The World Bank In Chile

Fueled by a strong fiscal response, Chile’s GDP grew at 11.7 percent in 2021, one of the fastest recoveries worldwide. Growth was driven by consumption, amid pension fund withdrawals and direct fiscal support of 9 percent of GDP. One of the fastest vaccination rates globally also contributed to the fast normalization of economic activity.

However, job market recovery has been slower than expected, with only 60 percent of the jobs lost in 2020 regained in 2021 with many previously employed women (most of them low-skilled) still out of the workforce. Inflation accelerated to 7.8 percent y/y in February 2022, driven by strong demand pressures, commodity price increases, supply disruptions, and the peso depreciation. Despite recovering revenues, the fiscal deficit reached 7.7 percent of GDP in 2021 due to high public spending. Notwithstanding the heavy use of public savings funds, public debt reached 37 percent of GDP, the highest in three decades.

Real GDP growth is expected to decelerate to 1.9 percent in 2022 due to the reversal of policy stimulus, while tighter financial conditions and persistent political uncertainty will weigh on investment. Still-high liquidity in households and the enhanced universal pension scheme is expected to provide some cushion to the slowdown in consumption. Further ahead, the removal of direct social transfers, tighter financial conditions, a deteriorated capital market and persistent uncertainty would lead to weak growth through 2024.

Amid the ceasing of emergency transfers and challenging macroeconomic conditions, poverty (US$5.5 a day) is projected to increase to 4.7 percent and the Gini coefficient to 0.46 in 2022. They are not expected to return to the pre-pandemic level in the medium term.

Actual and projected real GDP per capita and poverty rates

Last Updated: May 23, 2022

The support of the World Bank Group to Chile includes activities of the World Bank (WB), the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA).

Through multi-sector coordination, the World Bank seeks to advance solutions to the challenges for Chile to achieve sustainable and inclusive development based on three interdependent pillars: improving equal opportunities, increasing regional equity, and promoting green, sustainable growth.

The World Bank has accompanied Chile's development since 1948, when it granted its first loans to a non-European country. With the opening of its first office in Santiago in December 2017, its collaboration with the country has grown ever stronger. Today, it works in close cooperation with various ministries, public services, regional governments, provincial governments, and most municipal governments to provide technical assistance and support the design of public policies in priority areas.

Through a commitment largely based on knowledge, the World Bank assists Chile to adopt innovative approaches to development, mainly through a technical advisory program that has grown significantly in the last four years.

IFC's investment portfolio in Chile reaches $577 million, with an additional $414 million in fund mobilization, for a total of $991 million through 17 active projects. Participation has focused on attracting innovative financing mechanisms focusing on renewables energy, education, agriculture; and support to micro, small and medium enterprises.

As part of the World Bank Group's response to COVID-19, MIGA issued in June 2021, US$400 million worth of capital optimization guarantees in support of Banco Santander – Chile, which will be used in loans to small and medium enterprises, with a special focus on women owned SMEs and ventures aimed at a green economic recovery.

Last Updated: May 23, 2022

More recently, the World Bank (WB) has worked on various initiatives to support the country to face the impact of the Covid-19 pandemic and develop public policies that contribute to improve the livelihoods of

Based on a simulation tool provided by the World Bank, the Ministry of Education gauged the impact of the COVID-19 pandemic on learning and schooling outcomes in Chile in 2020. Later, in 2021, World Bank education specialists carried out a systematization and review of Chile's educational policies and measures during the pandemic.

The World Bank is also supporting the Ministry of Health through an international comparative evaluation of the National Immunization Program and the analysis of the disruption of routine health services during the COVID-19 pandemic. Additionally, a study of the financing of high-cost treatments in Chile was carried out.

In coordination with the Ministry of Social Development and Families, the World Bank is implementing the Local Social Management (GSL, in Spanish) project, a new methodology for the integrated delivery of services and social benefits by municipalities. A “one stop” or “single window” scheme allows officials to access the different programs and subsidies a beneficiary can receive, resulting in the delivery of enhanced social care and more efficient public spending.

Considering the importance of GSL in the State's response to the social and economic impacts of COVID-19, this program was expanded in 2021 to embrace 259 municipalities and presidential delegations throughout Chile and will continue to grow in 2022. Also, together with the Training and Employment Service and the Ministry of Labor and Social Welfare, a new module was added to support employment and employability, currently operational in 52 municipalities.

In addition, together with the Social Evaluation Undersecretariat, the World Bank engaged in an analysis and diagnosis of equity considerations in the National Investment System.

Likewise, together with the Undersecretariat for Regional and Administrative Development (SUBDERE), we undertook the analysis and identification of critical nodes to design, implement, and evaluate public investment projects at the subnational level. The document analyzed in particular the Ñuble and La Araucanía regions and included a roadmap with recommendations for the entire country, which will serve as a guide in the decentralization process.

Together with the Ministry of Housing and Urban Development, progress has been made in the design and implementation of a long-term urban planning strategy that seeks to strengthen the leading role of cities in the territorial, productive and social transformation of the country, through the development of decentralized city plans. Additionally, the World Bank has supported the country's efforts to tackle the challenge of building new cities making intensive use of wood, which will allow reducing the housing deficit with the required speed, cost control and environmental efficiency.

The World Bank has extensively supported Chile's efforts to achieve carbon neutrality and deal with the effects of drought and the impact of climate change. Together with the Ministries of Environment and Finance, a study included simulations of the macroeconomic effects of climate change mitigation policies, pointing to their positive impact on the economy, both in the short and long terms. Likewise, the World Bank laid the ground for participatory stage of Chile’s Long-Term Climate Strategy, helped in updating Chile's Nationally Determined Contribution (NDC) and helped design the country's blue carbon road map.

The World Bank has also worked extensively to address the country's challenges considering water as an element of development and resilience, and supporting -among other initiatives- creating the new sub-secretariat for water resources.

Likewise, since 2020, with the support of the Spanish Fund for Latin America and the Caribbean (SFLAC) and the initiative for the development of carbon price instruments "Partnership for Market Readiness" (PMR), the World Bank is supporting Chile in putting in place several components of its National Green Hydrogen Strategy. A study was carried out on the guidelines to set up a green hydrogen certification scheme in Chile compatible with international and national markets’ conditions, and another study addressing the safety standards for the use of green hydrogen in mining and elsewhere. Presently, the World Bank is working on the development of a financial instrument that will reduce the levelized cost of green hydrogen production in Chile, so that the country rapidly and successfully enter the global market.

Another area of collaboration is the prevention of gender violence. In support of the Ministry of Women and Gender Equity, we developed a multisectoral diagnosis, with the aim of identifying the main critical nodes that prevent the network of state services from providing an adequate and timely response to survivors of gender violence and prepare a roadmap for the design of cross-cutting case management platform to devise policies to prevent gender violence in Chile and sets up systems to coordinate state efforts to assist of thousands of suffering women. A pilot during 2022 will launch the first stage towards building such integrated platform.

Last Updated: May 23, 2022