July 30 (UPI) -- Chile's projected fiscal deficit for 2025 has risen from to 1.8% from 1.6% of gross domestic product, according to recent statements by the economic team in President Gabriel Boric's administration.
While the revision may seem small, it marks a failure to meet the government's target for maintaining a structural balance. The change has raised concerns, casting doubt on the credibility of Chile's fiscal rule -- a key pillar of the country's macroeconomic stability.
Budget Director Javiera Mart�nez and Finance Minister Mario Marcel said the weaker projections are the result of several factors, including a downward revision in revenues, a significant correction in projected tax collection and continued difficulty in containing public spending.
To address the growing fiscal deficit, the administration plans to introduce and prioritize a series of bills aimed at improving the efficiency of public spending. The proposed measures are expected to help reduce the structural deficit by 0.25 percentage points.
The goal is to reduce the deficit to 1.6% of GDP by 2025 to comply with the country's fiscal responsibility rules.
Experts warn that these figures will influence decisions by the next administration -- expected to take office in March 2026 -- and there is no guarantee the proposed measures will be carried out as planned.
Marcel acknowledged that the fiscal outlook calls for greater transparency, but said the government remains committed to a path of fiscal consolidation. He added that the Boric administration stands by its national goal of reaching a structural deficit of 0% of GDP by 2029.
Experts say achieving that goal will depend on the effectiveness of the corrective measures.
Although the main focus appears to be on controlling spending, the Finance Ministry has also considered advancing legislation to increase tax revenue in the medium and long term. This could involve renewed debate over tax reform or improved enforcement measures.
"While spending cuts and adjustment measures have been announced, the government has also indicated that some of the planned corrections for 2025 and beyond depend on legislative initiatives that are still under discussion in Congress," said Roberto Reyes, an economist at the Santiago Chamber of Commerce.
"This adds an element of uncertainty to the effectiveness of those plans, as they are subject to political agreements."
The outlook for 2025 sets the stage for even greater fiscal challenges for the next administration.
Economists such as Juan Ortiz, of the Economic Context Observatory at Diego Portales University, warned that "committed spending exceeds the level compatible with the target for the coming years, which would mean the next administration will have no room to implement new policies without making significant adjustments."
Chile's cumulative effective deficit for 2024 reached 2.9% of GDP, exceeding projections by roughly $2.8 billion. The shortfall has led to delayed payments to public employees and a record-high level of deferred debt across various government agencies, adding pressure to the current fiscal year.
Since 2001, Chile has stood out in the region for maintaining clear fiscal rules and consistently following them, helping the country secure financing on favorable terms and maintain investor confidence.
For 2025, the government is projecting GDP growth of 2.5% and average inflation of 4.4%, slightly below earlier estimates.
