Chile’s Debt Nears 1980s Highs

In 2024, Chile’s government intends to increase public spending by 3.5%, anticipating a fiscal deficit of 1.9% of the GDP.

By year-end, they project the gross debt will be 41.1% of the GDP. However, JP Morgan sees a tougher situation ahead.

According to JP Morgan, slower economic growth will happen. As a result, they predict a higher fiscal deficit of 2.3% of GDP.

This leads to an expected gross debt of 41.8% of GDP, slightly more than what the government predicts.

For next year, Chile’s Treasury will issue around $17.05 billion in debt. This amount covers $7.2 billion in repayments.

Another $2.45 billion will meet other financial needs. Additionally, $1.5 billion will fund specific projects. Altogether, the total debt will be about $21 billion.

JP Morgan also notes some future trends. The structural deficit target for 2025 will remain at 1.1% of GDP.

But for later years, the deficit target will rise to 0.5% of GDP. Hence, Chile’s debt levels are nearing highs last seen in the 1980s.

Separately, Barclays observes that the Chilean peso’s poor performance is overblown. They say Chile’s economy has improved since last year.

Now, the country doesn’t need unusually high interest rates. Barclays thinks the peso is now more resilient to economic changes.

Background

Chile has a history of careful fiscal management. In the past, its debt levels remained generally low compared to other countries in the region.

However, the global pandemic and social unrest have put pressure on public finances. The government had to increase spending to help people and businesses.

This led to growing debt and fiscal deficits in recent years. Analysts now compare the situation to the high debt levels of the 1980s.

At that time, the country faced economic hardships and political turmoil. Learning from the past, authorities and analysts closely watch the current debt trends to avoid similar pitfalls.