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Spending pressures to test fiscal accounts this year.

Real revenues fell in February, resuming last year’s downward trend, after the lithium-related surprise increase in January. The Central Government’s real revenues fell by 1.4% YoY in February, after rising by 9.1% YoY in January. Revenue poor performance in February was driven by the decline of several cyclically related taxes and private mining collection (-35.5% YoY). Codelco’s payouts to the fiscal coffers fell by 7.4% in February, driven by lower prices and volume, falling for the third consecutive month in year on year terms. After rising by 523.6% in January, with a monthly contribution of USD 1.3bn (0.4% of GDP), lithium-related revenue in rentas de la propiedad fell by 23.6% YoY in February; we expect lithium-related revenues to remain low in March. Despite the fall in February, the large increase in revenues during January has led to an accumulated 4.5% increase in revenues in the year through February.

Real expenditures fell, driven by lower public capex, while current expenditures continue to increase. Real expenditures fell by 1.6% YoY in February, after rising by 13.1% YoY in January. The decline in the month was driven by a large monthly decline in public investment (-53.5% YoY) –slower progress in initiatives led by the Ministry of Public Works -, while capital transfers also fell (-8.5% YoY). In contrast, real current expenditures rose by 1.3%, as spending on pensions rose by 26.7% YoY (due to the implementation of the Pensión Garantizada Program). Overall, real expenditures have increased by 5.5% this year.  

A fiscal surplus in the first two months of the year. The fiscal balance in the year through February reached a surplus of 0.8% of GDP, slightly below the 0.9% of GDP accumulated in the same period last year. 


Debt issuance takes a breather in March. After issuing a total of USD 4.6bn in short-term local currency notes during February, the MoF did not issue debt during March. They plan on issuing a total of USD 15bn in gross debt during 2023, of which roughly USD 12bn would be in local currency and the remaining USD 3bn in foreign currency. We expect the local currency issuance calendar for the second quarter of the year to be published in the short term, considering the issuance of nominal and inflation-linked bonds maturing in the years 2028, 2033, 2037, and 2050, likely through auctions at the Central Bank and book-building processes with simultaneous participation of non-residents and locals.  


Dollar sales to continue through June. The MoF has resumed dollar sales this year to face falling CLP revenues and low peso cash balances, selling a total of USD 3.5bn during the first quarter of 2023. The MoF has announced up to USD 1bn in sales per month through June, after which we expect them to pause, considering the seasonal surplus in peso cash balances in the aftermath of the April-May tax season.  


Gross public debt reached 37.3% of GDP by the end of 2022. According to the MoF’s Public Finance Report published in February, gross public debt reached 37.3% of GDP by the end of 2022 and is projected to rise another 1.5% by the end of 2023. No rating actions have been taken on the sovereign this year, currently rated A by Moody’s and S&P, and A- by Fitch, all with stable outlooks.

Treasury assets rise to 7% of GDP. Treasury assets by the end of February rose to USD 22.7bn, up from USD 19.2bn the previous month, with the increase driven entirely by CLP denominated cash balances, that outweighed the fall in dollar denominated cash balances and the fall in AUM in the SWFs. Liquid resources invested by the Treasury (Otros Activos del Tesoro Público, or OATP) rose to USD 7.9bn (2.5% of GDP), from USD 4bn in the previous month, as CLP resources rose significantly from USD 619mn to USD 6.2bn, while dollar denominated balances fell from USD 3.3bn to USD 1.8bn, driven by the USD 2bn in dollar sales during the month, which outweighed dollar revenues, Finally, assets in the SWFs, entirely invested in foreign currency, fell by 3.1% in February with respect to January, driven by market performance, with the Stabilization fund reaching USD 7.45bn (down from USD 7.7bn) and the Pension Reserve fund at USD 6.6bn (down from USD 6.8bn). No withdrawals from the SWFs have been reported thus far this year.


After being rejected in the Lower House, the Government’s landmark tax reform faces an uphill battle. The government’s tax reform (+2.7% of GDP in additional revenue in steady state) was unexpectedly rejected by the Lower House Floor earlier this month. Following this outcome, the measures of the rejected tax reform cannot be presented in Congress for the next 12 months, unless the Executive insists in the Senate Floor and exceeds the 2/3 quorum, which is challenging considering the opposition has half of the Senate’s votes. Still, the  MoF began technical discussions with several stakeholders that would lay the groundwork for an agreement to facilitate an approval in the Senate; discussions in the technical roundtable are set for April 18. Of note, revenue of the tax reform was not considered in the MoF’s fiscal projections. Finally, the mining royalty bill (+0.6% of GDP in additional revenue) continues its discussion in the Finance Committee of the Senate, and the MoF is expected to present green and health tax bills that raise fiscal revenue by up to 0.4% of GDP.

Spending pressures to test fiscal accounts. While revenues throughout the year have been supported by lithium-related windfalls, the cumulative yearly 2.8% YoY real decline in other taxes (representing 75% of the central government’s revenues) reflects the ongoing adjustment in economic activity, which we expect to continue throughout the course of the year. Public spending has been particularly strong this year, mainly reflecting greater expenditures in pensions, and pressure for additional spending is likely to mount leading up to new pension fund withdrawal discussions in Congress in April. We expect last year’s 1.1% nominal fiscal surplus to swing back to a deficit greater than 2% this year. An updated Public Finance Report is scheduled for Monday April 24, 2023.


Andrés Pérez M.

Vittorio Peretti 

Ignacio Martinez Labra