and collateral management). Finalized regulation expected during 2026. ### C. Liquidity Measures, Extraordinary Liquidity Support, and ILAAP/LSAR - November 2022: BCCh established plan to standardize eligible collateral, replacing pledged credit portfolio with eligible financial instruments in the Central Securities Depository. - April 2023: Banks submitted expiration plans for FCIC/LCL to CMF as first Liquidity Self-Assessment Report (LSAR) of ILAAP. - September 2023: BCCh offered banks liquidity deposits aimed exclusively at guaranteeing/operationally supporting FCIC payments. - April and July 2024: BCCh smoothly unwound the FCIC. - April 2023: ILAAP implementation began; banks submitted first LSARs to CMF. - April 2024: Private banks submitted second ILAAP, focusing on internal stress testing without CMF scenarios. - Since 2025, BCCh liquidity regulation allows CMF to impose additional HQLA requirements on specific institutions depending on ILAAP outcomes. - A full version of ILAAP has been revised since 2025; no additional measures taken as banking liquidity position concluded adequate. - July 2023: CMF published "Guidelines on Stress Testing in Banking Institutions" for LSAR; final version published January 2024. ### D. Banking Supervision, Governance, and Corrective Frameworks - CMF budget independence unchanged; since 2019 CMF’s budget has been continuously reduced despite occasional additional budget for new legal changes; Ministry of Finance instructed a general 3 percent reduction in resources. - Initiatives undertaken to increase resources for supervision of IRB methodologies. - January/March 2023–March 2024: progress on asset classification and restructured loans; standard method for consumer loan loss reserves issued March 2024 (in force January 2025); set of standard methodologies completed for retail, corporate, and mortgage loans. - April/October 2025: CMF proposals to incorporate loan insurance and derivatives as credit risk mitigators in capital requirements; after prior favorable agreement of BCCh, CMF deferred final issuance in April 2026 to further assess implementation. - August 2023–May 2024: CMF published regulatory proposals and issued regulations on corporate governance and integrated risk management for securities market entities. - July–December 2024: CMF published regulatory proposals and issued regulations for securities intermediaries and commodities brokers; implementation date moved to July 1, 2025. - October 2024–March 2025: CMF published regulatory proposal and then issued regulations on requirements for independent directors and election policy content for parent companies of supervised subsidiaries. - June 2025: CMF amended regulation banning banks from granting loans to their directors, representatives, and related parties. - January 2026: CMF published regulatory proposal on strengthening corporate governance and risk management of banks; changes to be applied starting from management assessment process for 2028. - CMF drafting internal proposal to strengthen licensing framework to ensure shareholders are fit, proper, and financially strong. - October 2023: draft bill circulated to Joint Working Group for Banking Resolution; proposal still under discussion. - November 2023: CMF issued new regulation establishing complementary instructions for early regularization and forced liquidation. - August 2023: CMF published “Guidelines for a Financial Conglomerates Act in Chile”; continued stakeholder engagement following public consultation. ### E. Pillar 2 and Recovery Planning - January 2026: CMF published regulatory proposal to strengthen banks’ recovery planning by establishing required recovery plan information and integrating recovery planning into governance and risk management; once approved, applied starting from management assessment process for 2028. - BCCh approved conduct of a crisis simulation exercise (CSE) to be planned during 2026 and carried out in the first quarter of 2027 to assess resilience under stress. ### F. Pension Funds — Reform and Investment Regimes - No additional pension fund withdrawals approved since April 2021. - Pension reform law enacted in March 2025: (i) increase contribution rate to mandatory individual pension account by 4.5%, (ii) transition multi-fund system to a generational fund system, (iii) introduce competition-promoting mechanisms including a 10% random tender every two years awarded to AFP with lowest commission and reward/penalty mechanism based on fund performance. - SP preparing new investment regime and reference portfolios under generational fund system; new investment regime and reference portfolios to be published by September 2026; transition to generational fund system starts April 2027 with a three-year transition period. - February 2026: SP published proposal of fifteen Generational Funds according to pension affiliates’ age brackets. - February 2026: BCCh set maximum investment limits on foreign and sovereign financial instruments for the new Generational Funds and the FAPP as 80 percent of the funds' values. - December 2025: SP published proposal of investment regime for Fondo Autónomo de Protección Previsional (FAPP); February 2026: SP published finalized investment regime for FAPP; investment regime effective July 1, 2026. - April 2026: SP issued new derivatives regulation, effective in 2027, introducing a Derivatives Exposure Limit based on stress losses and a minimum Liquidity Coverage Requirement to ensure sufficient liquid assets for margin calls and reduce forced asset sales risk. ### G. Insurance and Accounting Regimes - No additional liquidations of life