Chile: 2022 Article IV Consultation-Press Release; Staff Report; Staff Supplement; and Statement by the Executive Director for Chile

CHILE IMFCountryReportNo.23/36 January2023 2022ARTICLEIVCONSULTATION—PRESSRELEASE;STAFFREPORT;STAFFSUPPLEMENT;ANDSTATEMENTBYTHEEXECUTIVEDIRECTORFORCHILE UnderArticleIVoftheIMF’sArticlesofAgreement,theIMFholdsbilateraldiscussionswithmembers,usuallyeveryyear.Inthecontextofthe2022ArticleIVconsultationwithChile,thefollowingdocumentshavebeenreleasedandareincludedinthispackage: APressReleasesummarizingtheviewsoftheExecutiveBoardasexpressedduringitsJanuary12,2023considerationofthestaffreportthatconcludedtheArticleIVconsultationwithChile. TheStaffReportpreparedbyastaffteamoftheIMFfortheExecutiveBoard’sconsiderationonJanuary12,2023,followingdiscussionsthatendedonOctober27,2022,withtheofficialsofChileoneconomicdevelopmentsandpolicies.Basedoninformationavailableatthetimeofthesediscussions,thestaffreportwascompletedonDecember15,2022. AnInformationalAnnexpreparedbytheIMFstaff. AStaffSupplementupdatinginformationonrecentdevelopments. AStatementbytheExecutiveDirectorforChile. TheIMF’stransparencypolicyallowsforthedeletionofmarket-sensitiveinformationandprematuredisclosureoftheauthorities’policyintentionsinpublishedstaffreportsandotherdocuments. Copiesofthisreportareavailabletothepublicfrom InternationalMonetaryFundPublicationServicesPOBox92780Washington,D.C.20090Telephone:(202)623-7430Fax:(202)623-7201 E-mail:publications@imf.orgWeb:http://www.imf.orgPrice:$18.00perprintedcopy InternationalMonetaryFundWashington,D.C. ©2023InternationalMonetaryFund PR23/10 IMFExecutiveBoardConcludes2022ArticleIVConsultationwithChile FORIMMEDIATERELEASE Washington,DC–January20,2023:TheExecutiveBoardoftheInternationalMonetaryFund(IMF)concludedtheArticleIVconsultation1withChile. AfteranimpressiverecoveryfromtheCOVID-19pandemic,theChileaneconomyisundergoinganecessarytransitiontowardssustainablegrowthamidachallengingexternalenvironment.Economicactivityisrapidlycoolingdown,whileinflationseemstohavepeakedinAugust.Thecurrentaccountdeficitremainselevated,asadversetermsoftradehavecounteractedtheongoingadjustmentofdomesticdemand. Policyimplementationremainsverystrong,gearedtowardscorrectingmacroeconomicimbalancesthatbuiltupduringthepandemic,whileprotectingthemostvulnerableandadvancingstructuralreforms.TheCentralBankofChile’smonetarypolicyresponsehasbeenforcefulandfullyinlinewiththeinflationtargetingframework.The2022fiscalpositionisprojectedtobemarkedlystrongerthanthetargetintheauthorities’medium-termfiscalconsolidationplan,whilethe2023budgetenvisionshighersocialspendingandpublicinvestmentwithinasustainablemedium-termpath. GDPgrowthonay/ybasisisexpectedtocontinuetoslowinthelastquarterof2022andrecoverbythelastquarterof2023.Givenmonetarytighteningandanegativeoutputgap,inflationisprojectedtoconvergetotargetbyend-2024.Thecurrentaccountdeficitisexpectedtograduallyreverttothehistoricalaverageofabout3percentofGDP,supportedbytheauthorities’adequatestructuralfiscalconsolidationplanandtheflexibleexchangerate. Downsideriskspersist,butverystrongfundamentalsandpoliciesunderpinChile’sresilience.Ontheexternalfront,risksstemfromapossibleabruptglobalslowdown,sharplytighterglobalfinancialconditions,commoditypriceshocks,oranintensificationofspilloversfromRussia’swarinUkraine.Domesticrisksstemmostlyfromhighinflationpersistingforlongerthanexpected,socialdiscontentoverhighfoodandenergyprices,orslowprogresstomeetsocialdemands.Theconstitutionalreformprocesswillcontinuebutuncertaintyoverpossibleoutcomeshasnarrowed.Lowpublicdebt,asustainableexternalposition,andverystrongpoliciesandinstitutionalpolicyframeworkscontinuetosupportChile’sresilienceandcapacitytorespondtoshocks.Thetwo-yearFCL,approvedinAugust,providesadditionalexternalbuffersonaprecautionarybasisandsubstantialinsuranceagainsttailriskscenarios. 1UnderArticleIVoftheIMF'sArticlesofAgreement,theIMFholdsbilateraldiscussionswithmembers,usuallyeveryyear.Astaffteamvisitsthecountry,collectseconomicandfinancialinformation,anddiscusseswithofficialsthecountry'seconomicdevelopmentsandpolicies.Onreturntoheadquarters,thestaffpreparesareport,whichformsthebasisfordiscussionbytheExecutiveBoard. 2 ExecutiveBoardAssessment2 ExecutiveDirectorsbroadlyagreedwiththethrustofthestaffappraisal.Theycommendedtheauthorities’verystrongpoliciesgearedtowardscorrectingmacroeconomicimbalancesbuiltupduringthepandemic,whileprotectingthemostvulnerableandadvancingreforms.Directorsemphasizedthatwhilerisksremainelevated,lowpublicdebt,asustainableexternalpositionalsosupportedbytheprecautionaryFCLarrangement,andverystrongpoliciesand institutionalpolicyframeworkscontinuetosupportChile’sresilience.Theyrecognizedthat,afteranimpressiverecoveryfromtheCOVID-19pandemic,theChileaneconomyisundergoinganecessarytransitiontowardssustainablegrowthinachallengingexternalenvironment. Directorswelcomedthestrongfiscaloverperformancein2022.Theynotedthatthe2023Budget’sfocusonsocialspendingandpublicinvestmentisappropriateamidanegativeoutputgap.Directorsobservedthattaxandspendingreformsshouldbesequencedconditionalonrevenueperformancetopreservefiscalsustainability.Inthat