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Overview

  • Chile has been one of Latin America’s fastest-growing economies in recent decades thanks to a solid macroeconomic framework, which enabled the country to cushion the effects of a volatile international context and reduce the population living in poverty (on US$ 5.5 per day) from 30 percent in 2000 to 3.7 percent in 2017. However, more than 30% of the population is economically vulnerable and income inequality remains high.

    In the context of social unrest, GDP growth decreased from 3.9 percent in 2018 to 1.1 percent in 2019. The disruptions in economic activity resulted in an uptick of unemployment, from 7.1 in December 2018 to 7.4 percent in December 2019. Social unrest caused a change in the composition of public spending away from an investment promotion agenda and towards higher social expenditures. It also induced the government to call for a constitutional referendum currently scheduled for October 25, 2020.

    The current account deficit increased from 3.6 percent of GDP in 2018 to 3.9 percent in 2019 as lower exports more than offset a decline in imports caused by slowing domestic demand. As foreign investment dropped, the external deficit was financed by private and public external debt, which increased from 62 percent of GDP in 2018 to 70 percent in 2019. Over this period, international reserves increased slightly from US$39.8 to US$40.7 billion despite Central Bank interventions to prevent a higher nominal depreciation.

    The fiscal deficit increased from 1.5 percent of GDP in 2018 to 2.7 percent in 2019 due to additional spending in response to the civil unrest and the economic slowdown, dampened tax revenues and lower copper exports on revenues. The deficit was partially financed with fiscal buffers, but public debt increased from 26 to 28 percent, mainly domestic debt.

    The social unrest reflected widely spread frustration with high and persistent inequality of opportunities that prevailed despite significant improvements in social outcomes. Between 2006 and 2017, Chile had reduced poverty (measured as income below US$5.5 2011 international dollars per day) from 19.6 to 3.7 percent, and the vulnerable population (income between US$5.5 and US$13 per day) decreased from 43.9 to 30.1 percent. However, inequality of incomes, as measured by the Gini coefficient, remained around 0.44 in 2017, among the highest in the region. The growing middle class perceives high inequality of opportunities due to segmented service provision in education and health care and segregated labor markets. Jobs and higher wage premiums have largely gone to skilled workers, while workers with fixed-term contracts support a greater workload, have less job security, and have not been traditionally entitled to severance pay or unemployment insurance, though some of this has been addressed in economic measure to mitigate the impacts of COVID-19 on vulnerable populations.

    The balance of risks is tilted to the downside due to uncertainty about the impact of COVID-19 and the fluid domestic political context. Chile is exposed to lower than expected copper prices and longer subdued export demand resulting from the pandemic. Additionally, prolonged containment measures will likely impact on economic activity despite fiscal and monetary stimulus. Similarly, political uncertainty around the constitutional reform could weaken private sector confidence, dampening the recovery.

    In the medium term, Chile needs to reach political consensus on a policy response to social demands, while not eroding Chile’s traditionally sound macroeconomic management. Chile also should promote productivity gains at the bottom of the income distribution, including by fostering innovation, enhancing

    the link between education and the labor market, and promoting female labor participation. Reducing inequality of opportunity will be crucial to eliminate the persistent pockets of poverty and ensure social stability.

    Last Updated: Apr 16, 2020

  • World Bank Group support in Chile includes activities of the World Bank and the International Finance Corporation (IFC). The 2017 Systemic Country Diagnostics identified priorities to address the constraints that impede the country from achieving solid, equitable and sustainable growth, improving both equity and productivity.

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

    In December 2017, the World Bank Group reiterated its support for Chile by opening its first office in Santiago. Through this office, it has strengthened dialogue with the government, provided technical assistance and shared successful public policy experiences. This has enabled the Bank to increase and deepen dialogue with over 30 ministries, public service agencies and regional governments to support public policy design and development in priority areas identified by counterparts.