annuities since April 2021. - November 2024: CMF published regulatory proposal to amend methodology to calculate exposure to counterparty credit risk in financial derivatives, migrating from a contract-sized (notional) approach to a risk-based approach measuring exposure through the credit equivalent. - October 2025: CMF published regulatory proposal to require application of IFRS 9 and IFRS 17 exclusively to insurers with securities registered in the Securities Registry or who consolidate with parents that issue securities, with exceptions for annuities business line (accounting at amortized cost of assets/liabilities); comments received as of end-November 2025 under review by CMF. ### H. Mutual Funds and Market Liquidity - October 2023: “Financial Markets Resilience” bill approved by Congress empowers CMF to establish minimum investment requirement in liquid assets and to define liquid assets. - March 2025: CMF published new information system manual for funds to enhance supervisory information collection; August 2025: CMF published proposal requiring general fund managers and portfolio managers to submit information on minimum equity and collateral requirements. ### I. Crisis Management, Resolution, and Deposit Insurance - January 2023: CMF published policy paper "Guidelines for a new bank resolution and deposit insurance framework in Chile" identifying legal/regulatory gaps and proposing elements of financial safety net including deposit insurance and resolution tools. - August–November 2023: CMF published and issued complementary instructions on early regularization and compulsory liquidation; engaged industry in closed meeting on the white paper. - Working group of CMF, BCCh, and MoF drafting a new bill on resolution framework, new resolution authority, and deposit insurance scheme based on white paper; a first draft yet to be presented to Congress. - Establishment of industry-funded deposit protection scheme remains Near Term (NT). ### J. Systemic Liquidity and Repo Market Development - January 2023: Authorities met repo market participants; CMF conducted survey on market frictions. - October 2023: “Financial Markets Resilience” bill clarifies eligible repo transactions for special compensation mechanisms and provides framework for BCCh to offer repos in exceptional circumstances. - IMF technical assistance (May/June 2024) provided to improve systemic liquidity management across collateral policy, emergency liquidity assistance, system-wide measures to support market functioning, and repo market development. - August 2024: CMF established Strategic Market Development Promotion Committee to advance repo market development. - April 2025: CMF published first regulatory proposal to simplify/clarify regulatory treatment of repo transactions; October 2025: updated proposal; April 2026: CMF published finalized regulation following prior favorable BCCh agreement. - July–December 2025: BCCh published regulatory proposal and adopted amendment extending close-out netting provision to repo transactions and acknowledging master agreements. ### K. BCCh Risk Management, Collateral, and ELA Framework - 2021: BCCh reviewed/updated margin and haircut scheme for liquidity provision operations. - Internal task force reviewing/updating BCCh collateral framework ongoing; draws on IMF TA 2024. - August 2023: BCCh published regulatory proposal incorporating self-securitized instruments as new collateral alternative. - July 2024: BCCh published final regulation for self-securitized bonds to serve as collateral in BCCh operations. - April 2025–April 2026: CMF published proposals and finalized regulation to eliminate regulatory disincentives to self-securitization operations, following prior BCCh agreement. - August 2023: BCCh and CMF signed MoU to enhance coordination and exchange of information on liquidity situation and institution viability to evaluate potential ELA. - October 2023: “Financial Markets Resilience” bill authorizes BCCh to extend ELA to banks temporarily non-compliant with certain capital requirements during recovery plan implementation if CMF grants viability opinion; law also permits ELA for systemic credit unions and Central Counterparties. - November 2025: BCCh issued public consultation on regulatory framework for access to its liquidity facilities, including access for non-bank financial institutions to the RTGS system. - Development of a specific ELA framework is ongoing. ### L. Macroprudential Governance, Credit Registry, and AML/CFT - 2023: CEF members and BCCh signed interinstitutional MoU to enhance coordination, exchange information, and address communications related to critical financial stability situations. - Coordination between BCCh and CMF on CCyB is close; before each semi-annual BCCh Board financial policy meeting, BCCh and CMF staff share views on financial stability risks. - July 2023: CMF and BCCh signed MoU focused on coordination in critical situations in local banking and financial system. - July 2024: Law to establish a consolidated debt registry published; administered by CMF to allow reporting entities to access debtors’ credit information. - April 2025: CMF published regulatory proposal for Consolidated Debt Registry operations; July 2025: CMF issued finalized regulation on REDEC. Reporting to REDEC became mandatory starting from April 2026. - August 2025: CMF amended regulation to incorporate Credit Advisory services as reporters in REDEC. - July 2025: CMF published list of entities obligated to report to REDEC (other than those directly defined in the Law) for March 1 to December 31, 2026. - December 2025: CMF published public