## IMF Executive Board Concludes 2023 Article IV Consultation with Chile

_IMF News, February 6, 2024_

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## Bibliographic details
- Published: February 6, 2024

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### Summary
- The Executive Board concluded the Article IV consultation with Chile on February 5, 2024.
- Macroeconomic imbalances built during the pandemic have been largely resolved, supported by tighter macroeconomic policies deployed during late 2021-22.
- As domestic demand normalized, economic activity stabilized in the second half of 2023, yielding an estimated zero percent real GDP growth for the year.
- Inflation and current account deficits have significantly declined in 2023.
- The financial sector remains resilient despite the economic slowdown and tight financial conditions.
- Closure of the constitutional reform process is expected to reduce near- and medium-term domestic uncertainty.
- Chile has comparative advantages for the global green transition due to endowments in copper, lithium, and renewable energy.

### Economic outlook and projections
- Growth projections:
  - 2023: 0.0 (real GDP annual percentage change)
  - 2024: 1.9
  - 2025: 2.5
  - Medium term: 2-2.5 percent (text)
  - 2022 (for reference): 2.4
- Inflation projections:
  - Change of CPI (period average): 2023: 7.6; 2024: 3.3
  - Change of CPI (end of period): 2023: 12.8; 2024: 3.0 (table shows 12.8 for 2022 and 3.0 for 2023 in the table layout)
  - Inflation is projected to converge to the 3-percent target in 2024.
- Output gap (in percent):
  - 2022: 2.7
  - 2023: 0.2
  - 2024: -0.3
  - 2025: -0.1
- Employment / unemployment rate (annual average):
  - 2022: 7.9
  - 2023: 8.8
  - 2024: 8.9
  - 2025: 8.4
  - 2026: 7.7
- Balance of payments:
  - Current account balance (% of GDP):
    - 2022: -9.0
    - 2023: -3.2
    - 2024 (Proj.): -3.4
    - 2025 (Proj.): -3.3
  - Foreign direct investment net flows:
    - 2022: -2.7
    - 2023: -1.8
    - 2024 (Proj.): -2.2
  - Gross external debt (% of GDP):
    - 2022: 77.6
    - 2023: 73.1
    - 2024 (Proj.): 74.4
    - 2025 (Proj.): 74.1
    - 2026 (Proj.): 74.2

### Fiscal and monetary policy
- Monetary policy:
  - In the context of disinflation acceleration, the Central Bank of Chile lowered the monetary policy rate by 400 basis points since July 2023.
  - Directors emphasized that the pace of further monetary easing should remain data dependent.
  - Directors called for resuming international reserve accumulation when market conditions are conducive and for developing a long‑term reserve strategy (with a few calling for an earlier resumption).
- Fiscal policy:
  - The headline fiscal balance is estimated to decline to about -2.5 percent of GDP in 2023 due to weaker tax revenues, lower copper prices, and other transitory factors.
  - The 2024 budget envisions a moderate deficit reduction within a medium-term fiscal plan to a broadly balanced fiscal position by 2026.
  - Directors welcomed the authorities’ commitment to reach a broadly balanced fiscal position by 2026 and keep debt below the prudent debt ceiling of 45 percent of GDP.
  - Central government fiscal indicators (in percent of GDP):
    - Central government revenue: 2022: 26.1; 2023: 23.1; 2024 (Proj.): 23.8; 2025 (Proj.): 24.0
    - Central government expenditure: 2022: 25.0; 2023: 25.6; 2024 (Proj.): 25.9; 2025 (Proj.): 25.4; 2026 (Proj.): 24.5
    - Central government fiscal balance: 2022: 1.1; 2023: -2.5; 2024 (Proj.): -2.1; 2025 (Proj.): -1.4; 2026 (Proj.): -0.5
    - Central government gross debt: 2022: 38.0; 2023: 39.2; 2024 (Proj.): 40.5; 2025 (Proj.): 40.7; 2026 (Proj.): 41.1
    - Public sector gross debt1/: 2022: 67.3; 2023: 68.5; 2024 (Proj.): 69.8; 2025 (Proj.): 70.0; 2026 (Proj.): 70.4