    Over the past four years, through the World Bank’s reimbursable advisory services (RAS), more than 30 studies were commissioned in the areas of higher education, health, social protection systems, institutional development, water, concessions, innovation, gender, territorial and sub-national development. Financial assistance from RAS centers on a US$ 50 million project to strengthen Chile’s public universities. Additionally, the World Bank is supporting the Pacific Alliance in the development of financial protection instruments in the event of natural disasters, which initially took the form of a catastrophe bond to cover earthquake risks, providing Chile with US$ 500 million in coverage.

    The World Bank also supports the country’s climate change agenda in areas including forests, sustainable land management and geothermal energy through the channeling of US$ 19.6 million in grant funds. In 2019, Chile signed an agreement with the Forest Carbon Partnership Facility, a global partnership administered by the World Bank, for which it will receive up to US$ 26 million to increase carbon capture and reduce emissions in the forest sector. Additionally, the World Bank has supported the country’s climate change agenda in revising its Nationally Determined Contributions (NDC) and the development of a long-term climate strategy, which will be the focus of the Chilean presidency leading the COP25 in 2020. Strategic support areas include the analysis of the Chilean experience for electromobility and the blue economy. In 2019, the World Bank also supported the country in several activities it implemented as the host of the APEC19, including the organization of a high-level meeting on disaster risk financing.

    The IFC manages a US$ 1.31 billion project portfolio in Chile. Of that amount, US$ 760 million originates from Bank resources and US$ 549 is mobilized from other investors. Most of the committed portfolio is in the financial (70 percent) and renewable energy (26 percent) sectors, with additional projects in agribusiness and services.

    Last Updated: Apr 16, 2020

  • Between Fiscal Year 2015 and Fiscal Year 2020, the World Bank Group contributed to achieving the following results in Chile: - Chile has utilized financing in the education sector to improve the quality and performance of higher education through performance agreements with between the Ministry of Education and institutions of higher learning. In 2019, quality standards were defined for career services based on an assessment of student mentoring programs and initiatives to support the transition to the world of work implemented by public universities.

    • At the government’s request, the World 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 for the wealthiest one percent of the population, the tax reform led to an increase in taxes paid from 2.4 percent to 3.5 percent.
    • During 2019 and 2020, the World Bank Group has been working with Chile’s Ministry of Social and Family Development, which is leading the implementation of a new local social management methodology in municipalities. Local social management is a performance evaluation method which improves the comprehensive supply of municipal social benefits and services in nearly 120 communities throughout the country (a third of Chilean communities). Through a single window, public servants are now in a better position to offer each beneficiary access to programs and cash transfers to those who qualify.
    • In coordination with the Ministry of Social and Family Development, the World Bank supports the Protected Middle-Class Program. In a context in which the Chilean middle class constitutes a growing percentage of the population, catastrophic situations have been identified for generating solutions through a public policy that responds to this group’s needs and that reduces downward mobility to a situation of vulnerability or poverty.

    Additionally, the Knowledge for Change Program provided information to implement key institutional changes and policymaking processes in the areas of public works; transportation; urban mobility and innovation in Santiago and Concepción; sustainable, efficient natural resource management; the institutional strategy to reform the water sector; and the national forestry and climate change strategy.

    Between 2017 and 2019, several studies were conducted in the framework of the Shared Study Program with the Ministry of Finance. These included:

    • Technical assistance to the Budget Directorate with respect to international lessons for fiscal decentralization reforms at the regional government level.
    • The public expenditure review was submitted in 2017 for the areas of health, education and innovation and development. The review identifies measures to improve public spending efficiency.
    • The report Challenges and Opportunities for Ageing in Chile seeks to contribute to the country’s demographic projections and to support discussions on public policy focusing on the demographic changes the country has experienced.
    • The Hospital Concessions Study assesses the current concession system in health and explores international experiences that can serve as an example for Chile to generate changes that have a positive impact on reforms, taking into account other realities that contribute to the continuous improvement of the Chilean model.

    Last Updated: Apr 16, 2020

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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 +562 239 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