Fiscal Balance in Chile
Chile - Fiscal Balance
Chile proposes tight budget for 2017
The Chilean government presented the most austere budget proposal in over a decade on 30 September. This is designed to protect fiscal sustainability in a context of subdued state revenues as the country suffers from a third year of weak economic growth and depressed prices for copper, its top export. Low public spending threatens to further hamper growth and to undermine President Michelle Bachelet’s popularity—which in August fell to a new historic low—ahead of next year’s elections.
The 2017 draft budget envisages public spending growth of just 2.7%, which would represent the lowest increase in 14 years and compares to an estimated 4.2% increase this year and a 9.8% rise in 2015. According to Finance Minister Rodrigo Valdés, the fiscal deficit will widen from an estimated 3.1% of GDP this year to 3.3% of GDP in 2017. In accordance with Chile’s fiscal rule, which historically helped to preserve Chile’s reputation for fiscal prudence, the structural deficit will decline by 0.25 percentage points and reach about 1.5% of GDP in 2017. The key underlying assumptions for these budget projections are trend GDP growth of 3.0% and an average copper price of USD 2.56 per pound. The fact that Chile’s fiscal deficit will remain relatively high implies a continued rise in public debt, which, although still low, has more than doubled in the past six years, reaching an equivalent of 17.5% of GDP in 2015. Next year, the Finance Ministry projects that public debt will exceed 20% of GDP, a level last seen in 1994.
The government’s planned spending is focused on some of the centerpieces of its reform agenda. Spending on healthcare and education are envisaged to increase the most, by 6.2% and 4.8%, respectively. Key initiatives include increasing the access to free higher education for students from low socio-economic backgrounds and improving primary healthcare. Other spending hikes aim to improve security and to provide for a 10% rise in the basic solidary pension. By contrast, public investment will be scaled back slightly from an estimated 4.2% of GDP this year to 4.0% of GDP in 2017.
FocusEconomics Consensus Forecast panelists are still factoring in the latest developments and project that Chile’s fiscal deficit will be 3.0% of GDP this year. For 2017, our forecasters expect the deficit to narrow slightly to 2.8% of GDP.
Chile - Fiscal Balance Data
|Fiscal Balance (% of GDP)||-0.6||-1.6||-2.1||-2.7||-2.7|
5 years of economic forecasts for more than 30 economic indicators.
|Bond Yield||3.25||-0.44 %||Jul 11|
|Exchange Rate||680.7||0.05 %||Jul 11|
|Stock Market||25,769||-0.67 %||Jul 11|
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July 18, 2019
At its 18 July monetary policy meeting, the board of the Central Bank of Chile (BCCh) decided to keep the key policy rate unchanged at 2.50%, in line with analysts’ expectations and on the heels of an abrupt 50 basis points cut in early June.
July 8, 2019
Consumer prices remained stable in June (May: +0.6% month-on-month), as rosier prices for food and recreation offset lower prices for transport.
July 5, 2019
In May, the IMACEC index gathered momentum for a third consecutive month.
July 5, 2019
The Adimark GfK consumer confidence index declined to 37.8 points in June, from 40.7 points in May, marking the lowest reading since March 2017.
July 2, 2019
Copper prices sank to their lowest point in two years in June, dragged by the escalation of the U.S.–China trade war at the beginning of May and concerns over a slowdown in global growth.