Overview

Chile was one of the fastest growing economies in Latin America in the last decade. However, after the 2010-2012 boom, GDP growth fell to 1.9% in 2014 as a result of the slowdown in the mining sector due to the end of the investment cycle, decline in copper prices and decrease in private consumption.  Additionally, unemployment rose from 5.7% in November 2013 to 6.5% in 2014.

The fiscal deficit increased following the economic slowdown, the decline in copper prices and expansionist policies. The 12-month fiscal deficit rose from 0.5% of GDP in late 2013 to 1.6% of GDP at the end of 2014 given the reduced tax revenue resulting from weak domestic demand and lower copper prices.

The tax reform approved in September 2014 seeks to increase fiscal revenue by 3 percentage points of GDP in order to finance additional expenditures in education and to reduce the fiscal gap.  This reform focuses on eliminating the Taxable Profits Fund (FUT) that companies use to postpone payment of taxes on revenue earmarked for investments.

Economic growth is expected to recover in 2015, to reach an estimated 2.9%. Growth is expected to accelerate at the end of the year as a result of current expansive monetary and fiscal policies, the recovery of private investment and domestic demand.

Chile has successfully reduced poverty rates and increased shared prosperity in recent years. The percentage of the population living in extreme poverty (on US$ 2.5 per day) declined from 20.8% in 1990 to 2.0% in 2013 whereas the percentage living in moderate poverty (US$ 4 per day) decreased from 40.8% to 6.8% during the same period. Additionally, between 2003 and 2011, the average income of the poorest 40% of the population rose 4.3%, considerably above the average growth for the total population (2.5%).

Nevertheless, Chile faces major challenges. The country’s responsible macroeconomic and fiscal management provides a solid base to maintain and increase growth in the medium and long term, and to achieve more inclusive growth. However, despite the solid growth of the past 20 years, per capita income in the country still falls short of that of high-income countries (in 2013, Chile’s per capital income was US$ 21,714 as compared with the average of US $38,660 for OECD countries). Furthermore, structural challenges for promoting productivity and improved access to and quality of social services must be addressed to achieve more inclusive growth. Insufficient energy supplies and dependence on copper exports continue to be a source of vulnerability. Thanks to ambitious structural reforms, Chile remains a standard-bearer of progress in Latin America. The country develops creative public policies that have become international models of good governance.

 

Last Updated: Apr 15, 2015

The Country Partnership Strategy (CPS) for 2011-2016 builds on the successful experience of the prior World Bank Group strategy in Chile. The strong institutional framework, stable economy and relatively advanced development level facilitate an engagement in which the Bank’s added value lies mainly in the knowledge agenda.

In a context of low financing needs and abundant access to capital markets at low spreads, Chile’s demand for Bank services concentrates on the provision of technical assistance and other knowledge products in areas in which the Bank has a comparative advantage and can support the country’s efforts to achieve its development goals. This is an important two-way investment for the Bank given that Chile’s development experiences of the past decades are highly valued among other clients and continued engagement should allow for important spillovers into the Bank’s work in other countries, as well as stronger south-south cooperation.

To this end, the Government of Chile and the World Bank signed a cooperation agreement to establish this multilateral agency’s first Research and Development Center in Latin America and the second located outside of Washington DC (the other center is in Kuala Lumpur, Malaysia). The center, which has a regional and global focus, will implement an ambitious research program based on World Bank databases.

The CPS aims to support the Government of Chile's vision of eradicating extreme poverty and becoming a developed country by the end of the decade. This support will be carried out through focused interventions in specific themes in three areas that broadly coincide with the government's development agenda:

  • Public sector modernization;
  • Job creation and equity improvement; and
  • Promotion of sustainable investments.

The strategy includes a flexible program implemented mainly through studies requested by the Government of Chile and a portfolio of small loans and grants.

The CPS covers six years. The bulk of the knowledge work will be delivered through studies structured around a Joint Studies Program funded by the Bank (US$400,000 per year) and the Government of Chile (up to US$800,000 annually), with the possibility of additional timely assistance through fee-for-service. The Bank also will continue to provide some limited financing for projects where its support adds value in policy implementation in selected areas.

The main objective of support from the International Finance Corporation (IFC) is to foster entrepreneurship in advanced fields and to develop innovative business models in a narrow range of sectors. Investments target tertiary education, vocational training, infrastructure, energy and financial services.

Last Updated: Apr 15, 2015

The current World Bank program includes a portfolio of two ongoing operations in higher education and public expenditure management totaling US$ 46.1 million. The objective of the first project is to improve the quality and relevance of tertiary education by strengthening the link between funding of tertiary education institutions and performance accountability. The second project aims to increase the efficiency of operations regarding financial management, budget formulation and spending, and the transparency of public spending at the central and municipal levels through the implementation of an updated, enhanced and expanded financial administration system (SIGFE).

The World Bank’s contribution to the country has been centered on a programmatic cost-sharing program. Since 2010, the Bank has contributed 31 studies in higher education reform, the water sector, the infrastructure concession strategy and efficiency of the public administration.

International Finance Corporation (IFC) interventions in the country focus on activities with a strong potential for development results, mainly in infrastructure, energy, the financial sector, education and agribusiness, with small and medium enterprises being a crosscutting theme. In January 2014, the IFC in Chile had a portfolio totaling US$1.48 billion, which consisted of approximately US$732 million for the IFC on its own, and about US$747 million with other financial sources, including commercial banks and other foreign direct investments to support projects.

 

Last Updated: Apr 15, 2015


LENDING

Chile: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments