{ "title": "Chile: Staff Concluding Statement of the 2021 Article IV Mission", "publication": "IMF News, March 9, 2021", "sourceUrl": "https://www.imf.org/en/news/articles/2021/03/09/mcs030921-chile-staff-concluding-statement-of-the-2021-article-iv-mission", "canonical": "https://www.imf.org/en/news/articles/2021/03/09/mcs030921-chile-staff-concluding-statement-of-the-2021-article-iv-mission", "overlayPath": "/en/news/articles/2021/03/09/mcs030921-chile-staff-concluding-statement-of-the-2021-article-iv-mission/index.md", "summary": "1/ Structural adjustment based on IMF Staff estimate.", "publishDate": "2021-03-09", "sections": [ { "heading": "Macroeconomic outlook and recent performance", "content": "- Economic activity contracted by 6 percent in 2020, with sharp declines in the second and third quarters, and a recovery picking up in the fourth quarter with annual growth estimated at close to zero.\n- Economic activity is expected to expand by 6 percent in 2021, supported by an ambitious vaccination program.\n- Over the medium term, growth is projected to converge to potential of 2.5 percent and the unemployment rate to gradually decline to about 7 percent.\n- Annual headline inflation moderated in mid-2020 and has then hovered close to 3 percent, the policy target.\n- The current account balance improved considerably in 2020 amid plummeting imports and resilient exports; it is expected to deteriorate in 2021-22 owing to strong import demand, before narrowing somewhat over the medium term." }, { "heading": "Risks and resilience", "content": "- External risks: pandemic dynamics (mitigated by fast vaccination), possible reappearance of de-globalization demands reducing trade and growth opportunities, and large movements in the price of copper affecting exports, fiscal revenues, and investment prospects.\n- Domestic risks: uncertain outcome of the New Constitution process and possible resurgence of unrest.\n- Financial sector risks: a delay in recovery could increase delinquency rates, though bank capital appears adequate at present.\n- Sources of resilience: large policy response, remaining fiscal space, very strong institutional policy settings, sound record of policy reaction, and low level of public debt by international standards." }, { "heading": "Fiscal policy and public debt", "content": "- Chile’s public debt is 32 percent of GDP.\n- The 2020 multi-year fiscal stimulus package has helped counteract the crisis.\n- Staff views the fiscal policy stance in 2021 as broadly appropriate; additional stimulus might be needed if the pandemic is prolonged (e.g., targeted household transfers and extension of tax deferrals).\n- Staff cautions against additional pension withdrawals: the July and December 2020 withdrawals support recovery but were poorly targeted, regressive, and have weakened the pension system.\n- Authorities commit to gradual consolidation, reducing the structural deficit towards a target of 0.9 percent of GDP by 2025.\n- Policy recommendations to strengthen the fiscal framework:\n - Complement the structural balance rule with an explicit medium-term debt anchor that encompasses a debt ceiling and a debt buffer zone.\n - Introduce a formal escape clause for temporary relaxation or suspension of the structural balance target, accompanied by an adjustment mechanism.\n - Establish an autonomous fiscal council with own resources and a broader mandate (noted as an important step already taken)." }, { "heading": "Monetary and financial sector policy", "content": "- The Central Bank reduced the policy rate to its technical lower bound and implemented unconventional measures: funding-for-lending facilities, asset purchase programs, and an expanded collateral framework.\n- The monetary stimulus is assessed as appropriate and should remain contingent on developments and risks, guided by the inflation targeting framework.\n- Temporary emergency measures have been used to facilitate credit flow and support income; monitoring for early signs of stress remains critical.\n- As normalcy returns, financial institutions should be encouraged to restructure loans prudently on a commercial basis while maintaining prudential lending standards and adequate reporting.\n- Financial sector reform priorities:\n - Implement regulations stemming from the new Banking Law in compliance with Basel III in line with the revised timeline.