Chile Maintains Top Latin American Credit Rating Due to Fiscal Discipline

Chile has retained its position as the highest-rated country in Latin America by S&P Global Ratings. The agency upgraded Chile’s outlook to stable and maintained its A rating.

This rating places Chile six levels above Brazil and on par with Israel, Latvia, and Lithuania. S&P’s decision reflects Chile’s commitment to halting the multi-year increase in its debt burden.

The agency praised Chile’s fiscal and monetary policy anchors, which have helped stabilize economic performance despite recent political polarization.

Chile’s five-year credit default swaps, a key indicator of country risk, have fallen below regional peers like Panama and Peru. This improvement comes after being nearly equal just 18 months ago.

President Gabriel Boric’s government has maintained tight control over spending. The 2024 fiscal deficit forecast is set at 2% of Gross Domestic Product (GDP), down from 2.4% last year. However, some consider this projection optimistic.

Chile’s sovereign fund has decreased by half since late 2022, including a recent $1 billion withdrawal. The country’s long-term growth has slowed to regional peer levels over the past decade.

Economic Growth and Challenges

S&P warned that high external debt and financing needs could pressure Chile‘s ratings. The agency expects an average GDP growth of 2.4% from 2024 to 2027.

Political challenges remain as key reforms face opposition in Congress. The lower house unexpectedly rejected the government’s main tax reform in March last year.

Despite these challenges, S&P believes there is political consensus on much of Chile’s economic model. The agency suggests finding a middle ground across party lines to promote structural reforms that boost growth and improve living standards.

Chile’s economic growth shows signs of weakness, with GDP shrinking 0.6% in the second quarter. However, there are indications of recovery in the third quarter.

Positive factors for Chile may include external and internal elements, such as recovering copper prices due to external demand and continued improvement in copper production.

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