consultation on REDEC operating rules to strengthen individuals’ consent terms; May 2026: new proposal published; final version expected this year. - November 2022: CMF issued updated regulation on prevention of money laundering, terrorist financing, and proliferation financing applied to banks, savings and credit cooperatives, and payment card issuers; aligns with FATF-related standards and addresses some MER recommendations approved July 2021 by GAFILAT. - February 2024: CMF issued regulations on risk management for insurance companies to incorporate AML/CFT risk within legal risk. - February 2024: CMF issued fintech regulations for corporate governance, risk management, and disclosure obligations; per 2023-2027 National AML/CFT Strategy, CMF and UAF will evaluate AML/CFT measures incorporation. - March 2025: UAF issued regulations imposing AML-CFT obligations on fintech firms effective June 2025. - February 2026: CMF amended regulations on banks, non-banking payment card issuers, and savings and credit cooperatives to ensure consistency across financial institutions concerning AML-CFT compliance. - CMF preparing to revise sanctioning framework for banks' AML/CFT violations to ensure greater consistency. *Source: 1chlea2026001 - 2024. In November 2024, the BCCh updated the CCyB framework,* ### Annex IX. Economic Gains from Improving the Allocation of ### Annex IX. Economic Gains from Improving the Allocation of Female Talent ### Overview - Higher female employment rates can support GDP growth, but the quality of women’s employment matters more for productivity. - If gender-talent distributions were similar across countries, one would expect similar gender representation across occupations; in practice, large differences exist, implying hidden barriers that prevent women from pursuing occupations that best match their skills. - A recent study suggests that removing such barriers could yield sizeable productivity gains. ### Evidence on occupational segregation and barriers - Comparative occupational outcomes for employed women aged 35-44 with tertiary education: - Managers: Chile 4.4 percent; United States 10.9 percent. - Elementary occupations: Chile 42 percent; United States 11 percent. - The model-implied barrier measure is inferred from cross-country differences in the distribution of occupations, earnings, and participation by gender, using microdata from the Luxembourg Income Study. - The barrier measure is strongly correlated with established indicators of gender inequality, such as the UN Gender Inequality Index. - As of 2015, the estimated barriers in Chile were 14 percent higher than those in the United States. - Chile ranks near the median among Latin American peers, but its estimated barrier levels remain above those in most OECD economies. ### Model estimates and counterfactual simulations - Counterfactual simulations use the model in Li et al. (forthcoming IMF Working Paper). - Reducing female occupational barriers to the OECD median would increase average income in all LA7 economies. - For Chile, the estimated gain in per capita income from reducing barriers to the OECD median is 3.6 percent. - Composition of the 3.6 percent gain: - 3.1 percent from higher labor productivity as women sort into occupations better aligned with their abilities. - 0.5 percent from higher labor force participation. - Implication: although Chile’s female labor force participation is approaching OECD levels, meaningful barriers persist in high-skilled occupations—particularly managerial, professional, and technical jobs—so easing these barriers would raise productivity by improving the allocation of talent across occupations. ### Policy implications - Focus on removing hidden barriers that restrict women’s access to high-paid, high-skilled occupations (managerial, professional, and technical). - Policies that facilitate better sorting of female talent into occupations aligned with their skills would primarily raise productivity (model implies most gains come from productivity improvements rather than participation increases). - Continued monitoring and targeted interventions are warranted given Chile’s barrier levels remain above most OECD economies despite median standing in the Latin American peer group. *Prepared by Nan Li and Robert Zymek (both RES); analysis uses microdata from the Luxembourg Income Study and the model in Li et al. (forthcoming IMF Working Paper).* ### 9.9 percent in the same period, while various indicators point to weak job creation. The authorities concur ### 9.9 percent in the same period, while various indicators point to weak job creation. The authorities concur ### Labor market, inflation, and recent shocks - Labor market negatively affected by recent regulatory changes: minimum wage hikes, a reduction in working hours, higher social security costs from the Pension Reform, and the slow recovery in the construction sector. - Conflict in the Middle East increased energy and transportation costs, contributing to local inflationary pressures. - Inflation metrics: - Headline inflation reached 3.9 percent in May (up from 2.4 percent in February). - Core inflation was 3.2 percent in May. - Headline inflation is expected to be at 4.2 percent by year-end. - Authorities implemented transitory and targeted fiscal measures in response to the oil price shock, including paraffin subsidies to low-income households and public transport fare freezes. - The BCCh has conducted a data dependent monetary policy approach, keeping the policy rate unchanged. ### External risks and rebuilding buffers - BCCh revised GDP growth estimates in mid-June to 1.0-1.75 