Fiscal Discipline Or Tax Hikes? Chile's Election Sets The Stage For Economic Direction

(MENAFN- The Rio Times) Chile's 2025 presidential election has become a contest over fiscal policy, with official data from the Central Bank of Chile, the Ministry of Finance, and the International Monetary Fund showing the stakes for business and investors.

The country's public debt stands at 41.7% of GDP in 2024 and is expected to reach 41% by the end of 2025. This figure remains well below many developed economies but marks a significant increase from historic lows.

The government aims to keep debt under 45% of GDP, a threshold it still respects. Chile's economy grew by 2.3% year-on-year in the first quarter of 2025.

Manufacturing and agriculture expanded by over 5%, while the services sector also contributed. Mining, however, contracted by 1%, and domestic demand slowed.

Public spending rebounded, and exports rose, with copper remaining the backbone of the economy. The government projects GDP growth between 2% and 2.5% for 2025, but the recovery remains uneven, and unemployment stays high.



The government's 2025 budget targets a deficit of 1% of GDP. Achieving this depends on a projected revenue increase of 1.5% of GDP, driven by higher copper prices, a new mining royalty, and a recent tax compliance law.

However, official sources note that revenue projections have missed targets for the past three years, and income from copper and lithium remains volatile.

The IMF and local analysts caution that the government's deficit for 2024 could end up closer to 3%, not the 2% target, due to overly optimistic revenue assumptions. Center-right candidate Evelyn Matthei leads in the polls with promises of $6 billion in spending cuts and a focus on fiscal discipline.

The current administration, while aiming for consolidation, faces pressure from rising crime and social unrest, which have forced increased spending on public safety.

The debate centers on whether to cut spending or raise taxes, particularly on high earners and corporations, to close the fiscal gap. Chile's 30-year government bond yields stand at about 5.8%, reflecting investor confidence in the country's relative stability and prudent debt management.

The outcome of the election will shape fiscal policy, growth prospects, and the investment climate for years to come. All figures and statements are based on official data from the Central Bank of Chile, Ministry of Finance, and the International Monetary Fund.

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