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Chile Overview

    Context

    Chile has been one of the fastest growing economies in Latin America in the last decade, however the international crisis has hit its shores and since 2013 a gradual slowdown of its economic activity is being perceived.  After the boom observed between 2010 and 2012, the GDP’s growth was reduced in 2,2% during the first semester of 2014 affected by a regression in the mining sector due to the end of the investment cycle and to the copper prices fall, this added up to a decline in private consumption.  In parallel unemployment has increased from 5,7% in November 2013 to 6,5% in June 2014. However the increase in self-employment has partially dampened the effect over the unemployment rate.

    As a result of the economic slowdown, the copper prices reduction, and the expansionist efforts the fiscal deficit is increasing. The mobile fiscal deficit of 12 months increased from 0,6% of the GDP by the end of 2013, to 1,1% of the GDP in June 2014, due to the lowest levy resulting from the weak internal demand and the copper fall.  On the other hand, the government expects that the fiscal deficit approaches to 2,0% of the GDP by the end of the year due to the expected expansion  of the fiscal expense in mining and construction.

    The tax reform approved in September 2014 aims at increasing the fiscal expense by 3 percentage points of the GDP in order to finance the additional expense in education and to reduce the fiscal gap.  The main element of the reform is to remove the Tax Utility Fund (FUT in its Spanish acronym), that is used by the companies to adjourn the tax payment over the benefits that are retained for the investments.

    In this context, it is expected that the economic growth recovers in 2015.  The Central Bank reduced its growth projection to place it between 1,75% and 2,25% in September 2014 from and between 3,75% and 4,75% in December 2013.  As a result of the ongoing expansive monetary and fiscal policies the private investment recovery and the normalization of the current economic cycle, it is foreseen that the economic growth will rebound between 3,75% and 4,75% for next year.

    During the last years Chile has achieved relevant reductions in poverty levels, as well as in the shared prosperity increase. The ratio of the population considered poor was reduced from 23% in 2000 to 9,9% in 2011.  In addition, between 2003 and 2011 the average income of the 40% of the poorest expanded in approximately 4,3%, which is considerably higher than the average growth of the global population (2,5%).

    Notwithstanding, Chile is still facing relevant challenges.  The robust macroeconomic and fiscal performance provides a solid base to support and to increase its expansion rate in the medium and long run, and to achieve a more inclusive growth.  Yet despite the robust growth during the last 20 years, the per capita income of the country has still to converge with that of nations with a higher income (in 2012 the per capita income of US$21.990 was still far below the average of US$30,036 of the OECD countries).  On the other hand, the structural challenges to boost productiveness and to improve the access and quality of the social services should be addressed for a more inclusive growth.  Ultimately the energy deficiency and the dependence on the copper exports remain a source of vulnerability.


    Last Updated: Nov 05, 2014

    LENDING
    Chile: Commitments by Fiscal Year (in millions of dollars)*
    *Amounts include IBRD and IDA commitments
    Strategy

    The Country Partnership Strategy (CPS) for 2011-2016 builds on the successful experience of the prior World Bank Group (WBG) strategy in Chile. The strong institutional framework, a stable economy and the 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 concentrated 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 drive 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.

    This CPS aims to support the Government of Chile's vision of eradicating extreme poverty by 2014 and becoming a developed country by the end of the decade. This support will be carried out through focused interventions in specific themes that have been distributed into 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 CPS covers six years and includes a flexible program to be carried out mainly through demand-driven studies and a small lending and grant portfolio. 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. In addition, the Bank will continue to provide some limited financing for projects where the Bank’s support adds value in policy implementation in selected areas.

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

    Last Updated: Mar 31, 2014

    LENDING
    Chile: Commitments by Fiscal Year (in millions of dollars)*
    *Amounts include IBRD and IDA commitments
    Results

    The current Bank program includes a portfolio of two ongoing operations on Higher Education and Public Expenditure Management that amount to a total of US$ 64.8 million. The objective of the first Project is to improve quality and relevance for students in tertiary education by strengthening the link between funding of tertiary education institutions and accountability for performance. The second project aims to increase the efficiency of operations regarding financial management, budget formulation, and budget execution, and the transparency of public expenditure management at the central and municipal level through the implementation of an updated, functionally enhanced and expanded financial administration system (SIGFE).

    The core of the Bank’s contribution to the country has been in the form of a programmatic cost-sharing program. Since 2010, the Bank has contributed with a total of 31 studies to the reform process in higher education, the national water sector reform, concession infrastructure strategy, and public sector management efficiency.

    IFC interventions in Chile focus on activities with a strong potential for development impacts, mainly in infrastructure, energy, the financial sector, education and agribusiness, with small and medium enterprises (SMEs) being a cross cutting theme. As of January 2014, the IFC portfolio in Chile was US$1.48 billion, consisting of about US$732 million for IFC’s own account, and about US$747 million in mobilization brining other financial sources from commercial banks, and other direct foreign investments to support projects.

    Last Updated: Mar 31, 2014

    LENDING
    Chile: Commitments by Fiscal Year (in millions of dollars)*
    *Amounts include IBRD and IDA commitments
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