## 1chlea2026003

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### EXECUTIVE SUMMARY — Context and FCL request
- Economy resilient, fiscal buffers have shrunk and structural challenges persist.
- Growth projection: moderate in 2026 amid temporary mining weakness; partly offset by higher copper prices; higher oil prices from the war in the Middle East adversely affect activity.
- New administration policy intent: raise potential growth through deregulation and tax reforms; consolidate fiscal position via expenditure cuts.
- Authorities requested:
  - Two-year Flexible Credit Line (FCL) arrangement for SDR 8.7215 billion (500 percent of quota).
  - Cancellation of current arrangement approved August 27, 2024 (SDR 10.4658 billion, 600 percent of quota).
  - Treat new arrangement as precautionary; lower access reflects commitment to gradual reduction of access.
- Staff assessment: Chile continues to meet all FCL qualification criteria; staff supports the authorities’ request.

### RECENT DEVELOPMENTS, OUTLOOK, AND RISKS
- Economic activity and labor market
  - Real GDP growth: 2025 = 2.5 percent; non-mining growth in 2025 = 3 percent.
  - Real GDP: contracted 0.5 percent (y/y) in 2026Q1.
  - Unemployment: 9.4 percent in May 2026.
- Inflation and monetary policy
  - Headline inflation: 2.4 percent (y/y) in February 2026; reached 4.3 percent in June 2026.
  - Core inflation: averaged 3.4 percent so far in 2026.
  - BCCh policy rate: unchanged at 4.5 percent at its last four meetings.
- Fiscal developments
  - Headline fiscal deficit: 2.8 percent of GDP in 2025 (similar to 2024; 1.8 percentage points higher than budgeted).
  - Staff estimate structural deficit in 2025: 3.2 percent of GDP (similar to 2024).
  - End-2025 central government debt: 41.5 percent of GDP.
- External sector and trade
  - Copper prices rose about 9 percent in 2025; current account deficit: 1.2 percent of GDP in 2025.
  - Goods trade surpluses reached 8 percent of GDP in 2026Q2 amid copper price surge.
- Financial sector
  - Banks’ capital adequacy, liquidity, and profitability at or above pre-pandemic levels.
  - Basel III capital and liquidity requirements implemented in 2025.
  - BCCh raised the CCyB to 1 percent of RWA in May 2026 with a 24-month implementation period.
  - NPL ratios slightly above pre-pandemic levels; provisions remain adequate.
- Staff outlook (projections)
  - Real GDP: 2026 = 1.6 percent; 2027 = 2.8 percent.
  - Copper prices: expected to ease but remain elevated relative to historical norms.
  - Oil prices: gradually decline.
  - Inflation: projected to temporarily exceed the target through remainder of 2026 and early 2027, then return to target.
  - Fiscal stance: projected to tighten in 2026 and 2027 via expenditure restraint and revenue recovery, pending NRP approval.
  - Current account deficit: expected to remain stable in 2026; widen toward 2 percent of GDP over the medium term as copper prices retreat.
- Risks
  - External risks: near-term downside, medium-term balanced.
    - Downside scenarios: protracted Middle East hostilities (higher oil), continued trade tensions, slowdown in key trading partners, disorderly AI-led productivity-related correction.
    - Upside risk: persistently high copper prices.
  - Domestic risks: broadly balanced; El Niño risks; potential offset of growth-enhancing reforms by broad spending cuts; social tensions amid high inequality.

### FLEXIBLE CREDIT LINE (FCL) REQUEST, QUALIFICATION, AND FUND IMPACT
- Authorities’ request and intent
  - Two-year FCL for SDR 8.7215 billion (500 percent of quota); cancellation of current SDR 10.4658 billion (600 percent of quota).
  - New arrangement precautionary; lower access reflects commitment to gradual reduction of access.
- Staff assessment and Fund liquidity impact
  - Chile meets all FCL qualification criteria; staff supports the request.
  - Proposed new commitment and cancellation would have a net positive impact on the Fund’s liquidity position.
  - Approval would increase the Fund’s Forward Commitment Capacity (FCC) by SDR 1.7443 billion.

### VIEWS ON POLICIES AND POLICY RECOMMENDATIONS
- Fiscal policy and consolidation
  - Need a credible, well-prioritized consolidation path for fiscal sustainability.
  - To achieve authorities’ target structural deficit of 1.5 percent of GDP by 2030:
    - Requires additional measures of about ½ percent of GDP beyond staff’s baseline; an additional ½ percentage point needed to keep debt below 45 percent of GDP.
  - Notable recent steps: administrative spending cuts and capping the oil price stabilization mechanism.
  - Additional efforts: revisit costly tax measures that could undermine productive spending; strengthen tax compliance; reduce fragmentation of social programs and improve targeting.
- National Reconstruction Plan (NRP) and growth-enhancing measures
  - Clarify near-term fiscal implications of NRP to avoid adding to consolidation needs.
  - Prioritize lower-fiscal-cost measures (e.g., permitting reform).
  - Complement permitting reform with policies to enhance productivity and investment: foster university-business collaboration, narrow skill gaps, improve logistics.
  - Move toward a more universal childcare system to raise female labor supply and productivity.
- Monetary policy
  - Current broadly neutral stance appropriate.
  - BCCh’s meeting-by-meeting approach and focus on second-round effects welcome.
  - Monetary policy should be calibrated to contain second-round wage and domestic price effects so headline inflation returns durably to the 3-percent target over two years.
- External buffers and reserves
  - Continued international reserve accumulation recommended.
  - Complete BCCh’s three-year reserve accumulation program initiated in August 2025, with periodic assessments, to help maintain reserve coverage against adequacy metrics.

### FINANCIAL SECTOR REGULATORY UPDATES AND MARKET DEVELOPMENT
- Key reforms being advanced
  - Full implementation of Basel III.
  - Gradual increase in the CCyB to 1 percent.
  - Enhanced reporting to the Consolidated Debt Registry.
  - Strengthened prudential oversight for pension funds and emerging areas (stablecoins).
- Market and resilience measures
  - Financial Market Resilience Law implementation.
  - Repo market reforms; internationalization of the peso; market-maker program for domestic government bonds.
  - Amendments to market RWA calculation and internal ratings-based model requirements to align with international standards.
- Pension system reforms: ongoing implementation with attention to mitigate market impact; Pension Supervisor proposal for new investment regime noted.
- Remaining priorities
  - Industry-funded deposit insurance; bank resolution frameworks; risk-based insurance supervision; strengthen autonomy and resources of the Financial Market Commission (CMF); enhance AML/CFT coordination and resourcing.

### EXTERNAL POSITION, CAPITAL ACCOUNT, AND RESERVES
- External position and capital account
  - External position in 2025: broadly in line with medium-term fundamentals.
  - Current account adjusted norm: about 2 percent of GDP.
  - Net international investment position: –20 percent of GDP at end-2025.
  - Gross external debt: 77.6 percent of GDP in 2025 (from 74.4 percent in 2024).
  - Capital flows 2023–25: private flows = 85 percent of asset flows and 86 percent of liability flows.
  - IIP liabilities dominated by FDI (averaging 88 percent of GDP over 2023–25).
- Reserves and FX liquidity
  - Gross international reserves: US$51.9 billion at end-June 2026, up US$7.5 billion since end-2024.
  - BCCh reserve accumulation program (launched August 2025): purchase up to US$25 million per day; accumulate up to US$18.5 billion; cumulative accumulation US$5.6 billion by end-June with average execution 91 percent.
  - Reserves around 81 percent of ARA at end-June 2026 (about 14 percent of GDP), averaging 81 percent between January 2024–June 2026 (below recommended >100 percent).
  - Mitigating factors supporting adequacy:
    - Usable liquid FX assets: US$6 billion as of end-May 2026 (up 65 percent since end-2024), including US$3.9 billion in the economic and social stabilization fund and US$2.1 billion in cash (equivalent to improvement in reserve coverage up to 9.3 percentage points).
    - Short-term debt composition: 16 percent of short-term debt (US$8.6 billion as of 2026Q1) are intercompany loans.
    - Banks’ coverage: ~60 percent of banks’ short-term external debt (US$21.5 billion at end-2026Q1) 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 swap with PBOC US$6.8 billion.
    - BCCh access to the Fed’s FIMA repo facility up to US$26 billion (temporary).
    - Authorities’ commitment to a flexible exchange rate.

