## IMF Executive Board Concludes 2022 Article IV Consultation with Chile _IMF News, January 20, 2023_ ## Source details **Canonical URL:** [IMF Executive Board Concludes 2022 Article IV Consultation with Chile](https://www.imf.org/en/news/articles/2023/01/20/pr2310-imf-concludes-2022-article-iv-consultation-with-chile) ## Other formats - [Markdown version](/en/news/articles/2023/01/20/pr2310-imf-concludes-2022-article-iv-consultation-with-chile/index.md) - [Structured JSON version](/en/news/articles/2023/01/20/pr2310-imf-concludes-2022-article-iv-consultation-with-chile/index.json) - [Bundle manifest](/en/news/articles/2023/01/20/pr2310-imf-concludes-2022-article-iv-consultation-with-chile/bundle-manifest.json) ## Bibliographic details - Published: January 20, 2023 --- ### Overview - The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Chile. - After an impressive recovery from the COVID-19 pandemic, the Chilean economy is undergoing a necessary transition towards sustainable growth amid a challenging external environment. - Economic activity is rapidly cooling down, while inflation seems to have peaked in August. - The current account deficit remains elevated, as adverse terms of trade have counteracted the ongoing adjustment of domestic demand. - Policy implementation remains very strong, geared towards correcting macroeconomic imbalances that built up during the pandemic, while protecting the most vulnerable and advancing structural reforms. - The Central Bank of Chile’s monetary policy response has been forceful and fully in line with the inflation targeting framework. - The 2022 fiscal position is projected to be markedly stronger than the target in the authorities’ medium-term fiscal consolidation plan. - The 2023 budget envisions higher social spending and public investment within a sustainable medium-term path. ### Macroeconomic Outlook and Projections - GDP growth on a y/y basis is expected to continue to slow in the last quarter of 2022 and recover by the last quarter of 2023. - Given monetary tightening and a negative output gap, inflation is projected to converge to target by end-2024. - The current account deficit is expected to gradually revert to the historical average of about 3 percent of GDP, supported by the authorities’ adequate structural fiscal consolidation plan and the flexible exchange rate. ### Risks, External Position, and Buffers - Downside risks persist, but very strong fundamentals and policies underpin Chile’s resilience. - External risks include: - a possible abrupt global slowdown, - sharply tighter global financial conditions, - commodity price shocks, - an intensification of spillovers from Russia’s war in Ukraine. - Domestic risks include: - high inflation persisting for longer than expected, - social discontent over high food and energy prices, - slow progress to meet social demands. - The constitutional reform process will continue but uncertainty over possible outcomes has narrowed. - Low public debt, a sustainable external position, and very strong policies and institutional policy frameworks continue to support Chile’s resilience and capacity to respond to shocks. - The two-year FCL, approved in August, provides additional external buffers on a precautionary basis and substantial insurance against tail risk scenarios. ### Executive Board Assessment - Executive Directors broadly agreed with the thrust of the staff appraisal. - They commended the authorities’ very strong policies geared towards correcting macroeconomic imbalances built up during the pandemic, while protecting the most vulnerable and advancing reforms. - Directors emphasized that while risks remain elevated, low public debt and a sustainable external position also supported by the precautionary FCL arrangement, and very strong policies and institutional policy frameworks continue to support Chile’s resilience. - Directors recognized that, after an impressive recovery from the COVID-19 pandemic, the Chilean economy is undergoing a necessary transition towards sustainable growth in a challenging external environment. - Directors welcomed the strong fiscal overperformance in 2022. - They noted that the 2023 Budget’s focus on social spending and public investment is appropriate amid a negative output gap. - Directors observed that tax and spending reforms should be sequenced conditional on revenue performance to preserve fiscal sustainability. - They encouraged the authorities to save any revenue overperformance and wait to disburse unallocated funds to support disinflation and external convergence. - They emphasized that the commitment to achieve a broadly balanced structural fiscal position over the next five years and keep public debt below a prudent ceiling of 45 percent of GDP is essential for preserving fiscal sustainability. - They welcomed ongoing refinements to Chile’s already very strong fiscal framework. - Directors commended the central bank’s decisive monetary policy tightening consistent with the highly credible inflation targeting framework and welcomed the commitment to maintain a tight monetary stance until price pressures and inflation expectations are on a firm downward trend. - Directors noted that the flexible exchange rate should continue to play its role as a shock absorber, while a substantial reserve accumulation program is desirable when conditions are conducive. - Directors noted that the financial sector remains resilient and welcomed efforts to closely monitor pockets of vulnerability, regulate fintech activities, and address FSAP recommendations. - Continuing to strengthen the AML/CFT framework is also important. - Directors supported plans to implement far-reaching reforms within a sustainable macroeconomic framework. - They emphasized that new pension withdrawals should be avoided, while reforms to improve pension adequacy, labor market formalization, and savings should be carefully designed and managed. - They encouraged the authorities to calibrate the pension reforms to also foster capital market deepening. - Directors commended Chile’s leadership in the region on climate change initiatives and agreed that a gradual increase of the carbon price, calibrated taking into consideration potential use of other mitigation tools, would contribute to achieving the country’s climate goals. *IMF Press Release No. 23/10 — January 20, 2023* --- ## References - [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) - [Press Releases](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [http://www.IMF.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2023/01/20/pr2310-imf-concludes-2022-article-iv-consultation-with-chile_