Fynsa
Chile has been recognized for its fiscal discipline. Since 2001, during the government of Ricardo Lagos, and promoted by his Minister of Finance, Nicolás Eyzaguirre, and the then Budget Director, Mario Marcel, a methodology was introduced to avoid procyclicality in spending: the structural surplus rule (currently known as the cyclically adjusted balance rule).
Thus, in times of prosperity, the rule forced to save resources, which could be used in times of "lean cows", as they were called at the time.This rule was strengthened with the creation of the Fiscal Advisory Council in 2013, which took on an even more relevant role in 2019, when it was renamed the Autonomous Fiscal Council (CFA)The CFA is a technical and independent body in charge of overseeing and advising on the management of public finances.
The CFA's main function is to assess the sustainability of public finances and monitor compliance with fiscal rules. Although it has no binding power, its opinion weighs in the debate and has been key in alerting about the progressive fiscal deterioration of the country.
Chile established a "prudent level" of government gross debt, equivalent to 45% of GDP.of GDP. In 2024, the debt reached 41.7% of GDP, and it is estimated that in 2025 it will reach levels of 42.9%, approaching this threshold. If this limit is exceeded, the Ministry of Finance must present a corrective action plan, and the country could face consequences such as loss of fiscal credibility, higher interest rates and less availability of resources for social and public spending.
Regional Comparison
Between 2007 and 2024, public debt rose 37.8 percentage points (from 3.9% to 41.7% of GDP), one of the largest increases among countries with similar credit ratings.
One of the main obstacles to fiscal adjustment is the rigidity of spending.. According to the Budget Office (Dipres), 92% of the 2025 budget is legally committed or associated with critical State functions. This limits the possibility of making cuts without affecting sensitive areas such as health, education or security.
On the other hand, there is the option of increasing revenues, which could be achieved through tax reforms or through higher economic growth. However, neither of these alternatives seems feasible in the short term.
If no progress is made on corrective measures, laws are passed that commit more spending in the future or current spending is not reduced by at least 1% of GDP, the target will also be missed in 2025. Even in an optimistic scenario -in which part of the proposed measures are approved-, a structural deficit of over -1.5% of GDP is anticipated, moving away from the fiscal commitment.
Moreover, without an effective adjustment, debt could exceed 45% of GDP by 2027..
Policies such as the establishment of an advisory commission for structural reforms to public spending, the initiation of an ex ante review process to improve efficiency and program prioritization, and the spending cut announced for 2025 (albeit insufficient), go in the right direction.
However, increasing future revenues - through measures that boost trend growth and a tax reform designed without the current political paradigms that have prevented greater efficiency - is essential to ensure fiscal sustainability.
Finally, and no less important in an election year, it is essential to provide voters with a reality check on what can - and cannot - be done, avoiding "bargains" that generate an enormous burden for future generations.
Chile still has time, but we are almost out of time..
