IMF Executive Board Concludes 2024 Article IV Consultation with Chile

IMF News, February 5, 2025

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Published: February 5, 2025

Economic outlook and macro performance

The Executive Board concluded the Article IV consultation on February 3, 2025 and endorsed the staff appraisal without a meeting on a lapse-of-time basis.
Real GDP is expected to expand by 2.2 percent in 2024, "close to its potential pace," and by 2-2.5 percent in 2025, supported by strong mining and service exports and an expected recovery in domestic demand.
Recovery uneven across industries: construction sector lagging and unemployment remaining high.
Inflation is projected to return to the 3-percent target in early 2026 after the effects of a significant increase in electricity tariffs between June 2024 and early 2025 subside.
Current account deficit continued to narrow; projected to reach around 2½ percent of GDP in 2024 and 2025.
Executive Board assessment: economy broadly balanced, macro position sound, 2024 external position assessed as moderately weaker than implied by medium-term fundamentals, public debt relatively low and sustainable with high probability.

External risks and resilience

Key external risks:
- Commodity price volatility tied to economic outlooks of main trading partners and the pace of the global green transition.
- Uncertainty around monetary and fiscal policies in advanced economies, possibly leading to tighter financial conditions and higher financial volatility.
Domestic risks: crime, migration, inequality, and political polarization hindering structural reform progress.
Recommendation: strengthen economic buffers to provide additional policy space for future shocks.
Rebuilding international reserve buffers emphasized to enhance resilience; incorporate a comprehensive international liquidity framework into the Central Bank of Chile’s longer-term financial stability strategy with high transparency standards and operational robustness.

Fiscal policy, public finances, and fiscal framework

Headline fiscal deficit projected at 2.7 percent of GDP in 2024 due to notable revenue underperformance and despite significant spending restraint.
2025 budget aims for notable deficit reduction within a medium-term plan toward a broadly balanced fiscal position by 2027.
To achieve a broadly balanced fiscal position by 2027, a gap of at least 1 percent of GDP needs to be filled—largely expected from the important tax compliance law if implementation yields planned additional revenue and is not used for new spending.
Policy guidance:
- Carefully monitor tax compliance developments and remain flexible to adjust spending if revenue mobilization falls short, while aiming to preserve public investment.
- Ensure structural spending increases are aligned with higher structural revenues.
- Unify fragmented social programs to enhance access and effectiveness for the most vulnerable.
- Provide more details on debt-creating flows outside the fiscal deficit (“below-the-line” items).
- Update fiscal forecasting methods in line with government plans.
- Adopt a medium-term strategy to rebuild the size of the Economic and Social Stabilization Fund (ESSF).
- Simplify presentation of fiscal targets and budget execution in the Public Finance Report.

Pension system and demographics

Pension reform deemed essential to ensure adequate pensions and to address fiscal costs of population aging.
Policy suggestions:
- Raise contribution rates and the number of contribution periods to sustainably self-finance old-age pensions.
- Target the minimum guaranteed pension (PGU) to the most vulnerable elderly, link retirement age to life expectancy, and implement proposed unemployment insurance for pension contributions.
Rationale: PGU has strengthened solidarity and reduced old-age poverty but incurs high fiscal costs; ratio of pensioners to working-age population set to nearly double in two decades.

Monetary policy stance and inflation guidance

Central Bank of Chile lowered the monetary policy rate by 325 basis points since January 2024 to 5 percent in December 2024.
Real monetary policy rate close to estimated neutral range.
Recommendation: adopt a cautious data-dependent approach to the pace of monetary policy easing; future cuts should remain contingent on evidence that inflation is heading decisively back to its target.

Financial sector stability and policy priorities

Financial system resilient despite rising vulnerabilities related to the real estate sector and lower financial market depth.
Real estate sector expected to recover modestly as long-term interest rates gradually decline; mitigants to credit risk exist, but supervisors should monitor portfolio quality and buffers.
Recommendations and priorities:
- Close commercial real estate data gaps and enhance stress test models.
- Rebuild depth of local financial markets by increasing pension contributions to expand the pool of investable savings.
- Continue implementation of Basel III capital and liquidity requirements.
- Promptly implement the Financial Market Resilience Law to enhance BCCh ability to respond to financial distress.
- Adopt an industry-funded deposit insurance and a bank resolution framework.
- Provide budget independence to the CMF.
- Further enhance bank corporate governance.
- Implement the Consolidated Debt Registry.
- Maintain gradual and state-contingent implementation of the countercyclical capital buffer (neutral level set at 1 percent of risk-weighted assets; current level 0.5 percent) to provide planning certainty for banks.