\n - Broaden powers and tools for bank resolution and establish a national deposit-insurance scheme funded by member banks.\n - Strengthen regulation of insurance companies and financial conglomerates.\n - Enhance regulation and supervisory responses to FinTech expansion and cybersecurity threats.\n- The 2021 Financial Sector Assessment Program (FSAP) will conduct a detailed analysis of financial stability policies and risks." }, { "heading": "Structural and social reforms", "content": "- Rapidly reaching broad agreement on structural and social reforms while preserving macro stability would stimulate investment, productivity, confidence, and social convergence.\n- Pension reform: finalizing reform is urgent to ensure adequate pension coverage. Recent 2020 legislation increased the solidarity pillar; government proposals to increase contribution rates and further strengthen the solidarity pillar are important. Key elements going forward:\n - Adjust contribution rates, retirement age (especially for women), and solidarity parameters based on demographics, employability, economic developments, expected replacement rates, and expected returns on pension assets.\n - Reduce informality to increase contribution density.\n - Ensure competition in pension management to promote efficiency and contain costs.\n- Health system reform priorities:\n - Create a basic universal health plan pooling risks from public and private members.\n - Eliminate discrimination based on pre-existing conditions in the private system.\n - Improve efficiency in the public system, increase competition, and reduce out-of-pocket spending on medicines.\n- Fiscal revenue and expenditure adjustments (when recovery is well-advanced) should include:\n - Increasing direct taxation by revisiting exemptions, deductions, and special regimes, and strengthening tax administration.\n - Gradually rationalizing indirect taxes.\n - Raising green taxes.\n - Sustain efforts to increase efficiency in spending.\n- Broader medium-term structural agenda: enhance education quality, address labor market mismatches, promote labor market flexibility, reduce informality, strengthen competition, streamline bureaucracy, continue trade and financial integration, and support climate-related policy actions." }, { "heading": "Selected economic indicators (Est., Proj.)", "content": "- Real GDP Growth (%): 2018 = 4.0; 2019 = 1.1; 2020 = -6.0; 2021 = 6.0; 2022 = 3.7\n- Inflation (End of period, %): 2018 = 2.1; 2019 = 3.0; 2020 = 2.9\n- Structural Fiscal Balance (% of GDP) 1/: 2018 = -1.5; 2019 = -1.7; 2020 = -2.7; 2021 = -4.2; 2022 = -3.9\n- Overall Fiscal Balance (% of GDP) 1/: 2018 = -1.6; 2019 = -2.8; 2020 = -7.3; 2021 = -2.6; 2022 = -3.1\n- Current Account (% of GDP): 2018 = -3.6; 2019 = -3.8; 2020 = 0.3; 2021 = -1.3\n\n1/ Structural adjustment based on IMF Staff estimate.\n\nSource: IMF staff concluding statement of the 2021 Article IV mission for Chile.\n\n---\n\n\n References\n\n- Chile and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2021/03/09/mcs030921-chile-staff-concluding-statement-of-the-2021-article-iv-mission" } ], "bullets": [ "[Markdown version](/en/news/articles/2021/03/09/mcs030921-chile-staff-concluding-statement-of-the-2021-article-iv-mission/index.md)", "[Structured JSON version](/en/news/articles/2021/03/09/mcs030921-chile-staff-concluding-statement-of-the-2021-article-iv-mission/index.json)", "[Bundle manifest](/en/news/articles/2021/03/09/mcs030921-chile-staff-concluding-statement-of-the-2021-article-iv-mission/bundle-manifest.json)", "Published: March 9, 2021", "Economic activity contracted by 6 percent in 2020, with sharp declines in the second and third quarters, and a recovery picking up in the fourth quarter with annual growth estimated at close to zero.", "Economic activity is expected to expand by 6 percent in 2021, supported by an ambitious vaccination program.", "Over the medium term, growth is projected to converge to potential of 2.5 percent and the unemployment rate to gradually decline to about 7 percent.", "Annual headline inflation moderated in mid-2020 and has then hovered close to 3 percent, the policy target.", "The current account balance improved considerably in 2020 amid plummeting imports and resilient exports; it