This outcome assumes that the combination of economic growth and revenue measures will contribute to continued fiscal consolidation, including lower budget items, which will stabilise general government net debt.
The US credit rating agency S&P has confirmed Chile's credit rating at "A/A-1" with a stable outlook, motivated by the strength of its institutions and the anchoring of its fiscal and monetary policy, which have helped stabilize economic performance.
Similarly, the stable outlook assumes that the combination of economic growth and revenue measures will contribute to continued fiscal consolidation, including lower budget items, which will stabilize general government net debt.
"We expect continuity in fiscal and monetary policy, which indicates Chile's institutional stability," said the credit agency, which compares Chile's institutional strength with that of its peers.
The agency also highlighted that the commitment of Gabriel Boric's government to fiscal consolidation will stabilise its debt ratios in the coming years. However, Chile's high external debt and external financing needs limit its rating.
The country's credit rating continues to reflect significant monetary flexibility as a result of a floating exchange rate, an independent central bank, comparatively large financial markets and historical price stability, despite the recent rise in inflation.
Looking ahead to the coming months, S&P could downgrade the rating if the political impasse paralyzes policy implementation and hampers economic growth. A sharp fiscal deterioration due to weak growth or expansionary fiscal policy leading to a continued buildup of government debt could also trigger a downgrade.
On the other hand, if economic growth prospects strengthen as a result of effective policy implementation, the credit rating could be upgraded.
"Stronger growth, coupled with cautious fiscal management, could help Chile regain the fiscal and external buffers that were recently reduced following the pandemic and preceding social unrest," S&P argued.
