Fitch dismisses impact of Chile’s constitutional plebiscite, maintains rating

Fitch Ratings Inc. reaffirmed its credit rating A- for Chilidismissing concerns that this weekend’s plebiscite on a new Constitution will lead to changes in the economic model.

The firm also kept its outlook stable in the rating, four days before voters go to the polls to decide the fate of a second attempt to rewrite the Magna Carta in as many years. The new text is more moderate than the first draft — which was rejected in a vote in September last year — and broadly preserves current economic freedoms, he noted. Fitch.

“The proposed Constitution would not harm Chile’s economic model nor significantly increase public spending“, he pointed Fitch in the statement accompanying the decision. “If it is rejected, the Government is not expected to initiate a new process, especially since other problems have acquired greater importance, such as crime and immigration.”.

Still, Fitch said President Gabriel Boric’s failure to secure approval of a broad tax reform to address spending pressures is a risk, as “could result in renewed social unrest and/or significant fiscal deterioration”. Nevertheless, Chili It is in a better fiscal position than its peers.

“Chile’s ratings are supported by a relatively strong sovereign balance sheet, with a public debt-to-GDP ratio well below peers, solid governance indicators, and a track record of credible macroeconomic policies centered on an inflation targeting regime and a flexible exchange rate“the agency said in a statement.

All 14 analysts and traders who participated in a Bloomberg survey last month expected rating firms to lower their outlook on Chilean bonds, or downgrade sometime next year as the debt-to-gross product ratio rises. internal.

Fitch He further noted that President Boric has made limited progress on his structural reform agenda amid political stagnation and low popularity.

“In Fitch’s view, the inability to raise taxes to address spending pressures is a risk, as this could result in renewed social unrest and/or fiscal imbalance”, he highlighted.

The government suffered a setback in March of this year when Congress rejected a broad tax reform with which it sought to finance a good part of its campaign promises.

The agency further said it expects the central government’s fiscal position to weaken significantly in 2023, with a deficit of 2.4% of GDP versus a surplus of 1.1% in 2022.

With information from Bloomberg and Reuters