Overview

  • Chile has been one of Latin America’s fastest-growing economies in recent decades, enabling the country to significantly reduce poverty. Between 2000 and 2015, for example, the population living in poverty (on US$ 4 per day) decreased from 26 percent to 7.9 percent.

    Nevertheless, GDP growth fell from a high of 6.1 percent in 2011 to 1.6 percent in 2016 because of declining copper prices, which negatively affected private investment and exports. In this context, the unemployment rate has remained relatively stable, largely due to rising self-employment in response to the stagnation of wage employment.

    As expected, fiscal policy has been counter-cyclical: The central government’s fiscal balance shifted from a surplus of 0.6 percent of GDP in 2012 to a deficit of 2.8 percent in 2016. Sluggish economic growth and lower copper prices had a negative impact on fiscal income, partially offsetting the effects of the tax reform at the same time the government increased spending for the education reform and counter-cyclical fiscal policy. On the external front, despite lower copper prices, the current account deficit declined from a high of 4.2 percent of GDP in 2013 to 1.4 percent in 2016 due to reduced private investment and lower returns on foreign investments.

    Growth is expected to recover gradually as private-sector prospects improve and copper prices rise. The fiscal deficit will likely decrease gradually in response to a fiscal policy firmly rooted in the structural balance rule. Additionally, fiscal income is expected to benefit from the economy recovery and higher copper prices. The current account deficit will also gradually fall given that higher international copper prices will drive increases in exports, compensating for the possible increase in imports that will potentially generate a recovery of private investment.

    Responsible macroeconomic and fiscal management provides a solid base for more inclusive growth. To achieve this potential, however, Chile needs to build consensus to respond to the expectations of a growing middle class at the same time it increases economic growth potential. In the short term, it is crucial to recover the trust of the private sector to stimulate investment in sectors in addition to mining. In the longer term, the country must address structural challenges to promote productivity, improve energy provision, reduce dependence on mining and increase the access to and quality of social services.

    Last Updated: Apr 12, 2017

  • The Country Partnership Strategy (CPS) for 2011-2016 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 Government has identified key areas for increased WBG support, including: (i) strengthening the efficiency of social protection systems; (ii) strengthening the institutional and regulatory framework of water resources management, (iii) concessions, (iv) energy; (v) and environment.

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

    Therefore, the CPS focuses mainly on knowledge products, which are delivered through studies structured around a Joint Studies Program funded by the World Bank (US$400,000 annually) and the Government of Chile. The government has also requested the possibility of additional timely assistance through fee-for-service to analyze budget allocation and specific public policies. The World Bank will continue to mobilize technical and financial resources for projects in areas where its support adds value.

    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 World Bank’s current program in Chile includes a portfolio of one operations totaling US$5.86 million: A Sustainable Land Management Project.  About 2,000 rural families, including indigenous communities in Chile’s poorest rural areas, will benefit from this project financed by the Global Environmental Facility (GEF).

    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 12, 2017

  • Since 2010, the Joint Study Program has informed policy decision-making processes with more than 31 studies to the reform process in higher education, the national water sector reform, concession infrastructure strategy, social protection, financial sector, and public sector management efficiency. These includes studies in the areas special zones (Zonas Francas) and a fiscal incidence analysis focused on social sectors. Additionally, on social protection, the WBG will continue advising in the implementation of the National System for Social Care, engage in the pensions and labor discussions, and assess opportunities for improving the efficiency of the health system and the primary care in particularly, through a Program for Results financing.

    World Bank financing helped achieve the following results from fiscal year 2011 to fiscal year 2016.

    • Chile has utilized results-based financing in the education sector aimed at improving the quality and performance of higher education through student-focused performance agreements with institutions. As of today, more than 50 percent of students in technical and professional degrees benefit from a redesigned curricula; retention rates have increased: today, 74 percent of first year undergraduate students remain at the institution in the second year; and the number of full-time-equivalent faculty members who hold PhDs has increased from 5109 in 2011 to 7883 in March 2016. Additionally, the knowledge program informed key changes in legislation to improve the accreditation quality assurance system and the accountability of institutions, based on experiences from OECD countries.
    • At the government’s request, the Bank conducted an assessment of the distributional effects of the 2014 tax reform on the economy, particularly on income inequality, by quantifying the potential effects of the reform on the country’s income distribution profile.  The report revealed that the Tax Reform had a broad impact on equity. Taxes paid by the richest one percent of the population increased from 2.4 percent to 3.5 percent of GDP.
    • One hundred municipalities fully implemented a financial management system and improved quality and timeliness of information. Over 45 regional plans were designed, financing 250 infrastructure projects (roads, water and sanitation, energy, and ICT) and mobilizing funds to support 27 productive activities. About 320,000 people benefited from improved infrastructure and territorial planning and implementation of inclusive development programs.
    • At the central level, a new public financial management system (SIGFE II) was implemented by 86 institutions as of June 2014. Implementation was financed by the WBG through the Chile Road Map for the Modernization of Human Resources Management in the Public Sector and a grant from the Institutional Development Fund, Chile: Strengthening Public Senior Executive Service.
    • The government transformed the Planning Ministry into the Ministry of Social Development and enhanced the Social Protection Index to improve coverage of the Social Protection System programs, including the flagship program Chile Crece Contigo. This program monitors the development of and provides services to children up to 7 years old and their families nationwide. The Bank also supported the design of the psychosocial support and employment counseling provided by the Family Ethical Income program. Finally, the Bank provided continuous support to inform the creation and management of the National System for Social Care, improving the quality of existing services, maximizing efficiency of the supply, and selecting the most vulnerable households based on level or grade of dependency. As a result, social protection services are expected to be delivered to 12 percent of Chilean households, which according to the national survey (CASEN 2013), have at least one vulnerable person (including young children, elderly and persons with disabilities)  
    • The knowledge program informed key institutional changes and policy making processes in the areas of public works, transport, urban mobility and innovation in Santiago and Concepcion, sustainable and efficient management of natural resources, and the institutional plan and strategy for the Water Reform led by the Water Directorate.
    • The Bank is also contributing to Chile’s efforts to mitigate global climate change through certified carbon emission reductions linked to hydropower projects (Chile Quilleco Hydropower Project, Chile - Chacabuquito Hydro Power Project, CHILE Hornitos Project (Chacabuquito II)), and by implementing several grants aimed at developing and implementing instruments for carbon pricing and green growth. The Bank is also supporting the Ministry of Energy to prepare its Market Readiness Proposal (MRP), a national forestry and climate change strategy. 

    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 (SMEs) being a crosscutting theme. Since July 2015, the IFC in Chile had a portfolio totaling US$1.028 billion, which consisted of approximately US$694 million for the IFC on its own, and about US$334 million with other financial sources, including commercial banks and other foreign direct investments to support projects.

    Last Updated: Apr 12, 2017

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LENDING

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

*Amounts include IBRD and IDA commitments


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Additional Resources

Country Office Contacts

CHILE +562 654-1065
Dag Hammarskjod 3241, Vitacura, Santiago
sarzubiaga@worldbank.org
USA +1 202 473-1000
1818 H Street NW, Washington, DC 20433
sarzubiaga@worldbank.org