This country has the highest current account deficit among LatAm’s main economies

The Chilean economy closed 2022 with a current account deficit accumulated in the year of US$27.1 billion, which represents 9% of the Gross Domestic Product (GDP).

The negative balance of the indicator, which measures income and payments abroad for the exchange of goods and services, is above that recorded throughout last year in other major Latin American economies such as Mexico, Brazil, Colombia, and Peru.

The evolution of the figure over the last year is explained by foreign investment income in Chile and the services trade balance, according to a Central Bank report published this week.

Concerning foreign trade, exports increased by 1.4%, while imports of goods and services expanded by 0.9%.

In both cases, the performance of services boosted the result, while the trade exchange of goods declined.

After several years of surpluses, current account deficits began to be recorded in 2011.

This was not always a worrying gap.

This was due to increased mining investment in Chile and savings maintenance.

Tomás Flores, an academic at the Universidad Bernardo O’Higgins and former Undersecretary of Economy, said that the result of this indicator is now explained by the imbalance generated by the early withdrawals of US$50 billion in pension funds, which significantly increased the demand for tradable durable goods.

Chile was one of the first countries in Latin America to recover more quickly from the crisis generated by the pandemic.

Still, a warming of the economy left some imbalances, such as inflationary pressures and a higher current account deficit, which in the third quarter of 2022 broke a record by reaching the equivalent of 9.9% of the accumulated GDP in one year.

With an excessive deficit comes the impossibility of regular financing. Flores explains that this happens because the “capacity to attract investment is more moderate, at the same time that external indebtedness has also risen,”, particularly from the government, the economist said.

THE GAP IS EXPECTED TO NARROW

That signals that the country is getting into debt, added Carlos Smith, a professor at Universidad del Desarrollo’s Business and Society Research Center.

In Chile, the imbalances resulted in pressures on the exchange rate, the cost of living, and a greater sale of dollars by the State.

As a direct consequence, there was a decrease in the defenses against shocks to the economy.

International reserves fell 26.5% in less than two years.

Smith says this represents a problem in the face of another shock because the nation would be in a weaker financial position.

However, he anticipates that progress is being made toward recovery.

A look at the quarterly performance of the current account shows an improvement in the current account balance.

Economists consulted by Bloomberg Línea anticipate that the gap will narrow by the end of 2023.

Smith estimates it could reach less than half of the current figure, remaining at around 4% of GDP.

Flores adds that the imbalance is gradually moderating, which “should lead to sustainable levels in the medium term” without significantly weakening the Chilean peso.

With information from Bloomberg