is expected to deteriorate in 2021-22 owing to strong import demand, before narrowing somewhat over the medium term.", "External risks: pandemic dynamics (mitigated by fast vaccination), possible reappearance of de-globalization demands reducing trade and growth opportunities, and large movements in the price of copper affecting exports, fiscal revenues, and investment prospects.", "Domestic risks: uncertain outcome of the New Constitution process and possible resurgence of unrest.", "Financial sector risks: a delay in recovery could increase delinquency rates, though bank capital appears adequate at present.", "Sources of resilience: large policy response, remaining fiscal space, very strong institutional policy settings, sound record of policy reaction, and low level of public debt by international standards.", "Chile’s public debt is 32 percent of GDP.", "The 2020 multi-year fiscal stimulus package has helped counteract the crisis.", "Staff views the fiscal policy stance in 2021 as broadly appropriate; additional stimulus might be needed if the pandemic is prolonged (e.g., targeted household transfers and extension of tax deferrals).", "Staff cautions against additional pension withdrawals: the July and December 2020 withdrawals support recovery but were poorly targeted, regressive, and have weakened the pension system.", "Authorities commit to gradual consolidation, reducing the structural deficit towards a target of 0.9 percent of GDP by 2025.", "Policy recommendations to strengthen the fiscal framework:", "The Central Bank reduced the policy rate to its technical lower bound and implemented unconventional measures: funding-for-lending facilities, asset purchase programs, and an expanded collateral framework.", "The monetary stimulus is assessed as appropriate and should remain contingent on developments and risks, guided by the inflation targeting framework.", "Temporary emergency measures have been used to facilitate credit flow and support income; monitoring for early signs of stress remains critical.", "As normalcy returns, financial institutions should be encouraged to restructure loans prudently on a commercial basis while maintaining prudential lending standards and adequate reporting.", "Financial sector reform priorities:", "The 2021 Financial Sector Assessment Program (FSAP) will conduct a detailed analysis of financial stability policies and risks.", "Rapidly reaching broad agreement on structural and social reforms while preserving macro stability would stimulate investment, productivity, confidence, and social convergence.", "Pension reform: finalizing reform is urgent to ensure adequate pension coverage. Recent 2020 legislation increased the solidarity pillar; government proposals to increase contribution rates and further strengthen the solidarity pillar are important. Key elements going forward:", "Health system reform priorities:", "Fiscal revenue and expenditure adjustments (when recovery is well-advanced) should include:", "Broader medium-term structural agenda: enhance education quality, address labor market mismatches, promote labor market flexibility, reduce informality, strengthen competition, streamline bureaucracy, continue trade and financial integration, and support climate-related policy actions.", "Real GDP Growth (%): 2018 = 4.0; 2019 = 1.1; 2020 = -6.0; 2021 = 6.0; 2022 = 3.7", "Inflation (End of period, %): 2018 = 2.1; 2019 = 3.0; 2020 = 2.9", "Structural Fiscal Balance (% of GDP) 1/: 2018 = -1.5; 2019 = -1.7; 2020 = -2.7; 2021 = -4.2; 2022 = -3.9", "Overall Fiscal Balance (% of GDP) 1/: 2018 = -1.6; 2019 = -2.8; 2020 = -7.3; 2021 = -2.6; 2022 = -3.1", "Current Account (% of GDP): 2018 = -3.6; 2019 = -3.8; 2020 = 0.3; 2021 = -1.3", "[Chile and the IMF](http://www.imf.org/external/country/CHL/index.htm)", "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)", "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2021/03/09/mcs030921-chile-staff-concluding-statement-of-the-2021-article-iv-mission/index.md", "json": "/en/news/articles/2021/03/09/mcs030921-chile-staff-concluding-statement-of-the-2021-article-iv-mission/index.json", "bundleManifest": "/en/news/articles/2021/03/09/mcs030921-chile-staff-concluding-statement-of-the-2021-article-iv-mission/bundle-manifest.json" }, "generatedAtUtc": "2026-09-26T00:13:33.796Z" }