### BOX 2 — ILLUSTRATIVE ADVERSE SCENARIO (Key calibrations and outcomes)
- Scenario design: mirrors Chile’s 2024 FCL request calibration; models external risks tightening financial conditions, depressing global growth and commodity prices, and provoking capital outflows.
- Current account and trade shocks (percent change vis-à-vis baseline)
  - Mining exports (copper price decline): 15 percent decline.
  - Non-mining exports: 10 percent decline.
  - Oil imports (oil price decline): 15 percent decline.
  - Non-oil imports: 10 percent decline.
  - Net income: FDI income inflows decline 10 percent; FDI income outflows decline 15 percent.
- Capital flows and financing shocks
  - FDI inflows decline: 15 percent.
  - FDI outflows decline: 10 percent.
  - Portfolio flows: worsen by 0.5 std (around 25 percent of the average of past three years).
  - Other investment flows deteriorate by 0.5 std.
  - Portfolio/other investment shock adds more than US$5 billion to external financing needs per year.
- External debt and rollover assumptions
  - MLT private sector rollover: 80 percent.
  - ST private sector rollover: 80 percent.
  - Public sector external debt: full rollover assumed.
- Use of reserves, SWF, and FCL coverage
  - Financing partly from reserves above 80 percent of ARA and around one-third of SWF resources.
  - Remaining financing gap of around US$11.8 billion covered by FCL (about US$11.8 billion ≈ 500 percent of quota).
- Impact on Fund finances if full drawing
  - Proposed arrangement: SDR 8.7215 billion (500 percent of quota); cancellation of current SDR 10.4658 billion (600 percent of quota).
  - Approval increases FCC by SDR 1.7443 billion.
  - A full single drawing would make Chile the third largest Fund GRA-credit exposure after Argentina (SDR 42.552 billion) and Ukraine (SDR 10.56 billion).
  - Fund credit to Chile would represent 8.6 percent of total GRA credit outstanding as of July 2, 2026.
  - Total external debt would temporarily climb to 80 percent of GDP in 2027 before declining to 73.4 percent of GDP in 2031.
  - Fund credit would peak at 3.1 percent of GDP in 2026; debt service to the Fund would peak at about SDR 4.6 billion (about 1.3 percent of GDP) in 2030.
- Safeguards: BCCh authorized an update of safeguards procedures based on FY2025 audited financial statements; 2024 audit review identified no significant issues.

### IMPACT ON FUND FINANCES, CAPACITY TO REPAY, AND STAFF JUDGMENT
- Staff assessment of Fund finances
  - Impact from proposed FCL arrangement manageable; Fund’s credit exposure remains moderate even with a possible drawing.
  - Mitigating factors: precautionary intent, Chile’s track record and market access, investment-grade status.
  - Proposed new commitment and cancellation would have net positive impact on Fund liquidity.
- Key capacity-to-repay and exposure metrics under full drawing
  - Total external debt rise: 72.8 percent of GDP → 76.6 percent of GDP at end-2026.
  - Public external debt rise: 17.7 percent of GDP → 21.8 percent of GDP.
  - Chile's Fund credit outstanding would reach:
    - 3.1 percent of GDP,
    - 23.3 percent of gross international reserves,
    - 4.1 percent of total external debt at end-2026.
  - External debt service: 16.7 percent of GDP in 2026 and remain stable under staff medium-term projections.
  - Debt service to the Fund: around 0.1 percent of GDP in 2026–2028, peaking at 1.3 percent of GDP in 2030.
- FCC and FTP effects
  - Approval and cancellation increase FCC by SDR 1.7443 billion (from 181,593 to 183,338 SDR millions; change 1.0 percent).
  - If Chile fully drew, automatic exclusion from FTP would reduce FCC by about SDR 0.9 billion, partially offsetting the initial increase.
- Staff judgment
  - Approval of the successor FCL and cancellation of the current one would have a net positive impact on Fund liquidity and reduce credit commitments.
  - Credit risk assessed as moderate given Chile’s fundamentals, policy frameworks, and safeguards.

### EXTERNAL DEBT SUSTAINABILITY AND ANNEX HIGHLIGHTS
- External debt overview and drivers
  - External debt: 77.6 percent of GDP in 2025; more than 90 percent denominated in foreign currency.
  - 2026 dynamics expected to be primarily driven by peso appreciation.
  - Medium-term projection (2027–31): external debt stabilize about 72–74 percent of GDP.
- Annex I key statistics and projections (selected)
  - Total External Debt (percent of GDP): 2025 = 77.6; 2026 = 72.8; 2027 = 72.9.
  - Gross international reserves (US$ millions): 2025 = 49,450; 2026 = 57,249; 2027 = 64,923.
  - Copper price (WEO; U.S. cents per pound): 2025 = 451; 2026 = 566; 2027 = 489.
  - Key baseline versus adverse projections (selected)
    - Baseline Real GDP growth (percent): 2025 = 2.5; 2026 = 1.6; 2027 = 2.8.
    - Adverse Real GDP growth (percent): 2025 = 2.5; 2026 = -3.4; 2027 = 0.8.
    - Baseline Total external debt (percent of GDP): 2026 = 72.8; Adverse Total external debt (percent of GDP): 2026 = 76.6.
- Debt service and private sector features
  - Private external debt service high: 14.8 percent of GDP in 2026.
  - 22 percent of private external debt is FDI-related intercompany lending, which reduces roll-over risks and is hedged.

*Italic: IMF staff report excerpt: "Chile—2026—Staff Report for the Article IV Consultation (IMF Country Report No. 26/169)".*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- The economy remains resilient, though fiscal buffers have shrunk and structural challenges persist.
- Growth is projected to moderate in 2026 amid temporary weakness in the mining sector, partly offset by higher copper prices, and with higher oil prices following the war in the Middle East adversely affecting activity.
- The new administration aims to raise potential growth through deregulation and tax reforms, while consolidating the fiscal position via expenditure cuts.
- The authorities are requesting a successor two-year Flexible Credit Line (FCL) arrangement for SDR 8.7215 billion (500 percent of quota) and the cancellation of the current arrangement approved on August 27, 2024 (SDR 10.4658 billion, 600 percent of quota).
- The authorities intend to treat the new arrangement as precautionary and see it as an additional buffer against external tail risks; the lower access reflects the authorities’ commitment to a gradual reduction of access conditional on the evolution of external risks and higher buffers.
- In staff’s assessment, Chile continues to meet all the qualification criteria for an FCL arrangement, and staff supports the authorities’ request.

