Chilean Fiscal Deficit Will Narrow in 2022 As Stimulus Measures Are Rolled Back

• The Chilean budget deficit is expected to narrow to 4.1% in 2022, from 10.0% in 2021, as the government pares back pandemic-era stimulus payments. 
• The government had enacted a stimulus package equivalent to 14.1% of GDP at the beginning of the COVID-19 pandemic; however, as case numbers decline it will reduce these measures in 2022. That being said, the pace of consolidation will be tempered by weaker economic growth which will weigh on revenues. 
• Moreover, while the fiscal deficit will continue to shrink in 2023 and 2024, Fitch expects that it will remain wider compared to the historical pre-crisis average as President-elect Gabriel Boric enacts an expansive spending plan in accordance with his campaign promises of mitigating inequality and promoting social transformation.  
• While the 2022 budget includes substantial spending cutbacks, expenditures will remain above the country’s historic trend as public investment and health spending increase. That said, revenue receipts will grow by just 1.3% in 2022, after surging 24.3% in 2021, as economic growth slows, dampening the pace of fiscal narrowing.  
• Fitch forecasts that GDP growth in Chile will slow to 2.2% in 2022, as withdrawn stimulus dampens goods consumption in the quarters ahead. While higher production levels in the mining sector will generate stronger revenue inflows from that channel over the coming quarters, (grew 246.2% y-o-y in the year through August 2021), the economy's overall deceleration is expected to negatively impact income and value-added taxes, which accounted for 38.7% of total revenue receipts in 2019.

 (Fitch Solutions)