Structural reforms and growth-enhancing measures

Lifting Chile’s growth potential seen as essential to raise living standards and address social and fiscal pressures.
Government advancing growth initiatives (consultative approach):
- Expedite investment permit applications and environmental evaluations to encourage investment.
- Foster development of emerging industries, particularly renewable energy, to maximize benefits from the global green transition.
- Facilitate R&D.
Emphasis on swift and consistent implementation, regulatory burden rationalization, and infrastructure improvements.
Better integrating women into the labor market highlighted as a partial offset to unfavorable demographic trends.
Proposed new development bank should have a targeted mandate, sound risk management practices, and robust corporate governance.

Key statistics (from Table 1: Chile: Selected Economic Indicators, 2023-27)

GDP (2023), in trillions of pesos: 282
Quota (in millions of SDRs): 1,744
GDP (2023), in billions of U.S. dollars: 336
Per capita (2023), U.S. dollars: 16,815
in % of total: 0.37
Population (2023), in millions: 19.96
Main products and exports: Copper
Key export markets: China, U.S., Euro area

Projections (annual percentage change unless otherwise specified)

Real GDP: 0.2 (2023); 2.2 (2024); 2.3 (2025)
Total domestic demand: -4.2 (2023); 1.0 (2024); 2.4 (2025)
Consumption: -3.9 (2023); 1.6 (2024); 1.9 (2025); 2.1 (2026)
Fixed capital formation: -1.1 (2023); -1.0 (2024); 4.3 (2025); 3.4 (2026); 3.7 (2027)
Exports of goods and services: -0.3 (2023); 5.5 (2024); 4.7 (2025); 3.9 (2026)
Imports of goods and services: -12.0 (2023); 1.2 (2024); 4.4 (2025); 3.2 (2026)
Output gap (in percent): 0.0 (2023); -0.1 (2024); (no 2025 number listed)

Employment and prices

Unemployment rate (in percent, annual average): 8.7 (2023); 8.5 (2024); 8.2 (2025); 8.0 (2026); 7.8 (2027)
GDP deflator: 6.6 (2023); 6.0 (2024); 4.1 (2025); 2.9 (2026); 2.7 (2027)
Change of CPI (end of period): 4.5 (2023); 3.5 (2024); 3.0 (2025)
Change of CPI (period average): 7.6 (2023); 4.2 (2024); 3.1 (2025)

Public sector finances (In percent of GDP)

Central government revenue: 22.9 (2023); 22.1 (2024); 23.0 (2025); 23.8 (2026); 23.9 (2027)
Central government expenditure: 25.3 (2023); 24.8 (2024); 24.7 (2025); 24.3 (2026)
Central government fiscal balance: -2.4 (2023); -2.7 (2024); -1.8 (2025); -0.8 (2026); -0.4 (2027)
Central government structural fiscal balance 1/: -3.4 (2023); -3.1 (2024); -2.1 (2025); -1.2 (2026); -0.5 (2027)
Central government gross debt: 39.4 (2023); 42.7 (2024); 43.7 (2025); 44.1 (2026); 43.5 (2027)
Public sector gross debt 2/: 70.2 (2023); 73.5 (2024); 74.5 (2025); 74.9 (2026); 74.4 (2027)

Balance of payments

Current account balance (% of GDP) 3/: -3.5 (2023); -2.3 (2024); -2.5 (2025)
Foreign direct investment net flows (% of GDP) 3/: -4.6 (2023); -4.0 (2024); -2.6 (2025); -2.9 (2026)
Gross external debt (% of GDP) 4/: 71.1 (2023); 77.5 (2024); 76.5 (2025); 76.6 (2026); 75.7 (2027)

Notes from table sources and footnotes retained as presented:

Sources: Central Bank of Chile, Ministry of Finance, Haver Analytics, and IMF staff calculations and projections.
1/ The structural fiscal balance includes adjustments for output, copper prices, and lithium revenues based on IMF calculations. The lithium adjustment starts in 2022.
2/ Includes liabilities of the central government, the Central Bank of Chile and public enterprises. Excludes Recognition Bonds.
3/ Calculated as a share of US$ GDP.
4/ Data from Dipres for the government and from BCCh for all other sectors. Calculated as a share of US$ GDP.

IMF Executive Board Concludes 2024 Article IV Consultation with Chile (Press Release No. 25/027), February 5, 2025.