### Recent developments, outlook, and risks
- Economic activity and labor market
  - Real GDP growth eased to 2.5 percent in 2025, from 2.8 percent in 2024, further contracting 0.5 percent (y/y) in 2026Q1—largely reflecting a fall in mining output.
  - Non-mining growth in 2025 was 3 percent.
  - Unemployment rose to 9.4 percent in May 2026.
- Inflation and monetary policy
  - Headline inflation: 2.4 percent (y/y) in February 2026; reached 4.3 percent in June 2026.
  - Core inflation: averaged 3.4 percent so far in 2026.
  - Central Bank of Chile (BCCh) policy rate: unchanged at 4.5 percent at its last four meetings.
- Fiscal developments
  - Headline fiscal deficit: 2.8 percent of GDP in 2025 (similar to 2024; 1.8 percentage points higher than budgeted).
  - Staff estimate of structural deficit in 2025: 3.2 percent of GDP (similar to 2024).
  - End-2025 central government debt: 41.5 percent of GDP.
- External sector and trade
  - Copper prices rose by about 9 percent in 2025, boosting nominal exports despite lower copper export volumes.
  - Current account deficit: remained stable at 1.2 percent of GDP in 2025.
  - Goods trade surpluses reached 8 percent of GDP in 2026Q2 amid a further surge in copper prices in early 2026.
- Financial sector
  - Banks’ capital adequacy, liquidity, and profitability are at or above pre-pandemic levels.
  - Basel III capital and liquidity requirements implemented in 2025.
  - BCCh raised the countercyclical capital buffer (CCyB) rate to 1 percent of risk-weighted assets (RWA) in May 2026, with a 24-month implementation period.
  - Non-performing loan ratios have edged slightly above pre-pandemic levels; provisions remain adequate.
- Outlook (staff projections)
  - Real GDP: 1.6 percent in 2026; 2.8 percent in 2027 as mining output and investment recover.
  - Copper prices: expected to ease but remain elevated relative to historical norms.
  - Oil prices: gradually decline.
  - Inflation: projected to temporarily exceed the target through the remainder of 2026 and early 2027, then return to target as fuel and transportation price pressures ease.
  - Fiscal stance: projected to tighten in 2026 and 2027 through expenditure restraint and revenue recovery, pending final approval in Congress of the National Reconstruction Plan (NRP).
  - Current account deficit: expected to remain stable in 2026; expected to widen toward 2 percent of GDP over the medium term as copper prices retreat.
- Risks
  - External risks: tilted to the downside in the near term, balanced over the medium term.
    - Key downside scenarios: protracted hostilities in the Middle East keeping oil prices higher for longer; continued trade tensions; slowdown in key trading partners; disorderly correction related to AI-led productivity gains.
    - Key upside risk: persistently high copper prices.
  - Domestic risks: broadly balanced.
    - Risks include potential adverse effects of developing El Niño conditions (including a potential “super El Niño”) on food production, mining, and hydropower generation.
    - Policy reforms to boost investment could be offset by broad spending cuts that constrain productivity-enhancing outlays; social tensions remain a risk amid high inequality.

### Flexible Credit Line (FCL) request and qualification
- Authorities’ request
  - Two-year FCL arrangement for SDR 8.7215 billion (500 percent of quota).
  - Cancellation of current arrangement (SDR 10.4658 billion, 600 percent of quota).
  - New arrangement intended as precautionary and an additional buffer against external tail risks.
  - Lower access reflects commitment to gradual reduction of access as external risks evolve and buffers rise.
- Staff assessment
  - Chile continues to meet all FCL qualification criteria.
  - Staff supports the authorities’ request.
- Fund liquidity impact
  - The proposed new commitment and cancellation of the current arrangement would have a net positive impact on the Fund’s liquidity position.

### Views on policies and policy recommendations
- Fiscal policy and consolidation
  - A credible and well-prioritized consolidation path is needed to ensure fiscal sustainability.
  - Given fiscal slippages in 2025, achieving the authorities’ target of a structural deficit of 1.5 percent of GDP by 2030 would require additional measures of about ½ percent of GDP beyond staff’s baseline, with an additional ½ percentage point needed to keep debt below 45 percent of GDP.
  - Recent steps (administrative spending cuts and capping the oil price stabilization mechanism) are notable commitments to expenditure restraint.
  - Additional efforts should focus on policy prioritization and strengthening spending efficiency:
    - Revisit costly tax measures that could undermine productive spending.
    - Strengthen tax compliance.
    - Address fragmentation of social programs and improve targeting of key transfers to protect the most vulnerable.
- National Reconstruction Plan (NRP) and growth-enhancing measures
  - Clarify near-term fiscal implications of NRP measures to avoid adding to consolidation adjustments.
  - Prioritize lower-fiscal-cost measures such as swift implementation of permitting reform.
  - Complement permitting reform with efforts to enhance productivity and investment: foster university-business collaboration, narrow skill gaps, and improve logistics.
  - Move toward a more universal childcare system to raise female labor supply and productivity.
- Monetary policy
  - The central bank’s meeting-by-meeting approach and its consideration of second-round effects on headline inflation when setting policy is welcome.
  - The current broadly neutral monetary stance is appropriate.
  - Monetary policy should be calibrated to contain second-round effects on wages and domestic prices to ensure headline inflation returns durably to the 3-percent target over the two-year horizon.
- External buffers and reserves
  - Continued international reserve accumulation would bolster external buffers.
  - Completion of the three-year reserve accumulation program initiated in August 2025, with periodic assessments, would help maintain reserve coverage against adequacy metrics.

### External Economic Stress Index (EESI) and scenarios
- EESI composition
  - Based on four variables standardized around their mean: U.S. and China real GDP growth; change in the copper price; the emerging market volatility index (VXEEM); detrended 10-year U.S. Treasury yield.
  - Lower values indicate higher stress.
  - Weights: U.S. and China output growth (0.15), copper price change (0.35), VXEEM index (0.25), U.S. long-term yield (0.25).
- Recent behavior and projections
  - External stress increased sharply after the start of the war in the Middle East; after decreasing in 2025 due to higher copper prices, external stress has increased since March 2026.
  - As of June 2026, EESI is higher than at the time of the 2025 review under the FCL arrangement.
  - Under the baseline (following the April 2026 WEO “reference” scenario), external stress is expected to gradually fall close to historical averages and stabilize around the historic average from 2027Q2.
- Adverse scenario assumptions (illustrative)
  - Declines in U.S. and China growth of 1.7 percentage points in 2026 and 0.2 percentage points in 2027 relative to the baseline.
  - A persistent increase in U.S. long-term yields of 0.5 percentage points in 2026-27.
  - A 15-percent decline in the price of copper.
  - A two standard deviation increase in the VXEEM index relative to the baseline.

*Prepared by the IMF staff team led by Bikas Joshi, Peter Nagle, Myrto Oikonomou, Jocelyn Boussard, Narcissa Balta, and Kazuhiro Hiraki (with support from Natalia Martinez-Camelo and Nomuuntugs Tuvaan).*

### 16.      The authorities are proactively updating their strong financial sector regulatory

### 16.      The authorities are proactively updating their strong financial sector regulatory framework

### Financial sector regulatory updates and market development
- Key reforms being advanced:
  - Full implementation of Basel III.
  - Gradual increase in the CCyB (to a positive neutral level of one percent).
  - Enhanced reporting to the Consolidated Debt Registry.
  - Steps to strengthen prudential oversight, including for pension funds and emerging areas such as stablecoins.
- Measures to develop capital markets and enhance resilience:
  - Implementation of the Financial Market Resilience Law.
  - Repo market reforms.
  - Internationalization of the peso.
  - Market-maker program for domestic government bonds.
  - Amendments to regulations on the calculation of market risk-weighted assets (RWA) and on requirements for internal ratings-based models to calculate credit RWA to align RWA density to international standards.
- Pension system reforms:
  - Ongoing reforms are being implemented with due attention to mitigate any market impact, highlighted by the proposal recently published by the Pension Supervisor for an investment regime under the new pension system.
- Remaining priorities:
  - Advancing industry-funded deposit insurance.
  - Establishing bank resolution frameworks.
  - Implementing risk-based insurance supervision.
  - Strengthening autonomy and resources of the Financial Market Commission (CMF).
  - Continued enhancement of the AML/CFT framework through stronger coordination, broader coverage, and adequate resourcing.

