Chile’s Finance Minister Mario Marcel. — Bloomberg
London: Chile’s Finance Minister Mario Marcel says the government is pressing ahead with its plan to halve the fiscal deficit next year, even as it faces spending pressure to fight crime and fund social programmes.
His comments indicate the government will maintain a tight rein on fiscal expenditures in 2025 as the economy slowly gains traction. The budget proposal has to be presented to Congress by the end of this month.
The structural deficit “is going to be close to 1%” of gross domestic product, following the trajectory traced out at the beginning of this government in 2022, Marcel said in an interview in London, where he is leading the annual Chile Day investors event.
The shortfall “is going to be more or less half of the deficit with which we’ll end this year”.
That may come as a relief to markets given that the economy stagnated in 2023 and revenue-raising legislation is slowly advancing in Congress. Narrowing the deficit will enable the government to keep debt sales little changed next year, Marcel said.
“This is probably going to lead to a volume of gross financing needs that won’t be too different from what we had in 2024,” he said.
For 2024, Chile said it will sell up to an equivalent of US$16.5bil in bonds, with the overall amount including around US$3.8bil to pay off debts contracted previously.
President Gabriel Boric’s administration is in the final stretch for its 2025 budget. It’s the second spending plan the government has drawn up since the lower house of Congress unexpectedly rejected its flagship tax reform in March of last year.
The proposed tax increase was the basis for policies put forward by Boric to reduce inequality and boost social services, the issues that swept him to power.
The government is now facing demands to address woes including public security and clandestine migration that have angered voters.
On the other hand, it won’t want to stoke inflation that’s running above the central bank’s target.
The Cambridge University-trained minister said there will be more wiggle room in next year’s budget, pointing to extra resources from a lithium deal between state-controlled company Codelco and SQM, as well as higher prices of copper and likely from new legislation against tax evasion.
As Chile nears presidential and parliamentary elections in 2025, Marcel said he has no intentions to pursue another role and that he’s focused on doing his job as best as possible. “To do that, you can’t be a candidate,” he said.
In his conversations with global investors, Marcel has been stressing two main messages: Chile’s gross domestic product (GDP) is growing and the nation is moving to address long-term challenges that will give a further boost to the economy, he said.
The government expects GDP to expand 2.6% both in 2024 and 2025, according to estimates published in July.
Policymakers have lowered the benchmark interest rate to 5.5% from a high of 11.25% seen in 2023, and signalled more reductions are on the way.
While investment posted an 8.7% year-on-year plunge in the second quarter, the central bank sees those figures stabilising.
In Congress, Boric’s government is working to advance legislation including a bill that would expand electricity subsidies and also a flagship plan to raise pension payouts. — Bloomberg
