As noted in previous reports, Fitch believes Chile's ratings are supported by "a relatively solid sovereign balance sheet," with a public debt/GDP ratio "below its peers."
The risk rating agency Fitch Ratings maintained its 'A-' rating, with stable outlook for Chile.
Fitch uses a scale between “AAA” (highest credit quality) and “D” (default) to visualize the probability that an institution or country will pay – or not – its debt.
Within the “A” range, Chile is considered to have a low risk of default.
FITCH MAINTAINS CHILE'S RATING
As noted in previous reports, Fitch believes Chile's ratings are supported by "a relatively solid sovereign balance sheet," with a public debt/GDP ratio "below its peers."
He also highlighted the country's solid governance indicators "and a history of credible macroeconomic policies focused on an inflation targeting regime and a flexible exchange rate."
However, the rating agency stresses that, with the 2025 elections approaching, “the window for reforms is closing.”
Regarding the Fiscal Pact, where it states that the Government plans to collect 2.7% of GDP and where only the Tax Compliance Law aims at 1.5% of GDP, "in Fitch's opinion, it is unlikely that these measures will fully achieve the expected revenue benefits."
On the other hand, he notes that “the fiscal costs of the proposed pension reform are uncertain,” although the initiative “should help deepen local capital markets over time.”
ANALYSIS
Fitch projects the country's fiscal deficit in 2025 to be 1.9% of GDP, compared to the 1% forecast in the 2025 Budget.
This is due to “our expectations that the measures against tax evasion will not generate the expected revenues, and lower GDP growth and copper prices” compared to the government figures.
On the other hand, the US rating agency maintains that debt/GDP will increase to 42% in 2024 and will continue to rise to 42.6% in 2026.
In turn, real GDP growth projected for 2024 was 2.3% and for 2025 it will be 2.1%.
In other data, Fitch shows “cautious optimism” about copper prices, since although they expect them to fall in the coming years due to lower demand for electric vehicles, these values “should be sufficient” to support new investments in this type of mining.
On interest rates, he warned that “there is a risk of a further strengthening of the dollar and higher than expected interest rates in the United States.”
Among the factors that could lead to a downgrade, Fitch points to “a continued upward trajectory of public debt/GDP and/or a further depletion of sovereign assets, for example,” which would reflect “large financing needs arising from fiscal deficits driven by strong social spending pressures and/or underspending.”
It also warns of the possibility of a “sustained political blockage” that undermines effectiveness and governability, in addition to “additional evidence of reduced growth and investment prospects and/or weakening of the political framework.”
Finally, aspects that could lead to a better ranking include a downward trend in debt, better fiscal consolidation or an improvement in growth prospects that would help “raise GDP per capita, ease social tensions and improve fiscal dynamics.”