### FCL qualification assessment (staff view)
- Staff assesses that Chile continues to meet all qualification criteria for the FCL arrangement.
- Chile currently meets all nine criteria used to assess underlying fundamentals and economic policies.
- No substantive changes in qualification since the mid-term review in August 2025 or the approval of the 2024 FCL arrangement.

### External position and capital account
- External position:
  - The 2026 Article IV consultation staff report assessed the external position to be broadly in line with the level implied by medium-term fundamentals and desirable policies in 2025 (compared to moderately weaker in 2024).
  - In the medium term, staff projects the current account deficit to remain close to its adjusted norm of about 2 percent of GDP.
  - Net international investment position: –20 percent of GDP at end-2025.
  - Gross external debt: 77.6 percent of GDP in 2025 (from 74.4 percent in 2024).
- Capital account dominated by private flows:
  - Over 2023-25, private flows accounted for 85 percent of total asset flows and 86 percent of total liability flows.
  - IIP liabilities dominated by FDI (averaging 88 percent of GDP over 2023-25).
  - Private sector accounted for about 97 percent of total IIP assets and 91 percent of liabilities.
  - About 93 percent of external debt is owed to private creditors.
  - Private flows in 2026 (as of May): over 83 percent of total asset flows and 65 percent of total liability flows.

### Reserve position and FX liquidity
- Gross international reserves: US$51.9 billion at end-June 2026, up US$7.5 billion since end-2024.
- BCCh reserve accumulation program launched August 2025:
  - Intends to purchase up to US$25 million per day and accumulate up to US$18.5 billion.
  - Cumulative accumulation reached US$5.6 billion by end-June with an average execution rate of 91 percent.
- Reserves relative to ARA:
  - Reserves stood at around 81 percent of the Fund’s reserve adequacy metric (ARA) at end-June 2026 (or about 14 percent of GDP), averaging 81 percent between January 2024 to June 2026 (below the recommended >100 percent).
- Staff assesses reserves to be adequate due to mitigating factors:
  - Usable liquid FX assets: US$6 billion as of end-May 2026 (up 65 percent since end-2024), including US$3.9 billion in the economic and social stabilization fund and US$2.1 billion in cash (equivalent to an improvement in reserve coverage of up to 9.3 percentage points).
  - Short-term debt composition: 16 percent of short-term debt (US$8.6 billion as of 2026Q1) are intercompany loans for foreign direct investors to local firms.
  - Banks’ coverage: 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 swap with PBOC (US$6.8 billion).
  - BCCh subscriber access to the Fed’s FIMA repo facility (temporary exchange for up to US$26 billion).
  - Authorities’ commitment to a flexible exchange rate.

### Public finances and debt sustainability
- Public debt: 41.5 percent of GDP in 2025 (down from 41.8 percent in 2024).
- Debt trajectory projected to gradually increase over the medium term, stabilizing at around 50 percent of GDP.
- Staff view: public debt is sustainable with high probability.
- Authorities’ fiscal objective: steadily reduce the structural fiscal deficit to 1.5 percent of GDP by 2030.
  - Staff projects meeting the target would require additional measures of about ½ percent of GDP beyond the current baseline.
- Two-thirds of public debt denominated in domestic currency; average external debt maturity above ten years.
- Liquidity mitigants: assets in sovereign wealth and pension reserve funds, large domestic banking and rising pension fund sectors.

### Inflation, monetary policy, and central bank position
- Inflation: averaged 6.4 percent over 2021-25 (target 3 percent).
  - Drivers: global shocks in 2021-23 and electricity price hikes in 2024-25.
- BCCh policy response: decisive tightening in 2022, easing as inflation declined; inflation briefly fell below target in early 2026 then rose following higher oil prices (expected to be temporary).
- Inflation expectations:
  - One-year-ahead inflation expectations rose following oil price shock; two-year ahead expectations remain well anchored.
- BCCh equity: small negative equity in 2025, which does not compromise policy solvency or require immediate recapitalization.

### Financial system soundness and supervision
- System soundness:
  - No solvency problems threatening systemic stability, though vulnerabilities exist in sectors such as real estate and construction.
  - Banks’ capital adequacy and liquidity buffers are comfortably above fully implemented Basel III regulatory requirements and increased relative to the 2024 FCL request.
  - Top-down stress tests estimate capital destruction under stress reducing the capital adequacy ratio (CAR) by 2.4 percentage points.
  - CAR buffer in the banking system: 4.8 percentage points.
  - Conclusion: the sector remains robust and able to withstand severe stress scenarios.
- Supervision and regulatory progress:
  - 2021 FSAP assessed banking supervisory framework as robust; ongoing progress in implementing FSAP recommendations.
  - Recent advances include Basel III implementation, Financial Market Resilience Law, repo market regulatory amendments, and launch of the Consolidated Debt Registry.
  - Strong AML/CFT supervisory framework; 2023-2027 National AML/CFT Strategy and recent extension of AML/CFT coverage to non-financial sectors aim to address deficiencies from the 2021 AML/CFT Mutual Evaluation Report.
  - Implementation of the Fintech Law enhances financial integrity.

### Data, institutions, and governance
- Data transparency: SDDS Plus subscriber since March 2020; data provision adequate for surveillance.
- Institutional strengths:
  - Very strong track record of macroeconomic management and policy implementation.
  - 2021 Fiscal Transparency Evaluation: strong fiscal institutions and sound fiscal transparency practices; Fiscal Responsibility Law implemented in 2024 strengthened monitoring by the Autonomous Fiscal Council.
  - 2021 Central Bank Transparency Review: BCCh high standards of policy analysis, conduct, and independence.
  - No macro-critical governance or corruption vulnerabilities identified in the 2026 Article IV consultation.
  - High scores on control of corruption, rule of law, and regulatory frameworks.
- Suggested refinements:
  - Better integrate committed expenditure into the medium-term fiscal framework and specify corrective actions for deviations.
  - Continued implementation of remaining FSAP recommendations: industry-funded deposit insurance scheme, Bank Resolution Law, risk-based supervision of insurance companies.
  - CMF reforms: proposed regulatory amendments on banks’ corporate governance and risk management; granting budgetary independence to CMF to ensure adequate resources for expanding responsibilities (fintech, cybersecurity).

### Access considerations for the FCL arrangement
- Authorities requested an FCL arrangement of 500 percent of quota (SDR 8.7215 billion).
- Rationale: maintain access under the FCL as part of buffers against tail risks while rebuilding domestic policy buffers amid elevated external risks.
- External downside risks: comparable to 2025 mid-term review; EESI indicates continued downside risks; adverse scenario combines severe and downside (Scenario B) shocks from April 2026 WEO (declines in U.S. and China growth in 2026, sharp/persistent increase in U.S. long-term yield, decline in copper price, increase in emerging market volatility).
- Staff view on access level:
  - Proposed access of 500 percent of quota appropriate to provide sufficient insurance under a plausible downside scenario.
  - Under the adverse scenario, external financing gap slightly lower than the 2024 FCL request.
  - Under BCCh accumulation program, reserves expected to reach US$64.9 billion by end-2027—about US$18 billion, or 15 percentage points of the ARA metric, higher than projected for end-2025 at 2024 FCL request.
  - Higher reserves allow larger drawdown while maintaining reserves at or above 80 percent of ARA and using around a third of SWF resources (a smaller withdrawal than in the 2024 FCL request).
  - Remaining financing gap of around US$11.8 billion (500 percent of quota) would be covered by the FCL arrangement.

