After six years, Chile’s foreign debt resumed double-digit growth and broke a new record

RIO DE JANEIRO, BRAZIL – Since 2015, Chile’s foreign debt had not registered double-digit growth rates as it did in 2021. According to Central Bank data, last year it climbed to US$238.324 billion, an increase of 14% compared to 2020. Thus, it sharpened its upward trend driven by the greater commitments acquired in the international market by both the public and private sectors, mainly through the issuance of bonds.

According to the issuing entity’s information, at the end of 2021, the public sector -General Government, Central Bank, banks and non-financial companies (state-owned firms)- grew 18.8%, reaching US$80.504 billion.

Read also: Check out our coverage on Chile

Of note is the 33.9% increase in the Government, with commitments acquired for US$45.036 billion, all of which are long-term. Of these, 98.3% correspond to bond issues, while the remainder are loans.

The economist, Patricio Rojas, of Rojas & Asociados, explains that on the Government’s side what happened is in line with the need to face the pandemic.

“If one visualizes what the previous years were, one sees relatively modest debt increases associated with amortization and interest payments”, he comments, so it is in line with the increase in public debt that in 2021 “rose strongly -something we already knew-“, this, is its reflection.

According to the Public Finance Report of the Budget Directorate (Dipres), as of the fourth quarter of 2021, the gross debt represents 34.9% of the GDP.

Of the total external debt, 19% is of the General Government, while 52.8% is of non-financial private sector companies.

CORPORATE OBLIGATIONS ON THE RISE

On the private sector side, external debt increased 11.8% to US$157.82 billion. Of this, the commitments acquired by companies represent 79.7%.

According to Patricio Rojas’ analysis, the increase in foreign debt by local companies is explained by a strategic decision in view of monetary policy decisions, which will increase the cost of borrowing with the increase in interest rates expected to occur in international markets.

With respect to maturities, although short-term debt grew more (30.8%) than long-term debt (7.4%), he comments that what is important is that the greater proportion of commitments are foreseen for more than five years.

Thus, of the US$125.858 billion that companies recorded, 89% is in the long term, which “is healthier” from a financial perspective, he stresses.

“In 2021 there were many factors that tended to advance debt,” says Rojas, as expectations that interest rates were going to rise configuring “tighter” markets with economies that will grow less, was compounded by local uncertainty affecting bond placements in the domestic market.

Going forward, if the Government adjusts to what was approved in the Fiscal Budget for this year -which considers a drop of over 20%-, and to the extent that interest rates continue to increase, it expects that indebtedness will be more limited than it was last year.