Overview

Chile has been one of Latin America’s fastest-growing economies over the past decade. However, following the 2010-2012 economic expansion, GDP growth fell to 1.9% in 2014 and 2.1% in 2015, as a result of the slowdown in the mining sector due to the end of the investment cycle, and the decline in copper prices and private consumption. The unemployment rate also rose slightly, from 5.7 percent in July 2013 to 5.8 percent in January 2016.

The fiscal deficit increased following the economic slowdown, the decrease in copper prices and the implementation of expansionist policies. The central government’s fiscal balance shifted from a surplus of 0.5 percent of GDP in 2013 to a deficit of 2.1 percent in 2015 due to reduced tax revenue resulting from weaker domestic demand and lower copper prices, despite the 2015 tax reform.

The tax reform 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 firms use to postpone payment of taxes on revenue earmarked for investments.

Growth is expected to recover gradually as private-sector prospects improve. The pace of growth is expected to slow in 2016, to an estimated 1.9 percent in light of low copper prices and the lack of recovery of domestic demand. Growth is expected to recover slowly in 2017-2018 thanks to increasing copper prices and levels of private investment. A growth rate of 2.1 percent is forecast for 2017.

Chile has sharply reduced poverty rates and increased shared prosperity in recent years. The percentage of the population considered poor (those who live on US$ 2.5 per day) declined from 7.7 percent in 2003 to 2.0 percent in 2014, and moderate poverty (US4 per day) fell from 20.6 percent to 6.8 percent during the same period. Moreover, between 2003 and 2014, the average income of the poorest 40 percent of the population increased by 4.9 percent, a figure considerably above the average income growth of the population as a whole (3.3 percent).

The country still faces important challenges, however. Macroeconomic management must be fiscally responsible in order to provide a solid foundation for maintaining and increasing the country’s medium- and long-term growth and for achieving more inclusive growth. Despite strong growth over the past 20 years, Chile’s per capita income still falls short of that of higher-income countries (in 2014, the per capita income of US$ 21,980 was still far below the average of US$ 41,035 for OECD countries).

Additionally, structural changes to drive productivity increases and improve access to and quality of social services should be implemented for a more inclusive growth. Energy deficits and dependence on copper exports continue to be a source of vulnerability. Thanks to ambitious structural reforms, Chile has maintained its status as a Latin American reference of progress whose creative public policies have become international models of good governance.

Last Updated: Mar 30, 2016

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 six-year Country Partnership Strategy 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.

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: Mar 30, 2016

The World Bank’s current program in Chile includes a portfolio of two operations totaling US$140 million: a higher education project and a social inclusion and education project and a water resource project.  The first project seeks to improve the quality and relevance of higher education for students by strengthening the link between the financing of institutions of higher learning and performance-based accountability. The second project provides assistance for development policies to promote equity and social inclusion through actions that contribute to increased access to quality education, improved poverty measurements and increased targeting of social programs.

Since 2010, the World Bank has prepared 31 studies for the higher education reform process, the national water sector reform, the concession strategy for infrastructure works and the efficient management of the public sector.

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: Mar 31, 2016


LENDING

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

*Amounts include IBRD and IDA commitments