*Source: IMF staff report excerpts (2026 Article IV consultation and FCL assessment).*

### Box 2. Chile: Illustrative Adverse Scenario

### Box 2. Chile: Illustrative Adverse Scenario

### Adverse scenario design and calibration
- A new FCL arrangement with access of 500 percent of quota (about US$11.8 billion) is modeled to provide insurance against a broad range of risks.
- The calibration of shocks is identical to Chile’s 2024 FCL request.
- Scenario assumes materialization of external risks that tighten financial conditions, depress global growth and commodity prices, and lead to capital outflows from emerging markets.

### Current account and trade shocks (assumptions in percent change vis-à-vis the baseline)
- Mining exports (copper price decline): 15 percent decline.
- Non-mining exports: 10 percent decline.
- Oil imports (oil price decline): 15 percent decline.
- Non-oil imports: 10 percent decline.
- Net income:
  - Decline in FDI income inflows: 10 percent.
  - Decline in FDI income outflows: 15 percent.
- Net effect: Weaker exports partly offset by (i) 15 percent decline in oil imports and 10 percent fall in non-oil imports, and (ii) an improvement in net income driven by a 15 percent drop in FDI-related income outflows that more than offsets the 10 percent drop in FDI-related income inflows.

### Capital flows and financing shocks
- FDI:
  - Decline in FDI inflows: 15 percent (reaching 85 percent of the average of the past three years).
  - Decline in FDI outflows (outward FDI by Chileans): 10 percent.
- Portfolio flows: worsen by 0.5 std (reaching a level of around 25 percent of the average of the past three years).
- Other investment flows: deteriorate by 0.5 std.
- Impact on external financing needs: Given importance of capital flows to Chile, the portfolio/other investment shock adds more than US$5 billion to external financing needs per year.

### External debt and rollover assumptions
- Multiyear/long-term (MLT) private sector rollover: 80 percent.
- Short-term (ST) private sector rollover: 80 percent.
- Rollover rates reflect near-25th percentile of past crisis episodes for long-term private sector external debt and within 25th percentile for short-term private sector external debt.
- Public sector external debt: assumed full rollover, given relatively low public external short-term financing needs compared with public liquid assets.

### Use of reserves, sovereign wealth fund (SWF), and FCL coverage
- Additional external financing needs under the adverse scenario financed partly by:
  - Reserves above 80 percent of the ARA metric if the scenario materializes in 2026, and a similar amount if it materializes in 2027.
  - Around a third of the resources in the SWF.
- The drawdown of reserves is larger than assumed in Chile’s 2024 FCL request due to reserves accumulated since 2025, allowing for a smaller withdrawal from the SWF.
- Remaining financing gap of around US$11.8 billion would be covered by the FCL.

### Impact on Fund finances, risks, and safeguards
- Proposed arrangement: SDR 8.7215 billion (500 percent of quota); cancellation of current arrangement SDR 10.4658 billion (600 percent of quota).
- Approval of the proposed arrangement would increase the Fund’s Forward Commitment Capacity (FCC) by SDR 1.7443 billion.
- If Chile drew the full amount as a single drawing under the illustrative adverse scenario:
  - This would be the third largest Fund GRA-credit exposure after Argentina (SDR 42.552 billion) and Ukraine (SDR 10.56 billion).
  - Fund credit to Chile would represent 8.6 percent of total GRA credit outstanding as of July 2, 2026.
  - Total external debt would temporarily climb to 80 percent of GDP in 2027 before declining to 73.4 percent of GDP in 2031.
  - Public external debt would peak at 22.8 percent of GDP in 2028.
  - Fund credit would peak at 3.1 percent of GDP in 2026.
  - Debt service to the Fund would peak at about SDR 4.6 billion (about 1.3 percent of GDP) in 2030.
- Safeguards: BCCh has provided authorization for an update of safeguards procedures to be conducted by Fund staff based on BCCh’s FY2025 audited annual financial statements and discussions with external auditors; 2024 audit results reviewed as part of the mid-term review of the 2024 FCL arrangement did not identify significant issues.

### Risk assessment and mitigation
- Main financial risks to the Fund: adequacy of liquidity resources and credit risk.
- Mitigating factors:
  - Requested access is lower than current arrangement, improving FCC and reducing liquidity risk.
  - Authorities intend to treat the arrangement as precautionary.
  - Strength of the Chilean economy, investment-grade status, uninterrupted market access, ongoing reserve accumulation program.
  - Very strong macroeconomic policies and institutional frameworks.
- Authorities intend to gradually reduce access conditional on external risk developments and to strengthen external buffers as part of an exit strategy.

### Staff appraisal and recommendation
- The FCL arrangement has supported authorities’ policy efforts amid an uncertain external environment and signaled strength of policy and institutional frameworks.
- Chile continues to meet all qualification criteria for an FCL arrangement, with very strong fundamentals and policy frameworks.
- Staff recommends approval of the authorities’ request for an FCL arrangement and considers the proposed access of SDR 8.7215 billion (500 percent of quota) appropriate.
- Policy advice: It will be important for the BCCh to continue the accumulation of international reserves to further strengthen external buffers.

*Source: IMF staff calculations.*

### 40.      Staff considers the impact on Fund finances from the proposed FCL arrangement to be

### 1chlea2026003 - 40.      Staff considers the impact on Fund finances from the proposed FCL arrangement to be

### Impact on Fund finances and FCL arrangement
- Staff assesses the impact on Fund finances from the proposed FCL arrangement to be manageable.
- The Fund’s credit exposure would remain moderate even with a possible drawing under the new arrangement.
- Mitigating factors:
  - The authorities intend to treat the FCL arrangement as precautionary.
  - Most capacity to repay indicators suggest moderate credit risk to the Fund in terms of Chile’s capacity to repay.
  - Chile has a sustained track record of accessing international capital markets at favorable terms for several decades.
- The proposed new commitment and cancellation of the current arrangement would have a net positive impact on the Fund’s liquidity position.

### Economic activity (Figure 1)
- Growth has moderated since the second half of 2025.
- Key drivers and developments:
  - 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.
  - Consumption growth described as still-robust.
  - Business confidence improved through 2025 and early 2026 but has softened since the Middle East conflict.

### External sector (Figure 2)
- The current account deficit narrowed through 2026Q1.
- Developments:
  - Imports have continued to grow, consistent with robust consumption and investment growth.
  - 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.

### Inflation (Figure 3)
- Headline inflation: after briefly falling below target, headline inflation has picked up following the conflict in the Middle East.
- Dynamics:
  - Disinflation in 2025 and pickup in inflation since March 2026 mirror regional trends.
  - Prior to the war, disinflation was driven by tradable prices (falling import prices) and peso appreciation, and fading base effects from electricity price hikes in 2024-25.
  - The rise in inflation since March has been led by fuel and transportation prices, with limited second-round effects.
  - Two-year inflation expectations remain close to the target.

### Public finances (Figure 4; Table highlights)
- The fiscal deficit was unchanged in 2025 mainly due to a weaker-than-expected revenue performance linked to consistently lower-than-projected 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 described as relatively low by international standards.
- The government continues to borrow at favorable rates, while Treasury assets have continued to decline.

