Chile: Staff Concluding Statement of the 2026 Article IV Mission
IMF News, May 4, 2026
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- Published: May 4, 2026
Economic outlook and risks
- Chile’s economy remains resilient, supported by credible policy institutions.
- Real GDP growth projections:
- 2.2 percent in 2026.
- 2.5 percent in 2027.
- Inflation dynamics:
- Inflation is set to exceed the target temporarily in 2026 and early 2027 due to higher oil prices.
- Current account:
- Deficits are projected to narrow in 2026 (driven by higher copper prices), before widening to 2-2.5 percent of GDP in the medium term as real copper prices revert toward the historical average.
- Major external and domestic risks:
- Downside: Protracted hostilities in the Middle East (higher oil prices), trade tensions, disorderly corrections related to AI-led productivity gains.
- Upside: Persistently high copper prices due to structurally higher demand from the green transition, AI-related infrastructure, and defense spending.
- Upside scenario: With sustained high copper prices in the US$ 5.5-6.0 per pound range and implementation of investment-enhancing reforms under the National Reconstruction Plan, IMF staff projects growth to reach around 3 percent during 2027-30, with more than half of the impulse associated with copper prices.
- Near-term policy priorities if the war in the Middle East becomes protracted:
- Readiness to tighten monetary policy to contain inflation within the central bank’s target horizon.
- Provide fiscal support for the most vulnerable groups.
Fiscal position, consolidation, and policy recommendations
- Near-term fiscal stance and measures:
- Under current policies, IMF staff projects the headline deficit in 2026 to reach about 2.5 percent of GDP.
- Identified expenditure cuts via administrative measures of around 0.5 percent of GDP in 2026 are incorporated in full in the IMF staff baseline.
- Government capped the oil price stabilization mechanism in favor of more targeted and less fiscally costly support.
- Medium-term targets and requirements:
- Government objective: reach a broadly balanced structural position by 2030 and keep the debt-to-GDP ratio below 45 percent.
- Required cumulative fiscal efforts: 2-3 percentage points of GDP, given the starting point in 2025.
- Without such efforts, IMF staff projects the government debt-to-GDP ratio to move above 45 percent in 2028.
- Government medium-term fiscal strategy components:
- Further administrative spending cuts of 0.3 percent of GDP.
- A comprehensive tax and spending package as part of the National Reconstruction Plan, estimated by authorities to have a net fiscal cost of 0.2 percent of GDP by 2030 (including growth-enhancing impact).
- Expenditure measures: curb abuse of public-sector medical leave, reduce size of public workforce, eliminate low-performing programs.
- Revenue measures: gradual reduction in the CIT rate from 27 to 23 percent, a tax credit targeting firms employing low-income workers, shift to a fully integrated tax system.
- Staff recommendations and cautions:
- Weigh the planned tax employment credit and gradual CIT rate reduction against preserving fiscal space and maintaining productive public spending.
- Consider more targeted and less costly alternatives, such as accelerated expensing for capital expenditure (particularly non-mining) or narrower subsidies linked to new employment creation.
- Compensate the additional fiscal gap created by the new bill with commensurate expenditure and/or revenue measures.
- Reconsider timing, size, and design of policies not directly linked to growth and employment goals (e.g., property tax exemptions) to limit fiscal pressure.
- Continue implementation of the Tax Compliance Law and project yields conservatively, considering recent revenue underperformance.
- Spending efficiency and fiscal framework:
- Recommend embedding ongoing spending-efficiency efforts in a full-fledged spending review.
- Noted increases in total public spending over the past decade, especially in health, education, and social protection, while remaining relatively low compared to OECD peers.
- Areas for efficiency gains: procurement processes in healthcare; measures in tertiary education; one-stop service window; consolidation of fragmented social programs; improved targeting of the minimum guaranteed pension (PGU).
- Technical refinements suggested for the dual fiscal rules framework: formulation of committed expenditure in the medium-term fiscal path; operationalization of corrective actions after deviations; estimation of structural parameters (trend GDP, benchmark copper prices); treatment of revisions to national accounts.
