Chile’s new stimulus package may not be the last

Chile’s debt levels increased sharply during the pandemic and continue rising

Although the government has argued that most of this package will be covered by the 2023 budget, firms should closely monitor further financing announcements, as they could unleash FX volatility. Furthermore, firms should closely watch discussions surrounding additional pension withdrawals, which could unsettle the country’s financial markets. On the flip side, additional stimulus could bolster consumer spending, which is currently expected to contract by -2.5% next year, in the short term.


  • In early January, Chile’s President Gabriel Boric announced a new stimulus package aimed at softening the blow of a shrinking economy on low- to middle-income consumers. Chile’s economy began to slow in mid-2022 as inflation soared, and we anticipate that it will contract by over 1% in 2023 as consumers tighten their belts, particularly during H1.
  • Boric is also facing significant political pressure. His approval rating hit a record low of 25% in January, according to a recent Cadem poll. Recent volatility within his Cabinet has further weakened the government’s standing as the country prepares to kick off a new constitutional process.
  • The US$ 2 billion stimulus package, which is likely to be approved in Congress, increases existing annual cash transfers to low- to middle-income consumers, expands Chile’s school lunch program, and implements medicine discounts. It also includes a limited amount of loan guarantees for Chile’s construction industry.

Our View

As Chile’s economy shrinks, Boric will face increasing pressure to provide support for vulnerable populations. Therefore, this package is unlikely to be the only stimulus program announced this year. Discussions surrounding an additional pension withdrawal are beginning to gain steam, and while a new withdrawal is not currently our base case, the likelihood of Boric approving this measure is increasing, as political discontent follows economic uncertainty. The pandemic and recent economic downturn are placing increasing strain on Chile’s once-stable fiscal position, which is likely to weaken significantly in the coming years. Not only will additional short-term spending further erode Chile’s finances, but also Chile is likely to approve a more expansive constitution in 2023, which would commit the country to structurally higher public spending.

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