Key summary indicators (from Table 1 and Table 2)
- GDP (2025), in trillions of pesos: 340
- GDP (2025), in billions of U.S. dollars: 358
- Per capita (2025), U.S. dollars: 17,847
- Population (2025), in millions: 20.0
- Poverty rate (2024): 17.3
- Gini coefficient (2024): 0.46
- Life expectancy (2026): 81.8
- Real GDP (annual growth): 2025 = 2.5; 2026 = 1.6; 2027 = 2.8
- Central government gross debt (percent of GDP): 2025 = 41.5; 2026 = 43.4; 2027 = 45.0
- Central government debt net of treasury assets (percent of GDP): 2025 = 37.5; 2026 = 39.6; 2027 = 41.4
- Central government fiscal balance (percent of GDP): 2025 = -2.8; 2026 = -2.3; 2027 = -1.8
- Current account (% of GDP): 2025 = -1.2; 2026 = -1.2; 2027 = -2.1
- Gross international reserves (in bn of USD): 2025 = 49.5; 2026 = 57.2; 2027 = 64.9
- Copper price (WEO; U.S. cents per pound): 2025 = 451; 2026 = 566; 2027 = 489

### Financial sector and markets (Figures 5–6)
- Banks implemented Basel III requirements by end-2025 with a comfortable level of voluntary buffers.
- Credit growth (excluding FX valuation effects on foreign-currency loans) showed signs of a mild recovery.
- NPL ratios stabilized at a level slightly above the pre-pandemic average; provision coverage ratios similar to pre-pandemic levels.
- Lending rates gradually decreased; short-term nominal rates have increased since the Middle East conflict.
- Weaknesses in housing markets persist due to elevated inventory levels and subdued sales.
- Equity index remains close to historical highs with price-to-earnings ratio below past average.
- Long-term rates and sovereign spread largely stable; domestic non-financial corporate bond issuance has seen some dynamism.
- After robust inflows, equity and bond fund inflows have softened since the war.

### External vulnerabilities and debt sustainability (Figures and Tables)
- Baseline external debt (percent of GDP): 2025 = 77.6; 2026 = 72.8; 2027 = 72.9
- Change in external debt: 2025 = 3.2; 2026 = -4.9; 2027 = 0.1
- Gross external financing need (in billions of US dollars): 2025 = 58.1; 2026 = 58.2; 2027 = 64.7
- External debt-to-exports ratio (in percent): 2025 = 224.9; 2026 = 211.9; 2027 = 231.2
- Key macro assumptions under baseline include Real GDP growth, GDP deflator in US dollars, nominal external interest rate, growth of exports/imports, and current account excluding interest payments; these feed into projections and debt-stabilizing calculations.

*Source: IMF staff calculations and projections as presented in the PDF chapter.*

### Annex I. External Debt Sustainability Analysis

### Annex I. External Debt Sustainability Analysis

### External debt overview
- External debt increased to 77.6 percent of GDP in 2025, mainly due to an increase in non-resident holdings of Chilean public and private sector long-term debt instruments.
- With more than 90 percent of external debt denominated in foreign currency, external debt dynamics in 2026 are expected to be primarily driven by the observed appreciation of the peso.

### Projections and drivers
- Over the medium term (2027-31), external debt is projected to stabilize to about 72-74 percent of GDP.
- Primary drivers highlighted:
  - Exchange rate movements (peso appreciation/depreciation).
  - Nonresident holdings of long-term public and private debt instruments.
  - High share of foreign-currency denomination (over 90 percent).

### Sustainability and stress testing
- Despite sensitivity to the exchange rate, external debt remains sustainable under a wide range of shocks according to the analysis and bound tests shown (Figure 1: External Debt Sustainability: Bound Tests).
- The non-financial corporate sector is characterized as highly leveraged, but a large share of its debt is FDI-related (intercompany loans) and benefits from foreign exchange hedging or long maturities, mitigating some risks.

### Key statistics and projections (as reported)
- External debt: 77.6 percent of GDP in 2025.
- Share of external debt denominated in foreign currency: more than 90 percent.
- External debt medium-term projection (2027–31): stabilize to about 72–74 percent of GDP.
- 2026 dynamics: expected to be primarily driven by observed appreciation of the peso.

*Source: Annex I. External Debt Sustainability Analysis (Chile). International Monetary Fund.*

### 3.      Chile has very strong economic fundamentals and institutional policy frameworks.

### 3.      Chile has very strong economic fundamentals and institutional policy frameworks.

### Macroeconomic fundamentals and policy frameworks
- Chile’s monetary policy is anchored in a highly credible inflation-targeting framework with a flexible exchange rate regime.
- The financial system is sound and effectively supervised.
- Fiscal policy:
  - Guided by a structural fiscal balance rule since 2001.
  - Complemented by a debt anchor rule since 2022.
- Public debt characteristics:
  - Relatively low by international standards.
  - Mostly denominated in domestic currency.
  - Average external debt maturity above ten years.
- Resilience: Chile has maintained a very strong track record of macroeconomic management and policy implementation amid repeated external shocks and two presidential transitions since 2019.

### External risks and outlook
- Near-term external risks are tilted to the downside; medium-term risks are balanced.
- Key external downside risks:
  - Potential tightening in global financing conditions.
  - Continued trade tensions.
  - Weaker growth in key trading partners.
  - A disorderly correction in the outlook related to AI-led productivity gains.
- Upside risks:
  - Swifter-than-expected normalization in energy markets.
  - Higher copper prices amid structurally higher demand from the energy transition, AI-related infrastructure growth, and defense spending.

### Public debt sustainability and projections
- Baseline staff projection:
  - Central government debt was 41.5 percent of GDP at end-2025.
  - Projected to gradually increase and stabilize at around 50 percent of GDP over the medium term.
- Net fiscal costs from the National Reconstruction Plan under discussion in Congress could push debt further; this would exceed the authorities’ prudent ceiling of 45 percent of GDP.
- External public debt:
  - About 18.3 percent of GDP at end-2025.
  - Projected to remain below 20 percent of GDP over the medium term.
- Liquidity buffers and absorbers:
  - Sovereign wealth fund liquid assets and a large domestic banking and rising pension fund sector can absorb sovereign issuances in case of abrupt global financial tightening.
- Total external debt (largely private sector):
  - Projected to decline from 77.6 percent of GDP at end-2025 to around 73 percent of GDP over the medium term.

### Total external debt—table highlights (2021–2026)
- Total External Debt (US$ millions): 235,405 (2021), 231,526 (2022), 243,345 (2023), 244,989 (2024), 277,421 (2025), 291,156 (2026 Proj. 1/).
- Private (US$ millions): 186,089 (2021), 186,321 (2022), 192,511 (2023), 194,933 (2024), 212,035 (2025), 220,326 (2026 Proj. 1/).
- Public (US$ millions): 49,316 (2021), 45,205 (2022), 50,834 (2023), 50,056 (2024), 65,386 (2025), 70,830 (2026 Proj. 1/).
- Total External Debt Service (US$ millions): 48,065 (2021), 63,659 (2022), 68,570 (2023), 67,856 (2024), 62,685 (2025), 63,411 (2026 Proj. 1/).
- Total External Debt (percent of GDP): 74.6 (2021), 76.9 (2022), 72.4 (2023), 74.4 (2024), 77.6 (2025), 72.8 (2026 Proj. 1/).
- Private (percent of GDP): 59.0 (2021), 61.9 (2022), 57.3 (2023), 59.2 (2024), 59.3 (2025), 55.1 (2026 Proj. 1/).
- Public (percent of GDP): 15.6 (2021), 15.0 (2022), 15.1 (2023), 15.2 (2024), 18.3 (2025), 17.7 (2026 Proj. 1/).