Monetary policy and international reserves
- Monetary policy stance and conditional readiness:
- Chile’s inflation targeting framework remains effective; two-year inflation expectation is well anchored.
- Current monetary policy stance is broadly neutral.
- A temporary oil-price-driven inflation spike in 2026–early 2027 would not, by itself, warrant a policy rate change.
- If oil prices stay much above the baseline for longer and generate second-round effects on wages and other prices, the central bank should tighten policy; the meeting-by-meeting evaluation approach is welcomed.
- International reserves:
- Central bank reserve accumulation program launched in August 2025.
- Reserves increased by about US$4 billion by end-April.
- Completion of the three-year program remains a priority to bolster external buffers.
Financial sector resilience, pension reform, and regulatory priorities
- Financial system soundness:
- System is sound and able to withstand a severe stress scenario.
- Banks have adequate capital, liquidity, profitability, and provisions.
- Basel III capital and liquidity requirements completed in 2025.
- Macroprudential and regulatory guidance:
- Move to a positive-neutral counter-cyclical capital buffer of 1.0 percent of risk-weighted assets from the current rate of 0.5 percent should be gradual and consider macro-financial developments and banks’ ability to lend.
- Vulnerabilities remain in construction and real estate, smaller firms with government-guaranteed loans, and low-income indebted households.
- Risks from pension funds’ increased exposure to U.S. interest rate swaps are being addressed by the Pension Supervisor through amended regulatory limits.
- Pension reform implementation recommendations:
- Gradual and well-coordinated implementation to prevent abrupt portfolio reallocation.
- Increased contribution rate will deepen capital markets but poses implementation challenges: transition from multi-fund to generational-fund system and new competition-enhancing mechanisms.
- Pension Supervisor’s emphasis on market-impact mitigation and improving the risk-return profile is welcomed.
- Prioritize smooth transition using available implementation flexibility to mitigate sharp announcement effects and anticipatory trading.
- Ongoing and remaining financial stability priorities:
- Continue implementing 2021 FSAP recommendations and resilience-enhancing measures.
- Advances include Financial Market Resilience Law, repo market development, proposed expansion of Real-Time Gross Settlement System access to non-bank financial institutions, and regulatory proposals for banks’ corporate governance and recovery planning.
- Mandatory reporting to the Consolidated Debt Registry started in April 2026.
- Central bank’s plan to introduce prudential regulations for domestically issued stablecoins is welcome.
- Remaining priorities: create an industry-funded deposit insurance, introduce a new Bank Resolution Law, implement risk-based supervision of insurance companies, and grant budgetary independence to the Financial Market Commission.
Structural and growth-enhancing reforms
- Growth prospects and benchmark:
- Cross-country evidence suggests trend growth of around 2 percent per year is a useful benchmark for an economy at Chile’s income level under current demographic and global conditions.
- Government focus on durably lifting growth is critical to create fiscal space and address long-term pressures.
- Policy areas to boost investment and productivity:
- Expedite sectoral permits and environmental evaluations.
- Improve coordination across ministries and provide greater regulatory certainty.
- Clarify administrative rules for implementing the 40-hour workweek law.
- Maintain a competitive minimum wage; consider greater input from an independent expert body in minimum wage setting.
- Strengthen university-business R&D collaboration, improve key infrastructure, and create a more investment-friendly environment to narrow skill gaps and promote STEM and technical skills.
- Labor market and female participation:
- In the context of aging, relax distortionary size-dependent childcare mandate and move toward a more universal childcare system to raise female labor supply and productivity.
- Reference to the 2023 “Marfan Commission Report” highlighting GDP and revenue gains from higher female labor participation.
- IMF analysis: highly educated women in Chile are less likely to work in high-paying occupations compared to other OECD countries; closing this gap to the OECD median could raise aggregate productivity by 3 percent through a better distribution of talent.
Mission thanks the Chilean authorities and counterparts for open and constructive discussions.