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Overview

  • Chile is at a historic moment, facing central questions of governance, the social contract and its economic model. Despite tremendous economic progress and poverty reduction over the last few decades, the existing policy framework has been insufficient to continue fostering productivity growth and economic diversification, improve labor market outcomes, and further address deep-rooted inequality.

    The 2019-20 protests exposed the vulnerability of the socio-economic system, with protesters demanding a change in the country’s political and social direction. The stagnation of growth and productivity in the last decade has raised questions over the sustainability of the country’s growth trajectory and the type of reforms needed. 

    In this context, the COVID-19 pandemic has plunged the economy into the worst recession in decades. GDP contracted 6.0 percent in 2020, although a loosening of lockdown measures allowed a partial recovery towards the end of the year. Over one million jobs were lost, affecting mostly women and workers in commerce, agriculture, and hospitality, further undermining the fragile middle class. In conjunction with the economic contraction, the fiscal deficit increased to 7.5 percent of GDP in 2020, the largest in over three decades.

    Although the authorities tapped into fiscal buffers, public debt rose from 28 percent in 2019 to 33 percent in 2020. Poverty is expected to have increased from 8.1 to 12.2 percent, with about 780 thousand people expected to have fallen into poverty.  The effects of mobility restrictions and uncertainty were only partially offset by one of the largest policy responses in the region. This response included cash transfers, a job retention scheme, tax deferrals and reductions, liquidity provisions and guarantees, and early withdrawals from pension funds.

    Growth is expected to rebound to 5.5 percent in 2021, on the back of a continued government stimulus and a rapid vaccination rollout. Chile is the fourth country in the world and the first in the region in terms of per capita vaccination rates. As of March 26, 2021, Chile has vaccinated more than 30% of its adults with a goal of vaccinating 80% of its 19 million people by June 30, 2021.  Another factor that will boost the economy is accumulated liquidity due to monetary stimuli and pension fund withdrawals. Although uncertainty will curb private investment recovery, domestic demand will be spurred by accommodative policies. Exports should benefit from higher copper prices and a strong recovery in advanced economies and China. Despite all this, Chile will likely not reach pre-pandemic GDP levels until 2022 (Figure 1).

    Figure 1: Real GDP prospects before and after the pandemic

    Last Updated: Apr 08, 2021

  • World Bank Group support in Chile includes activities of the World Bank and the International Finance Corporation (IFC).

    Through multisector coordination, the World Bank seeks to provide solutions to the country’s challenges to promote equality of opportunity in three main areas: social protection of the most vulnerable; decentralization and regional development; and climate change adaptation for sustainable development.

    The World Bank Group has been accompanying Chile's development process since 1948, with the delivery of the first loans to a non-European country. With the opening of its first office in Santiago in December 2017, the Bank Group has strengthened its partnership with Chile. Today the Bank works in close collaboration with 15 ministries, 3 regional governments and more than 200 municipalities to provide technical assistance and support public policy design in priority areas.

    Though a mostly knowledge-based engagement, the World Bank supports Chile as implements innovative approaches to development. Led by a substantial and growing Reimbursable Advisory Services (RAS) program that has tripled in the last two years, it  includes ongoing work on the design and implementation of best-practice social protection programs, on ambitious environment and climate change goals, and on how to factor equity and climate into public investment plans.

    The International Finance Corporation investment portfolio in Chile stands at $652 million, with an additional US$433 million in mobilization for a total of US$1.1 billion in 17 active clients. Its engagement has focused on bringing innovative financing mechanisms to renewable energy, micro-- small- and medium-enterprise financing, and education.

    Last Updated: Apr 08, 2021

  • Some selected projects that have recently concluded:

    In coordination with the Ministry of Social and Family Development, the World Bank is implementing Gestión Social Local (GSL), a methodology to assess performance and provide an integrated delivery social benefits and services at the municipal level. Through a one-stop shop, officials can offer each beneficiary a full support package from the various programs and transfers for which they qualify. This not only increases the delivery of support, but also increases the efficiency of public spending and support programs through an integrated platform.  Considering the importance of GSL to the municipal response to the social and economic impacts of COVID-19, this program was expanded to 232 municipalities throughout Chile and will reach all the municipalities in the country in 2021. It will also add a new module for employment support on a pilot basis 7 municipalities, that will be extended to other 50 during this year.

    In coordination with the Ministry of Social and Family Development we supported the Clase Media Protegida program. Although the Chilean middle class has been growing in the last decade, certain catastrophic situations have been identified for as areas where a public policy  response could significantly to this reduce downward mobility into vulnerability or poverty.

    Additionally we worked with the Ministry of Health, Civil Society and Parliamentarians to showcase the Ley Ricarte Soto that provides support for high-cost illnesses.

    With the Ministry of Housing and Urban Planning we conducted a study to assess the state of timber construction in the country and the potential for industrialized timber construction to help overcome the social housing deficit while revitalizing growth and reducing the  impact of construction on climate change.

    During the Chilean COP Presidency, our support included a Roadmap for Blue Carbon in Chile. With the  Ministry of Agriculture we conducted  a water and irrigation study that provided updated  data.

    In 2019-2020 under the framework of the Partnership RAS Program with the Ministry of Finance, we shared international lessons and best practice for the design and implementation of fiscal decentralization reforms .

    Last Updated: Apr 08, 2021

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LENDING

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

*Amounts include IBRD and IDA commitments


PHOTO GALLERY

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Additional Resources

Country Office Contacts

CHILE +562 239 82400
Apoquindo 2929, 1300-A, Las Condes, Santiago
rlucorepossi@worldbank.org
USA +1 202 473-1000
1818 H Street NW, Washington, DC 20433
rlucorepossi@worldbank.org