### FCL arrangement—adverse scenario and assumptions
- Adverse scenario: materialization of external risks that tighten financial conditions, depress global growth and commodity prices, and lead to capital outflows from emerging markets.
- Assumption for capacity-to-repay assessment: authorities purchase the full amount available under the arrangement (500 percent of quota).
- Baseline vs. Adverse scenario selected projections (2025–2031):
  - Baseline Real GDP growth (percent): 2.5 (2025), 1.6 (2026), 2.8 (2027), 2.3 (2028), 2.3 (2029), 2.3 (2030), 2.3 (2031).
  - Baseline Nominal GDP (US$ millions): 357,401 (2025), 400,201 (2026), 416,803 (2027), 436,178 (2028), 455,149 (2029), 475,098 (2030), 495,595 (2031).
  - Baseline Gross international reserves (US$ millions): 49,450 (2025), 57,249 (2026), 64,923 (2027), 70,772 (2028), 73,479 (2029), 76,330 (2030), 79,314 (2031).
  - Baseline Total external debt (percent of GDP): 77.6 (2025), 72.8 (2026), 72.9 (2027), 73.5 (2028), 73.9 (2029), 74.2 (2030), 73.4 (2031).
  - Adverse Real GDP growth (percent): 2.5 (2025), -3.4 (2026), 0.8 (2027), 5.3 (2028), 4.3 (2029), 4.3 (2030), 2.3 (2031).
  - Adverse Nominal GDP (US$ millions): 357,401 (2025), 380,191 (2026), 387,627 (2027), 418,731 (2028), 446,046 (2029), 475,098 (2030), 495,595 (2031).
  - Adverse Gross international reserves (US$ millions): 49,450 (2025), 51,171 (2026), 58,846 (2027), 67,539 (2028), 73,092 (2029), 75,942 (2030), 78,926 (2031).
  - Adverse Total external debt (percent of GDP): 77.6 (2025), 76.6 (2026), 79.9 (2027), 79.5 (2028), 77.8 (2029), 75.1 (2030), 73.4 (2031).
  - Adverse public external debt (percent of GDP): 18.3 (2025), 21.8 (2026), 22.6 (2027), 22.8 (2028), 22.4 (2029), 21.1 (2030), 19.5 (2031).

### Capacity to repay and debt service implications under full FCL drawing
- If Chile drawn in full at approval:
  - Total external debt would rise from 72.8 percent of GDP to 76.6 percent of GDP at end-2026.
  - Public external debt would rise from 17.7 percent of GDP to 21.8 percent of GDP.
  - Chile's Fund credit outstanding would initially reach:
    - 3.1 percent of GDP,
    - 23.3 percent of gross international reserves,
    - 4.1 percent of total external debt at end-2026.
  - Peak ratios of Fund credit outstanding relative to benchmarks would be moderate and below medians for exceptional access and FCL arrangements approved since 2008.
- External debt service:
  - Would be 16.7 percent of GDP in 2026 and remain stable under staff medium-term projections.
  - Chile’s debt service to the Fund: around 0.1 percent of GDP in 2026-2028 and peak at 1.3 percent of GDP in 2030 (reflecting large repurchases).
  - Peak total external debt service as a share of exports of goods and services: 58.8 percent in 2031 (above the median of comparable arrangements).
  - Peak debt service to the Fund: 4.4 percent in 2030 (below the median).
- Private external debt service:
  - High: 14.8 percent of GDP in 2026 and expected to remain elevated.
  - 22 percent of private external debt is FDI-related intercompany lending (reduces roll-over risks and is hedged against exchange rate risk).

### Impact on Fund finances, liquidity, and exposure
- Proposed FCL arrangement would be for 500 percent of quota; access under proposed arrangement is lower by 100 percent of quota than under the existing arrangement.
- Cancellation of existing arrangement would free up SDR 10.4658 billion, compared with SDR 8.7215 billion committed upon approval of the proposed arrangement.
- Net effect on Forward Commitment Capacity (FCC):
  - FCC would increase by SDR 1.7443 billion (about one percent of current liquidity) upon approval and cancellation of the existing arrangement.
  - Current FCC: 181,593 (SDR millions).
  - FCC on approval: 183,338 (SDR millions).
  - Change in percent: 1.0.
- Prudential measures assuming full FCL drawing:
  - Fund credit to Chile would represent 8.6 percent of total GRA credit outstanding.
  - Fund credit to Chile would be 33.2 percent of the Fund's precautionary balances (April 30, 2026).
  - Fund credit outstanding to five largest debtors: before approval 80.7 percent of total GRA credit outstanding; including Chile’s assumed full drawing 75.8 percent.
  - Fund's precautionary balances (April 30, 2026): 26,291 (SDR millions).
  - Total FCL commitments, including current FCL: 32,849 (SDR millions).
  - Total FCL commitments, including proposed FCL: 31,105 (SDR millions).
  - Quota of FTP members with actual and proposed FCLs, in percent of total quota of FTP members: 2.7 (as of 7/2/2026).
- Financial Transactions Plan (FTP) effects:
  - A single full drawing by Chile would create a large funding requirement from FTP participants.
  - If Chile drew, it would be automatically excluded from the list of members in the FTP, which would reduce the FCC and partially offset the initial FCC increase (estimated decline about SDR 0.9 billion).

### Assessment and staff judgment
- Net liquidity and commitment impact:
  - Approval of the proposed successor FCL arrangement and cancellation of the current one would have a net positive impact on the Fund’s liquidity position and reduce the Fund’s credit commitments.
  - FCC would increase by about SDR 1.74 billion from about SDR 181.6 billion to around SDR 183.3 billion.
  - If Chile drew under the FCL, automatic exclusion from the FTP would reduce the FCC by about SDR 0.9 billion, partially offsetting the initial increase.
  - Overall liquidity expected to remain adequate after approval.
- Credit risk and repayment capacity:
  - A full drawing would create a large GRA credit exposure to Chile, but staff assesses credit risk as moderate.
  - Key public debt metrics are below or close to the median compared to other recent exceptional access arrangements and FCL arrangements.
  - Chile’s long-standing track record of meeting Fund obligations, uninterrupted access to international capital markets at favorable terms, and investment grade status from the three major rating agencies mitigate financial enterprise risks.
- Authorities’ commitments and reserve strategy:
  - Authorities intend to treat the FCL arrangement as precautionary and to gradually lower access conditional on external risk developments.
  - In August 2025, the BCCh launched a three-year sterilized international reserve accumulation program to purchase up to US$25 million a day for a total of up to US$18.5 billion.
  - Through the program, BCCh aims to gradually replace part of its foreign currency credit lines with reserves while maintaining overall external buffers.
  - Program progress: purchases reached US$5.6 billion by end-June, 2026 and averaged 91 percent of the planned daily maximum; BCCh committed to full completion.
  - Over the longer term BCCh intends to maintain external buffers at an adequate level while assessing composition between reserves and other liquidity buffers.

*Italic: IMF staff report excerpt: "Chile—2026—Staff Report for the Article IV Consultation (IMF Country Report No. 26/169)".*

### Annex I. History of Arrangements with the IMF

### Annex I. History of Arrangements with the IMF

### Overview
- Provides a brief overview of Chile’s Fund arrangements from 1983 to present.
- Notes that Chile has an exemplary track record of meeting its obligations under past purchasing arrangements.
- Chile had three Fund arrangements in the 1980s and fully repaid its remaining outstanding credit in 1995.

### 1983–1989: Stand-By Arrangements (SBA) and Extended Fund Facility (EFF)
- On January 10, 1983, the Fund approved an SBA equivalent to SDR 500 million (154 percent of quota) in response to banking crisis, sudden stop of capital inflows, global slowdown, and a collapse in copper prices.
  - Under that arrangement, Chile made purchases totaling SDR 500 million.
  - Outstanding credit stood at SDR 795 million (245 percent of quota) at end of 1984.
  - Chile made repurchases after 1986.
- On August 15, 1985, an EFF equivalent to SDR 825 million was approved to support a medium-term economic policy and reform program for 1985‒89.
  - Solid performance under the EFF supported full repayment of outstanding obligations to the Fund.
- On November 8, 1989, a one-year SBA equivalent to SDR 64 million was approved.
  - Chile made full drawings and the obligations were fully repaid in 1995.