percent for the current year and to 2.0-3.0 percent for 2027. - Inflation projections revised up to 4.2 percent for December 2026, with expected convergence to the BCCh’s 3.0 percent target from the second quarter of 2027. - External environment remains highly uncertain despite a successful first round of US–Iran negotiations and the reopening of the Strait of Hormuz reducing spot oil prices; authorities note further negotiations are needed for a durable peace agreement. - Measures to rebuild buffers: - Expenditure adjustment by the MoF expected to yield around 0.4 percent of GDP in 2026, correcting the weak outcome in 2025. - MoF program to sell state-owned land and properties without productive use contributes to medium-term fiscal consolidation. - BCCh three-year reserve accumulation program had accumulated purchases of US$5 billion by end-June, bringing international reserves to US$52 billion. - BCCh raised the counter-cyclical capital buffer (CCyB) to its neutral level at 1.0 percent of risk-weighted assets. ### Fiscal policy and consolidation - Authorities committed to a credible medium-term fiscal consolidation plan targeting a structural deficit path that reduces fiscal imbalances to 1.5 percent of GDP by 2030. - Consolidation pillars: expenditure rationalization, improved targeting of social spending, enhanced efficiency of public companies. - 2026 headline fiscal deficit projection revised up from 1.5 percent of GDP to 2.4 percent of GDP, reflecting more realistic revenue and spending assumptions. - NRP (comprehensive reform package) aims to accelerate investment and lift potential output; includes: - Reduction in the CIT rate from 27 to 23 percent. - Return to a fully integrated tax system. - Tax invariability measure for major investment projects. - Authorities state fiscal costs of the measures are based on conservative assumptions, include offsetting fiscal actions, and any residual net fiscal cost is expected to be accommodated through gains in spending efficiency. ### Monetary and financial sector policies - BCCh Board reaffirms commitment to continue flexible monetary policy to ensure inflation reaches 3 percent over the two-year horizon. - May inflation: headline 3.9 percent; core 3.2 percent; headline expected 4.2 percent by year-end; inflation expectations anchored at 3 percent in the two-year horizon. - Future path of the monetary policy rate to be assessed meeting-by-meeting. - FX regime: - Free-floating exchange rate maintained; FX interventions are exceptional and limited to disorderly market conditions. - FX framework supported by external liquidity buffers currently around 20 percent of GDP, including international reserves and access to credit lines. - Flexible Credit Line (FCL) remains a critical precautionary element; authorities commit to use the FCL as a precautionary facility and to reduce access level as external conditions and reserve accumulation improve. - Financial sector resilience: - Banks strengthened capital base and solvency indicators improved in line with Basel standards. - Main risk to financial stability: abrupt tightening of financing conditions. - Stress tests indicate banks would maintain capital levels above regulatory requirements under sudden activity drops and funding cost rises. - BCCh decision to continue convergence of the CCyB toward its neutral level, with implementation to be completed within 24 months and continuous assessment warranted. ### Structural reforms and labor policies - NRP measures to improve environmental and sectorial regulation, reduce processing times by at least one-third, and provide greater legal certainty (e.g., ensuring return of investments if approval revoked due to procedural irregularities). - Process management improvements include tools to monitor and track permits. - Technology and Knowledge Transfer Act passage: - Promotes technology transfer, intellectual property protection, science- and technology-based companies, and collaboration among academia, industry, entrepreneurs, and investors. - Strengthens transparency, establishes a national scientific knowledge repository, and aims to ensure publicly funded research delivers greater economic and social impact. - Upcoming labor market bill to increase flexibility and protect formal employment; measures considered include hourly contracts, a proposed severance package applicable in all circumstances, and initiatives to strengthen worker training. - Universal Daycare Center Bill: - Seeks to reform Chile’s Labor Code to guarantee the right to daycare for all children under the age of two, removing the restriction that only companies with 20 or more female employees must provide the benefit. - Funding to be managed through a Solidarity Fund financed by unemployment insurance contributions rather than a direct burden on individual employers. - Capital market bill (draft scheduled for submission to Congress in 2H2026) aims to deepen liquidity and modernize financial intermediation across four pillars: - Regulatory simplification to modernize financial intermediation. - Digital strengthening of financial infrastructure and payment systems. - Development of the debt market to restore fixed-income liquidity. - Promotion of Fintech innovation. - Design leverages technical support of the Capital Markets Advisory Council and aligns with structural benchmarks to mitigate macro-financial risks and foster sustainable domestic growth. *Source: 1chlea2026001 - 9.9 percent in the same period, while various indicators point to weak job creation. The authorities concur* --- _Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1chlea2026001.pdf_