### Financial sector resilience and reforms
- Directors agreed that the financial sector remains resilient.
- Ongoing and recommended measures:
  - Implementation of Basel III capital and liquidity requirements is ongoing.
  - Activation of the countercyclical capital buffer will strengthen financial resilience in periods of stress.
  - Efforts to establish an industry‑funded deposit insurance and a new bank resolution framework are underway.
  - Directors called for continued monitoring of vulnerabilities in construction and real estate sectors.
  - Directors stressed the importance of continuing to adapt financial regulation and supervision to the changing financial sector landscape.

### Risks and structural opportunities
- Key external risks:
  - Uncertainties around potentially higher‑for‑longer interest rates in advanced economies.
  - Growth slowdown in major trading partners.
  - Intensification of regional conflicts.
- Key domestic risks:
  - Political polarization and fragmentation could lead to continued reform gridlock.
  - Social discontent over inequality and the security situation remains prevalent.
  - Uncertainty related to the solvency of private health insurance companies.
- Upside opportunities:
  - Closure of the constitutional reform process could reduce uncertainty.
  - Global demand for copper, lithium, and renewable energy presents opportunities; directors stressed swift implementation of a clear and balanced institutional framework to capitalize on higher global demand for lithium and other critical minerals.
  - Directors welcomed efforts to foster investment, streamline permitting processes, and Chile’s progress in developing renewable energy.
  - Directors noted improvements in gender equality and encouraged additional efforts to further narrow labor market gender gaps.

### Executive Board assessment and policy recommendations
- Condolences were expressed for lives lost and devastation caused by massive forest fires.
- Directors welcomed the authorities’ very strong policies and policy frameworks and the support from the precautionary FCL arrangement.
- Directors commended reform plans aimed at:
  - Raising investment and productivity.
  - Increasing fiscal revenues for priority spending.
  - Reducing inequality.
  - Improving pension adequacy.
  - Transitioning to a greener economy.
- Fiscal recommendations:
  - Additional measures will be needed to achieve the authorities’ medium‑term fiscal plan and finance social needs and security priorities.
  - Support for proposed reforms to strengthen tax compliance and enhance spending efficiency.
  - Emphasis on raising pension contribution rates to ensure adequacy of self‑financed pensions and sustainability of the pension system.
  - Encouragement to further refine an already strong fiscal framework.
- Monetary and external sector recommendations:
  - Pace of monetary easing should be data dependent.
  - Maintain a flexible exchange rate to absorb shocks.
  - Resume international reserve accumulation when market conditions allow and develop a long‑term reserve strategy.
- Financial sector recommendations:
  - Continue implementing Basel III, the countercyclical buffer, deposit insurance, and a new bank resolution framework.
  - Monitor construction and real estate vulnerabilities.
- Structural reforms:
  - Foster investment, streamline permitting, implement a clear institutional framework for mining and critical minerals, and continue efforts to narrow gender gaps in the labor market.

### Key country facts and indicators
- GDP (2022), in billions of pesos: 263
- GDP (2022), in billions of U.S. dollars: 301
- Quota in millions of SDRs: 1,744
- Per capita (2022), U.S. dollars: 15,166
- Quota (in % of total): 0.37
- Population (2022), in millions: 19.8
- Main products and exports: Copper
- Key export markets: China, Euro area, U.S.
- Money and Credit:
  - M2 growth: 2022: 4.0; 2023: 5.3; 2024 (Proj.): 4.8; 2025 (Proj.): 6.2; 2026 (Proj.): 5.8
  - Credit to the private sector: 2022: 10.0; 2023: 2.8; 2024 (Proj.): 5.0; 2025 (Proj.): 7.1; 2026 (Proj.): 6.7

*IMF Executive Board Concludes 2023 Article IV Consultation with Chile, February 6, 2024.*

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## References

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- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
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- [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/2024/02/06/pr2438-chile-imf-exec-board-concludes-2023-art-iv-consult_