### Recent precautionary arrangements (2020–2024)
- On May 29, 2020, the Executive Board approved a two-year Flexible Credit Line Arrangement with Chile for SDR 17,443 million (1,000 percent of quota) to support the authorities’ macroeconomic strategy amid pandemic-related external risks.
  - The arrangement was canceled on May 19, 2022.
- On May 20, 2022, the Executive Board approved a Short-term Liquidity Line for Chile for SDR 2,529 million (145 percent of quota) to provide a backstop for potential, moderate, short-term liquidity needs.
  - The arrangement was set to expire in May 2023 but was cancelled in advance in August 2022.
- On August 29, 2022, the Executive Board approved a two-year Flexible Credit Line Arrangement with Chile for SDR 13,954 million (800 percent of quota) given elevated external risks.
  - The previous SLL arrangement was canceled upon approval of this FCL arrangement.
  - This arrangement was cancelled on August 26, 2024.
- On August 27, 2024, the Executive Board approved a two-year Flexible Credit Line Arrangement with Chile for SDR 10,466 (600 percent of quota).
  - Given the stronger near-term baseline outlook, the authorities requested a reduction in access and remained committed to gradually lowering access depending on external risk developments.

### Annex Table I.1 — Key financial figures (1983–2024) (selected entries preserved as in source)
- 1983 Stand-By Arrangement: Date of Arrangement 10-Jan-83; Expiration 9-Jan-85; Amount of New Arrangement 500; Drawn 500; Purchases 284; Repurchases 0; Outstanding 579.
- 1984: Purchases 216; Repurchases 0; Outstanding 795.
- 1985 Extended Fund Facility: Date of Arrangement 15-Aug-85; Expiration 15-Aug-89; Amount of New Arrangement 825; Drawn 806; Purchases 125; Repurchases 0; Outstanding 991.
- 1986: Purchases 250; Repurchases 42; Outstanding 1,088.
- 1987: Purchases 225; Repurchases 133; Outstanding 1,032.
- 1988: Purchases 150; Repurchases 154; Outstanding 983.
- 1989 Stand-By Arrangement: Date of Arrangement 8-Nov-89; Expiration 7-Nov-90; Amount of New Arrangement 64; Drawn 64; Purchases 120; Repurchases 120; Outstanding 967.
- 1990: Purchases 0; Repurchases 127; Outstanding 813.
- 1991: Purchases 0; Repurchases 144; Outstanding 669.
- 1992: Purchases 0; Repurchases 142; Outstanding 525.
- 1993: Purchases 0; Repurchases 169; Outstanding 347.
- 1994: Purchases 0; Repurchases 140; Outstanding 200.
- 1995: Purchases 0; Repurchases 200; Outstanding 0.
- 2020 Flexible Credit Line: Date of Arrangement 29-May-20; Expiration 19-May-22; Amount of New Arrangement 17,443; Drawn -; Purchases 0; Repurchases 0; Outstanding 0.
- 2022 Short-Term Liquidity Line: Date of Arrangement 20-May-22; Expiration 28-Aug-22; Amount of New Arrangement 2,529; Drawn -; Purchases 0; Repurchases 0; Outstanding 0.
- 2022 Flexible Credit Line: Date of Arrangement 29-Aug-22; Expiration 26-Aug-24; Amount of New Arrangement 13,954; Drawn -; Purchases 0; Repurchases 0; Outstanding 0.
- 2024 Flexible Credit Line: Date of Arrangement 27-Aug-24; Expiration 26-Aug-26; Amount of New Arrangement 10,465.8; Drawn -; Purchases 0; Repurchases 0; Outstanding 0.

### Supplementary information (selected findings, outlook, and policies)
- Recent data and activity:
  - Economic activity expanded by 0.6 percent month-on-month, seasonally adjusted, in June.
  - Real GDP for the second quarter came out lower than expected (at -0.2 percent year-on-year).
  - Staff continues to expect GDP growth to strengthen in the second half of the year and average 1.6 percent for 2026, though with some downside risk.
  - Headline year-on-year inflation declined to 3.5 percent in July; core inflation eased to 3.2 percent.
  - Unemployment rate (three-month moving average) was steady at 9.4 percent in June.
  - Goods exports rose 20 percent year-on-year in July; imports were broadly flat.
  - The 12-month cumulative trade goods balance rose to 8.4 percent of GDP, its highest level since 2010.
- Monetary policy and reserves:
  - At its meeting on July 28, the Banco Central de Chile (BCCh) held the policy rate at 4.5 percent (fifth consecutive meeting).
  - BCCh emphasized meeting-by-meeting, data-dependent assessment of policy.
  - BCCh’s three-year reserve accumulation program had accumulated US$5.7 billion by mid-August and brought international reserves to US$53 billion.
- Fiscal policy and National Reconstruction Plan (NRP):
  - NRP revisions reduced the overall fiscal cost; maintain gradual reduction of the corporate income tax rate from 27 to 23 percent over 2027-2029 and a transition to a fully reintegrated tax regime.
  - Authorities’ estimate: medium-term fiscal cost of the package declines from 0.33 to around 0.15 percent of GDP by 2030; yields a net positive return of around 0.47 percent of GDP by 2040.
  - NRP includes more targeted employment tax credit and higher central government transfers to municipalities to offset property tax exemptions for owner-occupied primary residency aged 65 and above.
- Safeguards and external audit:
  - Staff completed safeguards procedures for Chile’s 2026 FCL arrangement; procedures did not identify any concerns.
  - KPMG Chile, the BCCh’s new external auditor, issued an unmodified opinion on the 2025 financial statements, prepared in accordance with IFRS and published on a timely basis.
- Macroeconomic context and risks:
  - Growth moderated in first half of 2026; IPoM forecasts revised to 1.0–1.75 percent for 2026 and a rebound of 2.0-3.0 percent expected for 2027.
  - High copper prices supported a current account surplus.
  - Labor market: unemployment rose to 9.4 percent; two-year horizon inflation expectations remained anchored at 3 percent.
  - Elevated external volatility driven by conflict in the Middle East, higher oil prices, and uncertainty over oil supply normalization.
- Financial sector resilience:
  - Banks have strengthened capital bases; CCyB set at neutral level of 1 percent of risk-weighted assets.
  - Stress tests indicate banks would maintain capital above regulatory requirements under severe shocks.
  - Pension system reform expected to increase local capital market depth over time.

### FCL access policy and authorities’ stance
- Rationale for FCL:
  - FCL plays a vital role as an additional buffer to international reserves against external tail risks, including abrupt tightening of global financial conditions or sizable commodity price volatility.
- Authorities’ request and commitments:
  - Authorities requested a successor two-year FCL arrangement with reduced access level of 500 percent of quota.
  - In a drawing scenario, the authorities commit that FCL resources would not be used for budget financing, consistent with Chile’s institutional framework.
  - Authorities reaffirm commitment to treating the FCL as a precautionary facility and to gradually reducing access when external conditions allow.
- Statement by Rodrigo Alfaro, Advisor to Executive Director (August 26, 2026):
  - Notes that a successor arrangement with a lower access level of 500 percent of quota (SDR 8.7215 billion) will continue to provide safeguard amid the current global environment.
  - Reiterates commitment to precautionary use and non-use of resources for budget financing.

*Annex I. History of Arrangements with the IMF — Source: 1chlea2026003 - Annex I. History of Arrangements with the IMF*

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_Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1chlea2026003.pdf_