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MoF’s annual fiscal target seems challenging.
2023/12/01 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

Gradual revenue contraction continues. The central government’s real revenues fell by 5.8% YoY in October (-8.4% in September), contracting for the ninth consecutive month, and leading to an annual cumulative decline of 15.1% (-16.1% through September). In contrast to previous months, the revenue decline in the month was not driven by cyclically sensitive revenues (tributación resto contribuyentes, 70% of total monthly revenues), which only fell by 1.2% YoY (-9.8% in September), supported by a one-off jump in diesel-related revenues. Copper-related revenue was mixed in October, with revenues from CODELCO falling by 12.8% YoY (+7.4% in September), whereas revenues from private-mining companies rose by 15.1% YoY (- 28.9% in September). Lower prices and weaker production this year have led to a 47.5% YoY real decline in CODELCO’s payouts to the state, and a 46% YoY real decline in private-mining company contributions. Relative to the MoF’s 3Q23 forecast, Codelco and private-mining payouts appear to be essentially in line with the MoF’s annual forecast, at 75.2% and 77% of the respective targets (Codelco: 0.5% of GDP, private mining: 1% of GDP). With total real revenues through October having a 15.1% YoY decline, they have reached about 81.9% of the MoF’s annual forecast, somewhat below the 82.6% YTD average between 2012-2019, posing some headwinds for the MoF to meet the -11.1% annual revenue forecast.

Property rents helping revenues. Revenue from property rents, tracked more closely since last year mostly due to its relationship with lithium payments, were relevant in the month, reaching 14.2% of the month’s total revenue, primarily due to the quarterly lithium-related payment and a sizable transfer from state-owned petroleum company ENAP. While lithium-payments were important in October, they were down by 32.6% (+31.6% in September), reflecting the effects of lower lithium prices. Property rents through October have reached 1.6% of GDP, above the MoF’s annual 1.5% of GDP forecast, mainly supported by solid lithium revenues earlier in the year and transfers from state-owned companies (ENAP in September and October, and BancoEstado in August). The next quarterly lithium payment should take place in January.

Expenditure bucks the trend and jumped in October. Real expenditures rose by 9.4% YoY in October (-7.8% in September), breaking a string of three consecutive monthly declines. The jump in the month was driven by current expenditures, that rose by 14.3% (-6.8% YoY in September), driven by a large 23.2% YoY increase in subsidies and donations, in turn due to base effects from the fuel stabilization mechanism and greater school subsidies, while personnel expenditures also increased by 5.9% YoY. Payouts related to the state-guaranteed pension program continue to increase (7.3% in October), yet are rising by a slower pace than the first months of the year, as expected. Public capital expenditures fell again by 14.4% YoY in October (-15.2% YoY in September), with a 13.1% YoY contraction in public investment and a 15.3% decline in transfers. Overall, real expenditures have increased by 2.1% YoY through October, up from the 1.3% through 3Q23, yet down sharply decelerating from the 6.9% YoY by the end of 2Q23. Expenditures have reached 79.2% of the MoF's annual forecast, somewhat above the 78.2% average for 2012-2019, suggesting additional compression will be needed in the final months of the year to comply with the MoF’s fiscal forecasts. 

Cumulative fiscal deficit fell again in 3Q23. The monthly fiscal balance in October was 0% of GDP (-0.5% of GDP in September, +0.3% in October 2022), leading to a YTD balance of -1.2% of GDP (-1.2% as of September, +2.5% as of October 2022).  



Liquid treasury assets rose at the margin. The MoF’s liquid treasury assets (Otros Activos del Tesoro Público) rose to USD2.4 billion by the end of October (USD1.2 billion by the end of September), back to the same levels of October 2022. The rise in the month was due to an increase in peso-denominated liquid assets (USD1.7 billion, up from USD565 million in September), while dollar-denominated liquid assets rose to USD 718 million, up from USD618 million. Assets in the Stabilization Fund reached USD5.7 billion (1.6% of GDP) by the end of October, and the Pension Reserve Fund had USD8.1 billion (2.3% of GDP).


Low dollar cash balances. According to the Budget Office’s Monthly Asset report, the MoF's liquid dollar balances by the end of October reached USD719 million, up slightly from the USD618 million by the end of September. During November, the MoF sold USD990 million, greater than the end-October balance, suggesting the MoF should sell roughly USD1 billion in December, consistent with the MoF's current guidance of up to USD1.25 billion. The MoF has sold a total of USD11.3 billion in 2023 through November, we estimate dollar sales in 2024 should range between USD8-10 billion.


Our above-consensus fiscal deficit call of 2.5% of GDP has a downward bias. The big surprise in October was a break in the string of monthly expenditure contractions we had observed during the past few months. Significant restraint in expenditures during the final months of the year will be critical to ensure the MoF complies with its 2.2% annual expenditure forecast (2.1% cumulative rise through October). Revenue performance will have to improve as well, at -15.1% YTD through October, if the MoF plans on achieving its -11.1% annual forecast. Public coffers improved at the margin yet remain stressed, as reflected by the low levels of liquid assets; we cannot rule out a withdrawal from the Stabilization Fund to cover the widening of the deficit towards the end of the year.